The locally based REIT also revealed its second-quarter financial results during a conference call late last week. For the quarter, FFO available to common shareholders amounted to $66.5 million, or 72 cents per share. Total revenues for the first quarter of 2009 were $195.9 million, up slightly from $194.9 million in fourth quarter 2009.
Mack-Cali's portfolio was 88.8% leased at close of the quarter, down from90.1% at the end of Q4. "The first quarter 2010 occupancy decline was not unanticipated given the scheduled Citigroup lease expiration at 125 Broad St. in New York City," said Mack-Cali's president and CEO Mitchell Hersh. "Although this first quarter reflected a gap in NOI of -2.8%, if we were to adjust for the exclusion of the Citigroup situation, it would be -0.8%, which is a dramatic life in the reduction." The REIT currently has 1.5 million square feet of space that is set to expire in 2010, representing 5.3% of its leased space.
"While office demand generally remains sluggish due to the uncertainty surrounding the economic recovery and job growth, we are cautiously optimistic that fundamentals will begin to stabilize as the year progresses," Hersh observed. In fact, Northern and Central New Jersey experienced positive absorption in the first quarter. With less space being returned to the market, these upticks occurred even though leasing activity remained flat in Northern New Jersey compared to 2009's average and off by 30% in Central New Jersey.
The company reaffirmed its prior guidance range of $2.70 to $2.90 per share. However, Hersh cautioned that larger corporate users remain focused on cost cutting, which results in employment loss, and they continue to look for space consolidation and restructuring. "The space reductions range from 10% to 15%, in exchange for which long-term renewals are provided with some immediate economic concession," Hersh said. "And while we are working on several situations that will have long-term benefits to our portfolio and eliminate low-level risk by securing certain properties' income streams with the highest-quality corporate credit, these restructurings will potentially exert pressure on our earnings, particularly on a near-term basis, which would move the earnings to the lower end of our guidance range."
While occupancy may be under some level of pressure, Mack-Cali plans to spend about $64 million for the year on tenant improvement costs and commissions, and still reflect a positive cash flow--on a Cash Against Delivery basis--of somewhere around $18.5 million at year end.
Hersh also addressed his time on New Jersey Gov. Chris Christie's transition team. Namely, Lt. Gov. Kim Guadagno, who's mission it is to reduce the regulatory hurdles in the state. "That includes not only issues that surround building and small businesses, but also pharmaceutical companies that need EPA permits for their research equipment," he said. Meanwhile, the governor is focused on reducing the tax burden. "Gov. Christie has said that there will be no reinstatement of the surcharge on the wealth tax and he will veto any legislation that might attempt to propose a higher income tax. Hersh added that the most important aspect of this is small business. "Seventy percent of our employment and economic activity is the result of small business efforts and many of those companies are formed LLCs, which are taxed on a personal income tax basis," he noted. "The governor is very focused on areas that continue to strain the economy."
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