TEXT-S&P summary: Mack-Cali Realty Corp.
In our view, Mack-Cali's liquidity is adequate to meet uses over the next 18 to 24 months.
-- We estimate that Mack-Cali will generate between $250 million and $260 million annually of FFO in 2012 and 2013.
-- Other sources of liquidity include an unrestricted cash balance that totaled $21.5 million at Sept. 30, 2012, as well as availability under the REIT's $600 million unsecured revolving credit facility.
-- Mack-Cali's unsecured credit facility matures in October 2015 (excluding a one-year extension option) and currently carries an interest rate of LIBOR plus 125 bps. The facility is expandable under certain circumstances to $1 billion.
-- At Oct. 23, 2012, Mack-Cali had $223 million outstanding under its credit facility, $99 million of which was related to the acquisition of Roseland Partners. However, we believe these borrowings were largely repaid with proceeds from the REIT's November 2012 offering of $250 million of senior unsecured notes.
-- Remaining 2012 debt maturities (including scheduled amortization) are modest ($14 million), and the company could temporarily refinance the 2013 and 2014 maturities, which total $115 million and $346 million, respectively, under the unsecured revolving credit facility if financial market conditions were to deteriorate significantly.
-- Mack-Cali continues to maintain a substantial pool of unencumbered assets: about 80% of the portfolio's total square footage at Sept. 30, 2012, was free and clear of mortgage debt. We expect Mack-Cali to selectively raise secured financings, predominantly associated with refinancing existing mortgages at maturity.
-- We estimate that Mack-Cali's annual maintenance capital expenditure needs will total roughly $70 million to $80 million, slightly above historical levels due to higher expenses that may be required to attract and retain tenants.
The stable outlook reflects our expectation that Mack-Cali will continue to maintain low leverage and healthy DSC metrics relative to its peers despite our expectation that office fundamentals in its core geographic markets will remain weak over the next 12 months. We expect Mack-Cali to expand its investment in multifamily residential properties in a measured way that does not meaningfully affect balance sheet metrics or exceed the REIT's management and operational capabilities. We would consider revising the outlook to negative if the company's operating results weaken meaningfully as a result of higher vacancies or tenant bankruptcies such that the company's DSC falls below 2.4x and total coverage drops below 1.0x. We could also lower the rating if Mack-Cali experiences operational missteps as it pursues investment opportunities outside of its historical areas of geographic and property expertise. Our expectation for a protracted recovery in certain of the company's core markets (including central and northern New Jersey) presently preclude positive momentum to the outlook or rating in the 12 to 24 months.
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