Mack-Cali to Buy Prentiss Properties

CRANFORD, N.J. — Mack-Cali Realty Corp. agreed Wednesday to buy Prentiss Properties Trust for $917 million in stock and $1.3 billion in assumed debt, sending both companies’ shares down.

The combination would create the fourth-largest real estate investment trust and give Mack-Cali more office space in states and cities in which technology companies have been expanding rapidly, such as California; Washington, D.C.; and Austin, Texas.

Mack-Cali said the purchase wouldn’t add to earnings until 2002, though. Analysts also said it would end up with too many properties in the suburbs, which have been prone to overbuilding.

“Mack-Cali shareholders are going to come away from this angry,” said Ritson Ferguson of Clarion CRA Securities, which owns about 1% of Mack-Cali and 9.4% of Prentiss.

In New York Stock Exchange trading, shares of Cranford, N.J.-based Mack-Cali fell $2 to close at $25, and Dallas-based Prentiss fell $3.38 to close at $23.06.

Mack-Cali said it would pay 0.956 share for each Prentiss share, valuing it at $23.90, or $917 million. Mack-Cali also would assume $1.3 billion of debt and preferred securities.

The purchase would increase Mack-Cali’s real estate holdings by 68% to 47.7 million square feet of mostly suburban space nationwide.

The transaction reflects a belief among some REIT managers that big companies, especially national ones, have advantages over smaller competitors. These include the ability to have closer relations with tenants, raise capital more cheaply and buy goods in bulk from suppliers at discounted prices, spreading the savings over a larger number of properties.

“In order to grow, a national platform is a positive,” said Mack-Cali Director William Mack, who will be co-chairman of the combined company. “Having national tenants in different areas gives us multiple opportunities when they move and expand.”

Still, Mack-Cali’s shares are trading at an estimated 20% discount to its real estate’s underlying value.