Cali Realty Corporation, the Mack Company and Patriot American Office Group Announce Plans to Merge

08/14/1997 Category: Acquisitions

$1.2 Billion Transaction to Create $3.3 Billion Entity
REIT to be Renamed Mack-Cali Realty Corporation
Combined Office Portfolio to Total 21 Million Square Feet
Rizk to Remain as CEO; Mack to Become Chairman of Executive Committee and Director; Hersh to Become President/COO

CRANFORD, NJ--August 14, 1997--Cali Realty Corporation (NYSE:CLI) today announced that the Company has signed a letter of intent to merge the office assets of the Mack Company and Patriot American Office Group, both private real estate concerns, into Cali. The $1.2 billion transaction, the largest private-to-public deal in REIT history, will create one of the country's largest REITs with a total market capitalization of $3.3 billion. The transaction is expected to be completed on or around the end of 1997, subject to due diligence and shareholder approval.

The Company will operate under the new name Mack-Cali Realty Corporation. Management anticipates that the transaction will be immediately accretive to the Company's earnings, adding around $.25 to its funds from operations (FFO) run rate.

The transaction will add 55 office properties totaling approximately 9.5 million square feet in the Northeast and Southwest to Cali's portfolio, for a combined portfolio of 185 properties totaling over 21 million square feet of office, office/flex and industrial/warehouse space, located in 10 states.

Thomas A. Rizk, Cali's President and Chief Executive Officer, who will continue to serve as Chief Executive Officer of Mack-Cali Realty Corporation, said, "This merger represents an historic opportunity for Cali and its shareholders. It truly solidifies our position as the dominant super-regional REIT in the Northeast, plus it provides us with new strategic beachheads in the Southwest for future growth opportunities. We also inherit Bill Mack for his valuable advice and counsel and the broad experience of Mitch Hersh, two of the finest minds in the real estate business."

Terms of the Transaction

Under the terms of the letter of intent, Cali will:

  • Pay $476 million in cash;
  • Assume $302 million of mortgage debt;
  • Issue 3.9 million common operating units in Cali Realty, L.P.;
  • Issue $250 million of preferred operating units in Cali Realty, L.P., paying a 6.75% distribution and convertible into 7.2 million common operating units;
  • and Issue warrants to purchase 2 million shares of Company stock at $37.80.

In exchange, the Mack Company, a New Jersey-based private real estate concern, will contribute its 5.9 million square-foot class A office portfolio and related operations, and Patriot American Office Group, a Dallas-based private real estate concern, will contribute its 3.6 million square-foot office portfolio and related operations. The Mack Company's properties are located primarily in the New Jersey metropolitan area and Arizona, and the properties of Patriot American Office Group are located primarily in Texas and Arizona. The combined Mack and Patriot portfolio serves approximately 1,000 tenants, with major tenants including AT&T, AT&T Wireless Services, Toys-R-Us, CMP Media, Inc., KPMG Peat Marwick LLP, Timeplex, American Express, Allstate Insurance, EDS and Honeywell.

William Mack, Senior Managing Partner of The Mack Company, who will serve as a Director and Chairman of the Executive Committee of Mack-Cali, said, "This event is but the first step in what I see as a tremendous growth vehicle in a market full of opportunities. Mack-Cali will truly be a force to be reckoned with."

Mitchell Hersh, Partner and Chief Operating Officer of The Mack Company, who will serve as President and Chief Operating Officer of Mack-Cali, commented, "Cali has demonstrated over the years great talent for development, management and acquisition which we plan to leverage successfully going forward. We all anticipate that Mack-Cali will be very opportunistic and quite active in looking for deals and other avenues for expansion on a national scale."

The New Mack-Cali

Upon completion of the $1.2 billion merger, Mack-Cali Realty Corporation will be one of the largest REITs in the country, with a total market capitalization of $3.3 billion. The transaction provides the Company with numerous competitive advantages, including:

Top real estate leaders. This transaction brings together some of the most well-known leaders in the real estate business, including William Mack, Thomas A. Rizk, Mitchell Hersh, and John J. Cali, Chairman of Cali, who will continue to serve as Chairman for Mack-Cali.

Market dominance in New Jersey and an enhanced position as the super-regional REIT in the Northeast. Mack-Cali will be the single largest owner of office space in New Jersey, with over 11 million square feet, or 8% of all total office space. Northern and central New Jersey is the sixth largest office market in the U.S., with 140 million square feet of office space. Mack-Cali's office and office/flex properties in the Northeast, including properties in New Jersey, New York, Pennsylvania and Connecticut, will number 159 buildings totaling over 17 million square feet.

Geographic diversity in the Southwest. Mack-Cali will have geographic diversity in a number of promising markets in the Southwest, providing the company with an improved ability to serve nationally-based tenants, and positioning the Company for numerous growth opportunities in the future. Specifically, Mack-Cali will have a strong presence in Texas, with 17 office properties totaling almost 2.5 million square feet in Dallas, Houston, San Antonio and Amarillo, plus it will own over 600,000 square feet of office space in Arizona, with five properties in Phoenix, Scottsdale and Glendale. Mack-Cali's holdings outside the Northeast will include properties in six states--Texas, Arizona, Florida, California, Nebraska, and Iowa--and comprise over 4 million square feet, or 19% of the Company's total portfolio.

Increased equity value and liquidity. The merger will increase Mack-Cali's total market capitalization to approximately $3.3 billion, ranking the Company as one of the largest REITs in the U.S. and providing investors with increased liquidity for their investments.

Enhanced opportunities for growth. The increased size and scope of a larger, stronger Company, coupled with the track record and extensive network of relationships that the Mack organization brings to Mack-Cali, will afford the Company enhanced opportunities for exciting growth in core markets across the U.S.

William Mack a Leading Figure in Real Estate

William Mack has been an active investor in real estate for over 30 years, and with his brothers owns and manages a broad range of real estate operations. He has served as Senior Managing Partner of The Mack Company since 1970. The Mack Company was a pioneer in the development of large, award-winning, class A office buildings, and currently owns 17 million square feet of office and industrial space, including the 5.9 million square feet of class A office space to be contributed to Mack-Cali, and approximately 11 million square feet of industrial and retail properties.

William Mack and his family were also instrumental in the formation of Patriot American Group in 1991, which subsequently sold its hotel properties to the public in 1995 as Patriot American Hospitality, Inc. In addition to their ownership stake in the Mack Company, the Mack family also has voting control of Patriot American Office Group. At the closing of this transaction, William Mack and his brothers Earle, David and Fred, will control the largest single block of equity interest in the resulting Company.

In addition, William Mack is President of Apollo Real Estate Management, Inc. The Apollo Real Estate Investment Funds have invested in approximately $5 billion of various diversified real estate ventures in the last four years.

Thomas A. Rizk noted, "Bill Mack, who'll be a Director and Chairman of the Executive Committee, and, along with his family, will be our largest equity holder, is among the most highly respected individuals in our industry and his reputation as a deal maker, savvy investor and skilled manager is unequaled. His counsel, advice, knowledge and expertise are significant assets that Cali will get in this transaction."

CEO Rizk Led Cali Through Record Growth

Under the direction of Thomas A. Rizk, who has led the Company since its 1994 initial public offering, Cali has become one of the fastest-growing REITs in the country. With the completion of the merger, the Company will have increased its properties more than 14 times, from 13 to 185 buildings, and its square footage more than eight times, from 2.3 million to over 21 million square feet.

Cali has also been one of the country's top-performing REITs, generating a total return of over 155% since the Company went public just three years ago.

Mack-Cali Management

The operations of the Company will be managed by Thomas A. Rizk, who will be Chief Executive Officer of Mack-Cali, and Mitchell Hersh, who will be President and Chief Operating Officer of the Company. John J. Cali, Chairman of Cali, will remain as Chairman for Mack-Cali, and will lead a restructured board of directors consisting of 13 members. The Board will consist of three Cali representatives--Thomas A. Rizk, John J. Cali, and a designee of the Robert Martin Group; and three Mack representatives--William Mack, Earle Mack, and Mitchell Hersh. David Mack will serve on the Company's advisory board. In addition, three of Cali's current independent board members are expected to remain--Brendan Byrne, Alan Philibosian, and Irvin Reid--and four new independent board members will be selected and mutually agreed upon by Mack and Cali.

William Mack, who will serve as Director and Chairman of the Executive Committee, will play a major role in determining the strategic direction for the Company.

Mitchell Hersh, who has been with the Mack Company for 23 years, has been a partner for 15 years and Chief Operating Officer of The Mack Company for the last seven years. Thomas A. Rizk, commenting on Cali's new management team, said "The real estate industry is well-aware of the indisputable talents of Bill Mack. However, Mitch Hersh has been a strong partner to Bill Mack for over 20 years, and has been a vital component in the growth and success of the Mack Company. I've known Mitch and used him as a resource for many years. I look forward to the opportunity to work with him in adding to Mack-Cali's market dominance, geographic diversity, expert real estate management, and access to deals, which should continue Cali's strong history of building shareholder value."

Headquarters will remain in Cranford, New Jersey. The southwestern portfolio will continue to be managed from the Patriot American headquarters in Dallas under the supervision of the Cranford office.

Thomas A. Rizk concluded, "This transaction is but the latest in the remarkable growth of this Company over the last three years. When Cali began trading publicly in 1994, the Company had 13 properties and a market capitalization of just under $300 million. In 1997 alone we've already completed or announced deals worth over $1.7 billion, involving over 14 million square feet of properties."

Cali is being advised by Prudential Securities, Inc., in connection with this transaction, and is represented by Jonathan Bernstein of Pryor, Cashman, Sherman & Flynn. The Mack Company is being represented by Martin Edelman of Battle Fowler LLP.

Cali Realty Corporation is a fully integrated, self-administered, self-managed real estate investment trust (REIT) providing leasing, management, acquisition, development, construction and tenant-related services for its portfolio. The Company owns 130 properties, primarily office and office/flex building, totaling approximately 12 million square feet.

Upon completion of this merger, Mack-Cali Realty Corporation will own 185 properties totaling approximately 21.4 million square feet in 10 states, serving approximately 2,200 tenants. By property type, the portfolio will consist of approximately 18 million square feet office space, 3 million square feet of office/flex space, 400,000 square feet of industrial/warehouse space, and 453 multifamily residential units.