Mack-Cali Ends Agreement to Buy Prentiss Properties

Mack-Cali Realty Corp. ended an agreement to buy rival commercial property developer Prentiss Properties Trust for $900 million, caving to shareholder opposition.

The purchase would have created the fourth-largest real estate investment trust, increasing Mack-Cali’s real estate holdings by 68% to 47.7 million square feet of mostly suburban space from coast to coast.

Mack-Cali Chief Executive Mitchell Hersh said the company will “refocus” on its core Northeast markets, where it derives more than 80% of its earnings, and sell as much as $500 million of properties it owns in the Midwest and Southwest. The company also owns properties in California.

Mack-Cali had agreed in June to pay 0.956 shares for each share of Dallas-based Prentiss, or about $917 million in stock, and assume $1.3 billion of debt and preferred securities. On the day the purchase was announced, Mack-Cali’s shares fell $2 to $25 and at least four analysts cut their ratings.

Shareholders of the Cranford, N.J.-based company had expressed concern that the deal would reduce Mack-Cali’s earnings until 2002 and cut its focus on the Northeast, where rents are rising at some of the fastest paces in the U.S.

Hersh said he still believes the reasons for the purchase--that bigger real estate companies tend to have a lower cost of capital and operate more efficiently--were valid.

“The investment community seemed to focus primarily on the [earnings] dilution, which we believed would be a short-term effect,” he said.

Mack-Cali shares rose $1.38 to $28.56 and shares of Prentiss rose 94 cents to $26.13, both on the New York Stock Exchange.