Cali REIT grows through merger.

Cali Realty Corporation (NYSE:CLI) has 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 CEO, 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 percent 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, said "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 Mack, Rizk, Hersh, and John J. Cali, chairman of Cali, who will continue to serve as chairman for Mack-Cali.

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

Geographic Diversity: 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 percent 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.