On Tuesday, Piper Sandler adjusted the stock price target for Alexander's (NYSE:NYSE:ALX) shares to $125 from the previous $135 while maintaining an Underweight rating on the stock. The revision follows the company's recent financial performance and projections.
The firm noted a smaller than expected decline in Alexander's Net Operating Income (NOI), with the actual drop being $8 million rather than the anticipated $11 million. This difference, referred to as a $0.68 delta, was attributed to the winding down of IKEA's operations in the fourth quarter of 2023 and the first quarter of 2024, which also involved a termination fee.
Moreover, as part of the renegotiated lease agreement with Bloomberg, Alexander's will spread out $113.6 million in lease incentives over the extended lease term, which now ends in February 2040 instead of the previous expiration date of February 2029. This amortization is expected to result in reduced revenue for the company.
Vornado Realty Trust (NYSE:VNO), as part of Alexander's management contract, earned a $5.5 million leasing commission. This payment is a portion of the total $32 million associated leasing commission (LC) from the Bloomberg lease agreement.
Piper Sandler expressed concerns regarding the sustainability of Alexander's current dividend payments. The firm projects a shortfall in dividend coverage, estimating a gap of approximately $27 million in 2024, increasing to about $47 million in 2025, and $50 million in 2026. These figures are set against the backdrop of Alexander's current cash reserves of $411 million, which are also earmarked for covering the free rent and Tenant Improvements (TI's) for Bloomberg in 2029.
In other recent news, Alexander's, Inc. announced a quarterly dividend of $4.50 per share, set to be paid in August. This move underscores the company's ongoing commitment to providing returns to its investors.
In another development, Alexander's successfully negotiated an extension for its $500 million mortgage loan for the office portion of the 731 Lexington Avenue property. The maturity date of the loan has been extended from June to October 2024, allowing the company additional time for refinancing.
In the realm of analyst activity, Piper Sandler adjusted its outlook on Alexander's, reducing the stock target from $160 to $145, while maintaining an Underweight rating. This adjustment factors in Alexander's first quarter results of 2024, excluding certain elements like a termination fee from IKEA and $7 million in annual rents. Piper Sandler forecasts that Alexander's will overpay its dividend by approximately $30 million in 2024 and about $50 million in 2025.
These changes reflect a decrease in the estimated funds from operations for 2024 and 2025. However, Alexander's significant cash reserve, currently at $525 million, is expected to cover these predicted dividend overpayments and support ongoing leasing capital expenditures.
InvestingPro Insights
In light of Piper Sandler's recent price target adjustment for Alexander's (NYSE:ALX), real-time data and insights from InvestingPro provide a deeper understanding of the company's financial health and market position. According to InvestingPro Data, Alexander's boasts a market capitalization of approximately $1.08 billion and a P/E ratio of 10.97, indicating that the stock is trading at a low earnings multiple. This is particularly notable given the company's revenue growth over the last twelve months, which stands at 11.4%.
InvestingPro Tips highlight that Alexander's has maintained dividend payments for 15 consecutive years and currently offers a significant dividend yield of 8.48%. This could be of interest to income-focused investors, especially considering that the company's liquid assets exceed its short-term obligations, suggesting financial stability.
Moreover, Alexander's is expected to remain profitable this year, with analysts predicting positive earnings. The company's performance over the past year has also been robust, with a price total return of 18.83%. Despite concerns about dividend sustainability raised by Piper Sandler, Alexander's financial resilience is underscored by its ability to generate a consistent return on assets, which was 7.75% for the last twelve months as of Q1 2024.
For readers interested in a comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/ALX that delve further into the company's valuation and performance metrics.
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