Alexander’s Stock: High-Yield REIT’s Outlook Is Bullish
January 26, 2024
Why 8.2%-Yield ALX Stock’s Price Has Spiked Recently
Real estate investment trusts (REITs) took a beating in 2022 and much of 2023 as the Federal Reserve raised its key lending rate 11 times, from near-zero to the range of 5.25% to 5.5%.
As I’ve noted in previous Income Investors articles, higher interest rates make it more expensive to borrow capital and service debt, which cuts into profits.
Although higher interest rates undermined the growth of the REIT industry for a while, things took a turn for the better at the start of November 2023, when the Fed hinted that it was done raising its rates for this cycle.
In mid-December 2023, REITs were further energized when the Fed not only held its interest rate pat, but said it was considering cutting its rates in 2024—as many as three times.
Suffice it to say, just the notion of possible lower interest rates sent the share prices of REITs like Alexander’s, Inc. (NYSE:ALX) significantly higher.
The company leases, manages, develops, and redevelops properties in the Greater New York City metropolitan area. Its activities are conducted through its manager, Vornado Realty Trust (NYSE:VNO).
Alexander’s, Inc.’s current real estate holdings consist of five properties in the greater New York City metropolitan area, including:
- The 731 Lexington Avenue office and retail building, which includes Bloomberg L.P.‘s headquarters
- The Rego Park I retail property
- The Rego Park II retail property
- The Alexander apartment tower
- A retail property in Flushing, NY
(Source: “Company Profile,” Alexander’s, Inc., last accessed January 18, 2024.)
The company’s real estate empire fluctuates in size.
For instance, in May 2021, it sold its Paramus, New Jersey property to IKEA Property, Inc for $75.0 million. (Source: “Alexander’s Announces IKEA Exercises its Option to Purchase Paramus Property,” Alexander’s, Inc., May 13, 2021.)
In May 2023, the REIT completed the sale of its Rego Park III land parcel in Queens, New York for $71.0 million. (Source: “Alexander’s Completes Sale of Rego Park III,” Alexander’s, Inc., May 19, 2023.)
Alexander’s, Inc.‘s Recent Share-Price Performance
From the start of 2021 through October 31, 2023, Alexander’s stock lost 15.2% of its value.
Things turned around on November 1, 2023, however, when the Fed hinted that its interest rate hikes were over for the current cycle.
Since the beginning of November 2023, ALX stock has rallied by an impressive 19.26% (as of this writing). Over the last six months, Alexander’s stock has increased by 26.8%. Year-over-year, it has gone up by 4.6%.
Chart courtesy of StockCharts.com
Management Declared Q3 Dividend of $4.50 Per Share
For the third quarter of 2023, Alexander’s, Inc reported net income of $10.8 million, or $2.10 per share, compared to $15.1 million, or $2.95 per share, for the same prior-year period.
The all-important funds from operations (FFO) were $18.6 million, or $3.63 per diluted share, compared to $22.5 million, or $4.40 per diluted share, in the third quarter of 2022.
Thanks to Alexander’s, Inc.’s reliable cash generation, it’s been able to pay reliable, quarterly, high-yield dividends to ALX stockholders. The company raised its payout every year from 2014 to early 2018 but has held it at $4.50 per share since then.
In November 2023, the company again paid a regular dividend of $4.50 per share, for an inflation-thumping yield of 8.24%.
Moreover, Alexander’s, Inc. has occasionally paid special dividends to maintain its REIT status.
In 2012, the company sold its Kings Plaza Mall to Macerich Co (NYSE:MAC) for $751.0 million. Thanks to the net proceeds of about $479.0 million from the sale, the company’s board declared special dividends of $624.0 million, or $122.00 per share. (Source: “Alexander’s Completes Sale of Kings Plaza Mall for $751 Million and Declares Special Long-Term Capital Gain Dividend of $122.00 Per Share,” Alexander’s, Inc., November 30, 2012.)
The Lowdown on Alexander’s Stock
Alexander’s, Inc. has been light on news, and its management team doesn’t say much publicly, but the company makes up for it with solid quarterly financial results (including reliable cash generation) and high-yield dividends.
With inflation coming down and interest rate cuts on the way, ALX stock is one of the more compelling opportunities for dividend hogs who are also looking for significant capital gains.
