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On Tuesday, Mizuho (NYSE:MFG) Securities adjusted its outlook for Paramount Group (NYSE:PGRE), with analyst Vikram Malhotra reducing the price target to $5.00 from the previous $6.00 while keeping an Outperform rating on the stock. According to InvestingPro data, PGRE currently trades at a price-to-book ratio of 0.34, suggesting potential undervaluation despite its challenges. The revision reflects an anticipated decrease in funds from operations (FFO) for the year 2025, now expected to be 48 cents per share, down from the earlier estimate of 64 cents.
Malhotra’s reassessment takes into account several factors that are likely to influence Paramount Group’s financial performance. The company, with a market capitalization of $1.07 billion, has seen revenue decline by 12.2% over the last twelve months. The first is a lowered net operating income (NOI) due to known tenant move-outs scheduled for fiscal year 2024, which are projected to have a carryover effect into 2025. Notable departures include law firm Clifford Chance and lease terminations at the 1633 Broadway property.
Further impacting the 2025 outlook are significant lease expirations, such as Google (NASDAQ:GOOGL)’s 166,000 square feet and JPMorgan’s 219,000 square feet, both set to expire in the second quarter of 2024. The absence of termination income that would not be realized is also factored into the lower forecasts.
Additionally, Malhotra anticipates an increase in general and administrative (G&A) expenses and higher interest expenses due to greater swap expenses in 2025. These increases are partially offset by an expected decline in fee income, attributed to lower yields on investments.
The analysis by Mizuho Securities indicates a cautious yet optimistic view of Paramount Group’s financial trajectory, acknowledging the challenges ahead while maintaining confidence in the company’s overall performance potential. InvestingPro subscribers have access to additional insights, including 7 more ProTips and detailed financial health metrics that could help assess the company’s future prospects. Get the complete analysis with InvestingPro’s comprehensive research report, available for over 1,400 US stocks.
In other recent news, Paramount Group, Inc. announced significant changes to its credit facility, reducing commitments from $750 million to $450 million. This adjustment is part of a strategic move as the company plans to sell a 45% stake in 900 Third Avenue. The company has also modified its credit agreement terms, including lowering the required Unencumbered Asset Value from $900 million to $500 million and increasing the permissible Secured Leverage Ratio to 60%. Meanwhile, Paramount Global is contemplating a settlement of a $10 billion lawsuit filed by Donald Trump over a CBS News interview, which could impact its merger plans with Skydance Media. The merger, valued at over $8 billion, faces scrutiny from the Federal Communications Commission due to concerns about CBS News’ editorial operations. Changes to these operations are being considered to alleviate tensions, with possible adjustments to programming processes and transparency measures. The merger is further complicated by concerns over foreign investment, as Tencent (HK:0700) Holdings (OTC:TCEHY), a minority investor in Skydance, is on a U.S. blacklist. Paramount’s leadership, including Shari Redstone and David Ellison, are reportedly discussing ways to ensure objectivity in CBS News to address these regulatory challenges.
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