Alexander’s, Inc. 10-Q Summary
Business Context and Reporting Period
Alexander’s, Inc. is a New York City-focused REIT that leases, manages, develops and redevelops five properties totaling approximately 2.455 million square feet. Vornado Realty Trust manages the company and provides leasing and development services; Vornado owned 32.4% of outstanding common stock as of September 30, 2023. This Form 10-Q covers the three and nine months ended September 30, 2023. The interim financial statements are unaudited.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Rental revenues | $55.4 million | $53.7 million | $162.0 million | $152.8 million |
| Net income | $10.8 million | $15.1 million | $86.1 million | $44.5 million |
| Diluted EPS | $2.10 | $2.95 | $16.79 | $8.67 |
| FFO | $18.6 million | $22.5 million | $55.5 million | $66.5 million |
| FFO per diluted share | $3.63 | $4.40 | $10.81 | $12.96 |
| Net cash from operating activities | Not separately provided | Not separately provided | $64.4 million | $76.2 million |
Q3 net income margin was approximately 19.4%, compared with 28.1% in the prior-year quarter. Nine-month net income margin was approximately 53.2%, compared with 29.1%, largely reflecting the 2023 real estate sale gain. FFO margin was approximately 33.6% in Q3 and 34.2% for the nine-month period, versus approximately 42.0% and 43.5%, respectively, in the comparable 2022 periods.
- Cash and cash equivalents were $507.9 million, and restricted cash was $21.2 million, for total liquidity of $529.1 million at September 30, 2023, compared with $214.5 million at December 31, 2022.
- Mortgages payable, net of deferred debt issuance costs, totaled $1.092 billion. Gross mortgage principal was $1.097 billion, with maturities from June 2024 through November 2027.
- Cash dividends paid totaled $69.2 million for the first nine months, or $13.50 per common share. The Q3 dividend was $4.50 per share.
- Commercial occupancy was 87.3% and residential occupancy was 93.6% at September 30, 2023.
Material Changes Versus the Prior Comparable Period
- Q3 rental revenues increased $1.7 million, or approximately 3.1%, primarily from higher reimbursable operating expenses and capital expenditures, leasing activity and real estate tax reimbursements, partly offset by lower lease termination fee income.
- Nine-month rental revenues increased $9.3 million, or approximately 6.1%, primarily from higher real estate tax reimbursements, leasing activity and reimbursable expenses.
- Operating expenses increased 7.8% in Q3 and 13.1% for the nine-month period, mainly due to higher reimbursable costs and real estate taxes.
- Interest and debt expense increased $8.1 million in Q3 and $23.7 million for the nine-month period, reflecting higher interest rates and interest-rate-cap premium amortization.
- Interest and other income increased $4.6 million in Q3 and $12.2 million for the nine-month period because of higher average interest rates.
- Nine-month net income included a $54.0 million gain on the sale of the Rego Park III land parcel. The sale generated $67.8 million of net cash proceeds and materially increased reported earnings, but was excluded from FFO.
- Operating cash flow declined $11.8 million year over year for the nine-month period, while total cash and restricted cash increased $314.6 million, primarily from the land sale and maturities of U.S. Treasury bills.
Outlook, Risks, Contingencies and Unusual Items
Management stated that cash flow from continuing operations over the next twelve months, together with existing cash balances, is expected to fund operations, dividends, debt service and capital expenditures. No quantitative earnings or revenue guidance was provided.
- The $500.0 million interest-only mortgage on the 731 Lexington Avenue office condominium matures June 11, 2024 after the remaining one-year extension was exercised. The loan bears interest at the Prime Rate, capped at 6.00% through maturity by an interest-rate cap.
- Management may refinance maturing debt or pay it down, but cautioned that financing may not be available on acceptable terms.
- Variable-rate debt totaled $702.5 million at September 30, 2023. Management estimated that a 1% change in base rates would affect annualized diluted earnings by approximately $1.37 per share, before considering applicable hedges.
- On September 27, 2023, the company amended IKEA’s lease for its 112,000-square-foot Rego Park I store, accelerating termination to April 1, 2024. IKEA is required to pay rent through March 16, 2026 and a $10.0 million termination payment over the modified lease term.
- Bloomberg accounted for approximately 55% of nine-month rental revenues. The loss of Bloomberg or a deterioration in its ability to pay would materially affect results and financial condition.
- Insurance availability and costs, inflation, higher interest rates, economic conditions, tenant credit, occupancy, refinancing and real estate-market conditions remain key risks. The company is responsible for uninsured losses, deductibles and losses exceeding coverage.
- Approximately $0.9 million of standby letters of credit were outstanding. Ordinary-course legal proceedings were not expected to have a material effect. Management reported no material changes to previously disclosed risk factors and effective disclosure controls.
Important Facts for Investors to Verify
- Confirm the refinancing or repayment plan and available financing terms for the $500.0 million loan maturing in June 2024.
- Monitor interest-rate exposure, hedge coverage and the effect of variable-rate debt on interest expense and cash flow.
- Assess Bloomberg’s lease concentration and creditworthiness, which are critical to rental revenue stability.
- Track the replacement, re-leasing or redevelopment of the IKEA space after the April 2024 termination date.
- Separate recurring operating performance and FFO from the $54.0 million one-time Rego Park III gain.
- Evaluate whether occupancy, leasing activity and reimbursable expenses support rental revenue growth amid higher operating costs and interest expense.