Business Context and Reporting Period
Alexander’s, Inc. is a New York metropolitan area REIT that leases, manages, develops and redevelops seven properties. Vornado Realty Trust manages the company and provides leasing and development services. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Financial Performance and Position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Rental revenues | $56.2 million | $54.1 million | Up $2.0 million |
| Net income | $17.9 million | $4.6 million | Up $13.3 million |
| Net income per diluted share | $3.49 | $0.89 | Up $2.60 |
| FFO | $25.8 million | $23.7 million | Up $2.0 million |
| FFO per diluted share | $5.03 | $4.64 | Up $0.39 |
| Net cash provided by operating activities | $54.0 million | $25.0 million | Up $28.9 million |
| Dividends paid | $23.1 million | $23.0 million | Approximately flat |
- Net income margin was approximately 31.8%, compared with approximately 8.5% in the prior-year quarter. The comparison was materially affected by marketable-securities valuation changes and lower interest expense.
- Rental revenue increased primarily because of lease termination fee income from a retail tenant at 731 Lexington Avenue.
- Operating expenses increased to $23.8 million from $21.8 million, primarily due to higher recoverable real estate taxes and common-area-maintenance costs. Depreciation and amortization increased to $8.5 million from $7.9 million, partly because of accelerated depreciation related to retail tenant lease expirations at 731 Lexington Avenue.
- Interest and debt expense declined to $5.1 million from $8.6 million, primarily because of lower LIBOR.
- The company recognized a $0.6 million gain from the change in fair value of Macerich shares, compared with an $11.4 million loss in Q1 2020.
- Cash, cash equivalents and restricted cash totaled $480.5 million at March 31, 2021, compared with $449.9 million at December 31, 2020. Including $6.6 million of marketable securities, reported liquidity was $487.1 million.
- Real estate, net, was $715.4 million. Total assets were $1.41 billion and total equity was $203.3 million.
- Mortgages payable, net of deferred debt issuance costs, were $1.16 billion. Gross mortgage debt was $1.16 billion, with estimated fair value of $1.13 billion. Approximately $1.00 billion was variable-rate debt and $162.0 million was fixed-rate debt.
- Portfolio square footage totaled approximately 2.455 million square feet, including 236,000 square feet out of service for redevelopment. In-service nonresidential space was 95% occupied and in-service residential space was 80% occupied at quarter-end.
Material Changes Versus the Prior Comparable Period
- Net income increased approximately 291%, driven primarily by the swing from an $11.4 million marketable-securities loss to a $0.6 million gain and a $3.4 million reduction in interest expense.
- FFO increased approximately 9%, from $23.7 million to $25.8 million, indicating a more moderate improvement in recurring real-estate operating performance than the GAAP net-income increase.
- Operating cash flow more than doubled, principally reflecting higher net income and favorable changes in operating assets and liabilities.
- Q1 2020 financing cash flow included $145.7 million of borrowing proceeds related to the company’s participation in the Rego Park II mortgage loan. Q1 2021 had no comparable borrowing proceeds.
- Comprehensive income increased to $23.1 million from $4.6 million, including a $5.2 million favorable change in the fair value of interest-rate derivatives in Q1 2021.
- Rent collection was approximately 95% overall for Q1 2021: 100% from the office tenant, 87% from retail tenants and 99% from residential tenants.
Outlook, Risks, Contingencies and Unusual Items
- Management stated that operating cash flows over the next twelve months, together with existing cash balances, are expected to fund operations, dividends, debt amortization and capital expenditures. The filing provides no formal earnings or revenue guidance.
- COVID-19 continued to adversely affect the business. Occupancy restrictions and tenant financial stress may result in additional rent deferrals or abatements, and the ultimate impact remains uncertain and could be material.
- Bloomberg generated $28.8 million, or approximately 51% of total revenue. The loss of Bloomberg or its inability to meet lease obligations would materially affect results and financial condition.
- A $68.0 million Paramus mortgage matures October 4, 2021. IKEA has a purchase option at an exercise price of $75.0 million in October 2021. If exercised, the company expects approximately $7.0 million of net cash proceeds and an approximately $60.0 million gain; the filing does not state whether the option will be exercised.
- The company may refinance maturing debt or pay it down, but cautioned that financing may not be available on acceptable terms.
- The Sears litigation concerning the Rego Park I property remains stayed following Sears’s bankruptcy. The company estimates the remaining potential claim at approximately $650,000 and does not expect reasonably possible losses to exceed that amount.
- Approximately $960,000 of standby letters of credit were outstanding. The company also remains exposed to uninsured losses, deductibles and losses exceeding insurance coverage, including certain terrorism-related risks.
- Vornado owned 32.4% of outstanding common stock and received $2.6 million in fees during the quarter under management, development, leasing and property-service agreements.
Important Facts for Investors to Verify
- Whether COVID-19-related rent collections, deferrals and abatements improve or deteriorate, particularly among retail tenants.
- Bloomberg’s lease status, creditworthiness and approximately 51% revenue concentration.
- The October 2021 Paramus mortgage maturity and IKEA purchase-option outcome.
- Refinancing requirements and interest-rate sensitivity: the filing estimates a $10.0 million annualized pretax effect from a 1% change in base rates, equivalent to $1.96 per diluted share.
- The sustainability of FFO and cash flow after excluding nonrecurring lease termination income and marketable-securities valuation changes.
- Occupancy and redevelopment progress for the 236,000 square feet currently out of service.
- Future valuation changes in the Macerich investment and interest-rate derivatives, which can materially affect GAAP earnings and comprehensive income.