Alexander’s, Inc. 2022 Form 10-K Summary
Business context and reporting period
Alexander’s, Inc. is a New York City-focused real estate investment trust managed, leased and developed by Vornado Realty Trust. The filing covers the fiscal year ended December 31, 2022; it is an annual report rather than a standalone fourth-quarter filing.
The portfolio consists of six New York City properties totaling 2.454 million square feet, including 731 Lexington Avenue, Rego Park I and II, The Alexander apartment tower, Flushing and the Rego Park III development parcel. Vornado owned 32.4% of Alexander’s common stock at year-end and provides management, leasing and development services.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Rental revenues | $205.8 million | $206.1 million | Down $0.3 million |
| Operating expenses | $90.4 million | $91.1 million | Down $0.6 million |
| Net income | $57.6 million | $132.9 million | Down $75.3 million |
| Diluted earnings per share | $11.24 | $25.94 | Down $14.70 |
| FFO, non-GAAP | $87.1 million | $89.8 million | Down $2.7 million |
| FFO per diluted share | $16.99 | $17.52 | Down $0.53 |
| Net cash from operations | $102.5 million | $118.5 million | Down $15.9 million |
Operating income before depreciation, general and administrative expenses and other items was approximately $115.4 million, implying a rental-revenue operating margin of approximately 56%. Net income margin was approximately 28%. FFO is a non-GAAP measure and is not equivalent to cash available for distribution.
At December 31, 2022, cash and cash equivalents were $194.9 million, restricted cash was $19.5 million and U.S. Treasury bills totaled $267.0 million, for total disclosed liquidity of $481.4 million. Cash, cash equivalents and restricted cash declined by $269.0 million during the year, primarily because of Treasury bill purchases, capital expenditures and dividends.
Total mortgage debt was $1.097 billion, or $1.091 billion net of deferred financing costs. Debt represented 54% of total enterprise value. Cash interest payments were $25.9 million. The debt was secured by three properties and carried stated year-end rates of 5.22%, 1.76%, 5.60% and 2.63% across the four mortgage facilities.
Cash dividends paid were $92.3 million, or $18.00 per share. In January 2023, the Board declared a quarterly dividend of $4.50 per share, an indicated annual rate of $18.00 per share.
Material changes versus the prior comparable period
- Net income declined primarily because 2021 included $69.95 million of real estate sale gains, including the $60.8 million gain on the Paramus property sale and the $9.1 million gain on a Bronx land sale, plus $2.35 million of discontinued-operations income.
- FFO declined modestly despite stable rental revenue. Higher interest expense increased costs by $8.9 million, including $11.5 million attributable to higher LIBOR and SOFR, partly offset by higher interest income on Treasury bills and other investments.
- Rental revenue was broadly stable. Higher leasing activity, Century 21 bankruptcy proceeds and improved occupancy at The Alexander largely offset the loss of Paramus revenue and prior-year lease termination income.
- In December 2022, IKEA closed its 112,000-square-foot Rego Park I store but remained obligated under its lease, subject to an early termination right no earlier than March 2026 and a potential termination payment.
- New World Mall exercised its 10-year extension option through January 2037. This resulted in an approximately $16.0 million increase in the Flushing ground-lease right-of-use asset and liability.
- In-service commercial occupancy excluding residential was 96.4%, and residential occupancy was 98.7%, at December 31, 2022. Approximately 213,000 square feet at Rego Park I and II was out of service for redevelopment.
Guidance, outlook, risks and unusual items
Management expects cash flow from continuing operations, existing cash and investments to fund operations, dividends, debt service and capital expenditures over the next twelve months. The company may refinance maturing debt or repay it, but provides no assurance that refinancing will be available on acceptable terms.
Rego Park III secured permits for an apartment tower and commenced foundation work in 2022 to preserve eligibility for the Affordable New York residential program, subject to obtaining a certificate of occupancy by June 2026, subject to any legislative extension.
- Tenant concentration is substantial: Bloomberg generated $115.1 million, or approximately 56% of rental revenue, and occupies all office space at 731 Lexington Avenue. That property generated approximately 67% of rental revenue.
- Debt refinancing and interest-rate risk are significant. Approximately $702.5 million of debt was variable-rate at year-end; a 1% increase in base rates was estimated to reduce annual earnings by approximately $7.0 million, or $1.37 per diluted share.
- The filing identifies major debt maturities of $500.0 million in 2024, $502.5 million in 2025 and $94.0 million in 2027. The filing text contains an internal presentation difference: the property discussion references a June 2023 maturity for the $500 million 731 Lexington office loan, while the debt table reflects a maturity of June 2024 after the stated extension.
- Risks include New York City market concentration, work-from-home trends, retail weakness and e-commerce competition, inflation, higher interest rates, tenant defaults or bankruptcies, redevelopment costs, climate and regulatory requirements, insurance availability and the transition from LIBOR to SOFR.
- Substantially all debt is non-recourse mortgage debt, but financing covenants restrict additional indebtedness and may require lender approval for certain leases. Approximately $900,000 of standby letters of credit was outstanding.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Real estate impairment analysis was identified as the critical audit matter because of the subjectivity of capitalization rates and projected cash flows.
Important facts for investors to verify
- Confirm the effective maturity date and extension status of the $500 million 731 Lexington Avenue office mortgage, given the differing dates presented in the filing.
- Assess Bloomberg’s lease expiration, renewal prospects and credit quality because of its approximately 56% contribution to rental revenue.
- Evaluate the financial and leasing impact of IKEA’s closure and its potential 2026 termination right at Rego Park I.
- Review 2024 and 2025 refinancing requirements, interest-rate caps and swap terms, and the company’s ability to maintain the $18.00 annualized dividend.
- Monitor Rego Park III construction costs, timing and compliance with the Affordable New York program’s certificate-of-occupancy requirement.
- Distinguish GAAP net income from FFO and cash flow when assessing operating performance and dividend coverage.