Business Context and Reporting Period
Alexander’s, Inc. is a New York metropolitan area real estate investment trust managed by Vornado Realty Trust. The company leases, manages, develops and redevelops six properties totaling 2.454 million square feet. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, with comparisons to the corresponding 2021 periods.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Rental revenues | $49.8 million, down 3.0% | $99.0 million, down 7.9% |
| Net income | $14.8 million, down 42.8% | $29.3 million, down 33.0% |
| Diluted EPS | $2.89, versus $5.05 | $5.73, versus $8.55 |
| FFO | $22.1 million, up 4.7% | $43.9 million, down 6.4% |
| FFO per diluted share | $4.32, versus $4.12 | $8.57, versus $9.16 |
| Net cash from operating activities | Not separately provided | $93.3 million, versus $62.5 million |
- Net income margin was approximately 29.7% for the quarter and 29.6% for the six months, compared with approximately 50.4% and 40.7%, respectively, in the prior-year periods. The comparison was affected by prior-year gains on real estate sales and marketable securities.
- Cash, cash equivalents and restricted cash totaled $329.5 million at June 30, 2022. Investments in U.S. Treasury bills totaled $197.4 million, resulting in reported liquidity of $526.9 million.
- Mortgages payable, net of deferred debt issuance costs, were $1.090 billion. Gross mortgage debt was $1.097 billion, with maturities from June 2024 through November 2027. The mortgages are non-recourse.
- Total assets were $1.425 billion and total equity was $249.9 million at June 30, 2022.
- The company paid $46.1 million in dividends during the first six months, or $9.00 per common share.
- Portfolio occupancy was 96% for in-service nonresidential space and 99% for in-service residential space. Approximately 213,000 square feet was out of service for redevelopment.
Material Changes Versus the Prior Comparable Period
- Rental revenues declined primarily because of the October 2021 sale of the Paramus property, lower real estate tax reimbursements and the absence of $2.75 million of prior-year lease termination fee income. These reductions were partially offset by higher occupancy at The Alexander apartment tower and other leasing activity.
- Operating expenses declined $2.1 million in the quarter and $4.3 million year to date, mainly because of lower recoverable expenses and real estate taxes.
- Interest and other income increased because of Treasury bill income and higher average interest rates. Interest expense increased in the quarter because of higher LIBOR, although year-to-date interest expense declined because of the Paramus debt payoff.
- Prior-year results included a $9.1 million gain on the sale of the Bronx Land Parcel and fair-value gains of $3.7 million in the quarter and $4.3 million year to date on Macerich shares. Alexander’s sold those shares in December 2021.
- Operating cash flow increased to $93.3 million from $62.5 million, while cash and restricted cash decreased by $154.0 million because the company purchased $197.4 million of Treasury bills and paid $46.1 million of dividends.
- Accumulated other comprehensive income increased to $21.1 million from $7.5 million, primarily due to changes in the fair value of interest-rate derivatives and other items.
Guidance, Outlook, Risks 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. No quantitative earnings or revenue guidance was provided.
- The company may refinance maturing debt or pay it down, but cautioned that financing may not be available on acceptable terms.
- Bloomberg L.P. generated $55.9 million, or approximately 56% of total revenue, during the first six months. The loss of Bloomberg or a deterioration in its ability to perform under its lease would materially affect results and financial condition.
- Interest-rate exposure is significant: $702.5 million of mortgage debt was variable rate at June 30, 2022. Management estimated that a 1% increase in base rates would increase annual interest expense by approximately $7.0 million, or $1.37 per diluted share. The company has a $500 million LIBOR cap and a $300 million interest-rate swap through May 2025.
- COVID-19-related economic effects, tenant financial condition, real estate market conditions, inflation, interest rates and refinancing availability remain material uncertainties.
- New World Mall LLC exercised a 10-year extension option through January 2037. Alexander’s recorded an estimated $17 million incremental right-of-use asset and lease liability.
- Approximately $900,000 of standby letters of credit was outstanding. The company also disclosed potential exposure to uninsured losses, deductibles and losses exceeding insurance coverage, including terrorism-related risks.
- Management reported no material changes to previously disclosed risk factors, no material legal proceedings, and effective disclosure controls and procedures.
Important Facts for Investors to Verify
- Reconcile reported net income with FFO and assess the impact of nonrecurring prior-year gains on period-over-period comparisons.
- Review Bloomberg’s lease terms, credit metrics and concentration risk, given its approximately 56% share of six-month revenue.
- Evaluate the June 2024 mortgage maturity and the company’s refinancing capacity under higher interest rates.
- Assess occupancy, leasing activity and redevelopment progress at Rego Park I and Rego Park II, where 213,000 square feet was out of service.
- Review the sustainability of the $9.00-per-share dividend against operating cash flow, capital expenditures and debt obligations.
- Monitor COVID-19 effects, tenant credit quality, insurance availability and potential exposure to uninsured or underinsured losses.