Alexander’s, Inc. 10-Q Summary
Business Context and Reporting Period
Alexander’s, Inc. is a New York City-focused REIT managed by Vornado Realty Trust. The company leases, manages, develops and redevelops five properties. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023. The portfolio totaled 2.455 million square feet after the sale of the Rego Park III land parcel. Commercial occupancy was 87.3% and residential occupancy was 97.1% at quarter-end.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Rental revenues | $53.7 million, versus $49.8 million | $106.6 million, versus $99.0 million |
| Net income | $64.1 million, versus $14.8 million | $75.4 million, versus $29.3 million |
| Diluted EPS | $12.51, versus $2.89 | $14.70, versus $5.73 |
| FFO | $18.2 million, or $3.55 per share | $36.8 million, or $7.18 per share |
| Prior-year FFO | $22.1 million, or $4.32 per share | $43.9 million, or $8.57 per share |
| Net cash from operating activities | Not separately presented | $65.9 million, versus $93.3 million |
Net income included a $54.0 million gain on the sale of the Rego Park III land parcel. Excluding the effect of that gain through the company’s FFO measure, operating performance declined year over year. Interest and debt expense was $13.2 million for the quarter and $25.4 million for the six months, compared with $5.5 million and $9.9 million, respectively, in the prior-year periods.
Cash, cash equivalents and restricted cash totaled $552.8 million at June 30, 2023, compared with $214.5 million at December 31, 2022. The increase primarily reflected Treasury bill maturities and real estate-sale proceeds. Total mortgages payable, net of deferred issuance costs, were $1.092 billion. Total equity was $265.6 million.
Material Changes Versus the Prior Comparable Period
- Rental revenues increased 7.7% for the quarter and 7.6% for the six-month period, primarily from higher real estate tax reimbursements, leasing activity and lease termination fees.
- Operating expenses increased 16.1% for the quarter and 16.0% year to date, primarily because of higher real estate tax expense.
- Interest and other income increased to $4.5 million for the quarter and $8.8 million year to date, primarily because of higher average interest rates and larger cash balances.
- Net income and EPS increased substantially because of the Rego Park III sale gain, while quarterly and year-to-date FFO declined 17.7% and 16.1%, respectively.
- Operating cash flow declined to $65.9 million from $93.3 million, partly because the prior-year period benefited from more favorable changes in operating assets and liabilities.
- The company sold the Rego Park III land parcel on May 19, 2023 for $71.1 million, generating $67.8 million of net proceeds and a $54.0 million financial-statement gain.
- Cash dividends were $4.50 per share for the quarter and $9.00 per share for the six months.
Debt, Liquidity and Financing
On June 9, 2023, the company exercised a remaining one-year extension on the $500.0 million interest-only mortgage secured by the 731 Lexington Avenue office condominium. The loan matures June 11, 2024. The company purchased an $11.3 million interest-rate cap limiting the applicable rate to 6.00% through maturity. Other material debt includes a $300.0 million 731 Lexington Avenue retail mortgage maturing in 2025, a $202.5 million Rego Park II mortgage maturing in 2025 and a $94.0 million mortgage on The Alexander apartment tower maturing in 2027.
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. The company may refinance or repay maturing debt, but cautioned that financing may not be available on acceptable terms.
Outlook, Commentary, Risks and Unusual Items
- Management identified higher interest rates and inflation as continuing risks to tenants, operating performance, cash flows, financing costs and property values.
- Approximately 56% of rental revenues came from Bloomberg L.P. in both the six-month 2023 and 2022 periods. The loss of Bloomberg or a deterioration in its ability to pay could materially affect results and financial condition.
- The company has significant variable-rate debt exposure. A 1% change in base rates was estimated to affect annual interest expense by approximately $7.0 million and diluted EPS by approximately $1.37, before considering applicable hedges and caps.
- Insurance coverage may become more expensive or unavailable on comparable terms. The company remains responsible for uninsured losses, deductibles and losses exceeding coverage, which could be material.
- Approximately $0.9 million of standby letters of credit were outstanding at June 30, 2023. Ordinary-course legal proceedings were not expected to have a material effect.
- The company has related-party arrangements with Vornado, which owned 32.4% of outstanding common stock and provides management, leasing, development and property services.
- No material changes were reported to the risk factors disclosed in the 2022 Form 10-K. Management reported effective disclosure controls and no material changes to internal control over financial reporting.
Investor Verification Items
- Verify the sustainability of rental revenue and occupancy, particularly the concentration of revenue from Bloomberg.
- Assess recurring operating performance using FFO rather than GAAP net income, which benefited from the nonrecurring Rego Park III sale gain.
- Review the June 2024 maturity of the $500.0 million 731 Lexington Avenue office mortgage and potential refinancing or repayment requirements.
- Reconcile the effect of higher interest rates against the company’s caps, swap and other hedging arrangements.
- Evaluate whether operating cash flow and available liquidity remain sufficient to support dividends, capital expenditures and debt service.
- Review Vornado-related fees and agreements, including the $711,000 sales commission recognized in connection with the Rego Park III transaction.