Alexander’s, Inc. 10-Q Summary
Business Context and Reporting Period
Alexander’s, Inc. is a New York City-focused REIT engaged in leasing, managing, developing and redeveloping six properties totaling approximately 2.454 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 March 31, 2023. This report covers the three months ended March 31, 2023, with unaudited comparisons to the three months ended March 31, 2022.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Rental revenues | $52.9 million | $49.2 million | +7.6% |
| Net income | $11.2 million | $14.5 million | -22.8% |
| Net income per diluted share | $2.19 | $2.84 | -22.9% |
| FFO, non-GAAP | $18.6 million | $21.8 million | -14.5% |
| FFO per diluted share | $3.63 | $4.25 | -14.6% |
| Net cash provided by operating activities | $20.7 million | $32.2 million | -35.6% |
Net margin was approximately 21.2% in Q1 2023 versus 29.5% in Q1 2022. Rental revenue consisted primarily of lease revenue of $51.0 million, including $34.7 million of fixed lease revenue and $16.3 million of variable lease revenue. Commercial occupancy was 86.9% and residential occupancy was 97.4% at March 31, 2023.
Operating expenses increased to $24.9 million from $21.5 million, primarily due to higher real estate tax expense. Depreciation and amortization was $7.5 million, compared with $7.4 million. General and administrative expense declined to $1.4 million from $1.5 million.
Interest and other income increased to $4.3 million from $0.1 million, reflecting higher interest rates and income from U.S. Treasury bills. Interest and debt expense increased to $12.3 million from $4.4 million, primarily because of higher LIBOR and SOFR rates.
Liquidity, Cash Flow and Debt
Liquidity was $476.7 million at March 31, 2023, consisting of $376.9 million of cash, cash equivalents and restricted cash and $99.8 million of U.S. Treasury bills. Cash and restricted cash increased by $162.4 million during the quarter, principally because $166.8 million of Treasury bills matured. Operating activities provided $20.7 million, investing activities provided $164.8 million, and financing activities used $23.1 million, including $23.1 million of dividends.
Mortgages payable totaled $1.0965 billion before deferred debt issuance costs, or $1.0914 billion net. The debt portfolio had a weighted average interest rate of 4.29%, including $702.5 million of variable-rate debt and $394.0 million of fixed-rate debt. The company has mortgage maturities in 2024, 2025 and 2027 and may refinance maturing debt or pay it down.
Interest-rate protection includes a $300 million swap fixed at 1.76% through May 2025, a $202.5 million SOFR cap at 4.15% through November 2024 and a $500 million LIBOR cap at 6.00% through June 2023. The 731 Lexington Avenue office loan has a one-year extension option beginning June 2023, during which the interest rate will be the Prime rate, stated as 8.00% at March 31, 2023.
Material Changes Versus the Prior Comparable Period
- Rental revenue increased $3.7 million, driven primarily by $1.7 million of higher revenue from leasing activity and $1.5 million of higher real estate tax reimbursements.
- Higher interest expense more than offset increased rental revenue and interest income, reducing net income by $3.3 million and FFO by $3.2 million.
- Operating cash flow declined $11.4 million, primarily reflecting changes in operating assets and liabilities and lower reported earnings.
- Comprehensive income declined to $7.6 million from $26.3 million because the change in fair value of interest-rate derivatives and other items was a $3.6 million loss in 2023 versus an $11.7 million gain in 2022.
- Dividends remained $4.50 per common share, totaling $23.1 million in Q1 2023.
Outlook, Risks, Contingencies and Unusual Items
The company expects cash flow from continuing operations and existing cash balances over the next twelve months to fund operations, dividends, debt service and capital expenditures. Management cautions that refinancing may not be available on acceptable terms.
On March 8, 2023, the company agreed to sell the Rego Park III land parcel for $71.1 million, subject to customary closing conditions, with closing expected in Q2 2023. The company expects an approximately $54.0 million financial statement gain; the property’s $13.8 million carrying value was classified as held for sale at March 31, 2023.
Bloomberg accounted for approximately 56% of rental revenue, or $29.5 million, creating significant tenant concentration and credit risk. Management identified higher interest rates, inflation, economic conditions, tenant health, real estate market conditions and the continuing effects of COVID-19 as risks. Insurance availability and costs may also affect financing and refinancing capacity. Approximately $0.9 million of standby letters of credit were outstanding, and ordinary-course legal proceedings were not expected to have a material effect.
The filing states that there were no material changes to previously disclosed risk factors, no defaults upon senior securities and no material changes affecting internal control over financial reporting. The interim financial information received a review report from Deloitte & Touche LLP without identified material modifications.
Important Facts for Investors to Verify
- Completion, timing and final gain from the planned $71.1 million Rego Park III land sale.
- Refinancing plans and available terms for the $500 million 731 Lexington Avenue office mortgage maturing in 2024 and other debt maturities.
- Impact of higher interest rates after the June 2023 expiration of the office loan’s LIBOR cap and potential Prime-rate extension.
- Bloomberg’s creditworthiness, lease status and continued contribution of approximately 56% of rental revenue.
- Commercial occupancy, leasing activity and the effect of inflation and tenant pressure on operating expenses and collections.
- Ability to maintain the $4.50-per-share dividend while funding debt service, capital expenditures and potential debt repayment.
- FFO should be evaluated as a non-GAAP measure and not as a substitute for net income or cash flow from operations.