Alexander’s, Inc. 10-Q Summary
Business Context and Reporting Period
Alexander’s, Inc. is a New York metropolitan area REIT engaged in leasing, managing, developing and redeveloping seven properties. Vornado Realty Trust manages the Company and provides leasing and development services; Vornado owned 32.4% of outstanding common stock as of September 30, 2020. This unaudited filing covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
The portfolio comprised 2.449 million square feet, including 2.254 million square feet in service and 195,000 square feet out of service for redevelopment. In-service occupancy was 96% at quarter-end.
Financial Performance and Position
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Rental revenues | $43.5 million | $57.8 million | $143.1 million | $170.5 million |
| Net income | $6.6 million | $16.5 million | $23.5 million | $45.6 million |
| Net income per share | $1.29 | $3.22 | $4.59 | $8.92 |
| FFO | $15.4 million | $25.2 million | $57.1 million | $75.0 million |
| FFO per share | $3.00 | $4.92 | $11.15 | $14.66 |
| Cash flow from operations | Not separately reported | Not separately reported | $55.5 million | $100.0 million |
Net income margin was approximately 15.2% in Q3 2020 versus 28.6% in Q3 2019, and approximately 16.4% for the first nine months versus 26.8% in the prior-year period. FFO declined to approximately 35.3% of nine-month revenue from 44.0% in the prior-year period.
At September 30, 2020, cash and cash equivalents were $355.7 million, restricted cash was $14.1 million, and marketable securities were $3.8 million, for total reported liquidity of $373.6 million. Mortgages payable, net of deferred debt issuance costs, were $1.066 billion, compared with $971.0 million at December 31, 2019. Total equity was $208.5 million, compared with $253.5 million at year-end 2019.
Net cash increased by $55.8 million during the first nine months. Operating cash flow was $55.5 million, investing cash outflow was $23.6 million for construction and real estate additions, and financing cash inflow was $23.9 million. Dividends paid were $69.1 million, or $13.50 per common share.
Material Changes Versus the Prior Comparable Period
- Q3 rental revenue decreased $14.3 million, or approximately 24.7%; nine-month rental revenue decreased $27.4 million, or approximately 16.1%.
- Revenue declines primarily reflected COVID-19-related retail tenant collection issues, write-offs of straight-line rent receivables, retail vacancies at 731 Lexington Avenue and Century 21’s bankruptcy.
- Q3 net income decreased approximately 60.0%, while nine-month net income decreased approximately 48.5%. FFO declined approximately 39.1% in Q3 and 23.9% for the first nine months.
- Operating expenses decreased 4.0% in Q3 and 4.4% year to date, while general and administrative expense increased 4.0% in Q3 and 10.7% year to date.
- Interest and debt expense declined by $5.3 million in Q3 and $10.9 million year to date, primarily because of lower LIBOR and lower amortization of debt issuance costs, partly offset by higher average debt.
- The fair value of Macerich securities declined to $3.8 million from $14.4 million at December 31, 2019, producing a $10.8 million year-to-date loss in earnings.
- On February 14, 2020, the Company reduced its participation in the Rego Park II loan and received approximately $145.7 million. On September 14, 2020, it paid down the 731 Lexington Avenue retail mortgage by $50 million, reducing it to $300 million and extending maturity to August 2025.
Guidance, Outlook, Risks and Unusual Items
The filing provides no formal earnings or revenue guidance. Management stated that existing cash and expected operating cash flow should be adequate over the next twelve months for operations, dividends, debt amortization and capital expenditures, while noting that refinancing availability and terms cannot be assured.
COVID-19 materially affected the business. Approximately 95% of rent billed for Q3 was collected, or 96% including rent deferrals; collections were approximately 87% for retail tenants, 100% for the office tenant and 97% for residential tenants. The Company granted limited rent deferrals and abatements and elected COVID-19 lease-concession guidance permitting qualifying abatements to reduce revenue when granted.
Century 21, occupying 135,000 square feet at Rego Park II and representing approximately $6.4 million of annual revenue, filed for Chapter 11 bankruptcy on September 10, 2020. The Company recorded Q3 write-offs of $3.1 million for uncollectible tenant receivables and $6.6 million for related straight-line rent receivables; corresponding nine-month write-offs were $4.1 million and $10.8 million. Revenue for affected tenants will prospectively be based on amounts actually received.
Bloomberg represented approximately 56% of total revenue for the first nine months of 2020. Loss of Bloomberg or deterioration in its ability to pay could materially affect results. Other risks include continued pandemic-related tenant defaults, occupancy and rent declines, property value impairment, interest-rate exposure, refinancing risk, insurance availability and costs, and dependence on Vornado.
Subsequent to quarter-end, on October 23, 2020, the Company completed a $94 million financing of The Alexander apartment tower at a fixed 2.63% rate, maturing in November 2027. The Paramus property has a $68 million mortgage maturing in October 2021 and a tenant purchase option for $75 million.
Contingencies include Sears litigation with a reasonably possible loss not expected to exceed approximately $650,000, approximately $1.0 million of outstanding standby letters of credit, and potential insurance exposure for uninsured losses, deductibles and losses exceeding coverage. The interim financial statements received a review conclusion from Deloitte & Touche LLP, not an audit opinion.
Important Facts for Investors to Verify
- Whether retail rent collections, occupancy and tenant credit quality recover as pandemic restrictions ease.
- The financial and leasing impact of Century 21’s bankruptcy and the 135,000-square-foot Rego Park II vacancy.
- Bloomberg’s lease terms, financial condition and concentration of approximately 56% of year-to-date revenue.
- Debt maturities, variable-rate exposure and the Company’s ability to refinance on acceptable terms.
- Whether the October 2021 Paramus purchase option is exercised and the resulting cash proceeds and potential gain.
- The sustainability of the $4.50 quarterly dividend in light of reduced operating cash flow and FFO.
- The carrying value and future volatility of Macerich marketable securities.