Alexander’s, Inc. 2020 Form 10-K 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 totaling 2.444 million square feet. Vornado Realty Trust manages the Company and its properties and owned 32.4% of outstanding common stock at December 31, 2020. The filing covers the fiscal year ended December 31, 2020, including fourth-quarter results.
The portfolio was 97% occupied on an in-service basis at year-end. The largest assets are 731 Lexington Avenue in Manhattan, Rego Park I and II, The Alexander apartment tower, Paramus, Flushing and the Rego Park III development parcel.
Financial Performance and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Rental revenues | $199.1 million | $226.4 million | Down $27.2 million |
| Income from continuing operations | $41.9 million | $60.1 million | Down $18.1 million |
| Net income | $41.9 million | $60.1 million | Down $18.1 million |
| Diluted earnings per share | $8.19 | $11.74 | Down $3.55 |
| FFO | $82.5 million | $99.7 million | Down $17.2 million |
| FFO per diluted share | $16.11 | $19.47 | Down $3.36 |
| Net cash provided by operating activities | $78.1 million | $126.1 million | Down $48.0 million |
Fourth-quarter net income was $18.4 million, or $3.60 per diluted share, compared with $14.4 million, or $2.82 per diluted share, in the fourth quarter of 2019. Fourth-quarter FFO increased to $25.4 million, or $4.96 per diluted share, from $24.6 million, or $4.81 per diluted share.
Rental revenue declined primarily because of $10.8 million of straight-line rent receivable write-offs, $10.5 million of retail vacancies at 731 Lexington Avenue and $5.6 million of lower rental income from tenants deemed uncollectible. Operating expenses declined modestly to $88.4 million from $89.7 million, while depreciation and amortization increased to $32.4 million. Interest and debt expense declined to $24.2 million from $38.9 million, primarily because of lower LIBOR.
Year-end cash and restricted cash totaled $449.9 million, compared with $314.0 million at December 31, 2019. Including $6.0 million of marketable securities, reported liquidity was $455.9 million. Net cash used in investing activities was $32.5 million, primarily for construction in progress and real estate additions. Dividends paid were $92.2 million, or $18.00 per share.
Total mortgage debt was $1.165 billion, or $1.156 billion net of deferred issuance costs, compared with $974.8 million at year-end 2019. Total debt represented 54.1% of enterprise value. Cash payments for principal and interest were $72.5 million. The filing indicates that cash flows from operations and existing cash balances are expected to fund operations, dividends, debt amortization and capital expenditures over the next twelve months, although refinancing availability and terms are not assured.
Material Changes Versus the Prior Comparable Period
- COVID-19 restrictions adversely affected retail tenants, rent collections, occupancy and cash flow. Approximately 95% of fourth-quarter rent billed was collected, or 96% including rent deferrals; office collections were 100%, retail collections were approximately 90% and residential collections were approximately 98%.
- Century 21, representing approximately $6.4 million of annual revenue and 135,000 square feet at Rego Park II, filed for Chapter 11 bankruptcy in September 2020 and closed its store in December 2020. The Company attributed $2.7 million of tenant-receivable write-offs and $5.9 million of straight-line rent write-offs to Century 21.
- The Company reduced its Rego Park II loan participation to $50.0 million and received approximately $145.7 million of cash proceeds.
- The $350.0 million 731 Lexington Avenue retail mortgage was reduced to $300.0 million and extended to August 2025.
- The Company completed a $94.0 million financing for The Alexander apartment tower at a fixed 2.63% rate, maturing in November 2027.
- Marketable securities, consisting primarily of Macerich shares, declined in value to $6.0 million from $14.4 million, producing an $8.6 million fair-value loss in 2020.
- Real estate, net, increased to $720.9 million from $716.8 million, while total equity declined to $203.2 million from $253.5 million after dividends and lower retained earnings.
Guidance, Outlook, Risks and Unusual Items
The Company did not provide formal earnings or revenue guidance. Management stated that liquidity is expected to be adequate for the next twelve months but emphasized continuing uncertainty from COVID-19 and the need to evaluate refinancing and liquidity on an ongoing basis.
- COVID-19 may continue to cause rent deferrals, abatements, tenant defaults, bankruptcies, lower retail traffic, reduced office demand, valuation declines and impairment charges.
- Bloomberg generated $109.1 million of 2020 revenue, approximately 55% of total revenue, and occupies all office space at 731 Lexington Avenue. The loss or financial deterioration of Bloomberg would be material.
- 731 Lexington Avenue generated $137.7 million of revenue, approximately 69% of total revenue, creating substantial property and tenant concentration.
- Debt maturities include $68.0 million in October 2021, $500.0 million in June 2024, $300.0 million in August 2025 and $202.5 million in December 2025. The Company may refinance or repay debt, but refinancing terms are uncertain.
- Approximately $1.003 billion of debt carried variable rates at year-end. A 1% increase in base rates was estimated to increase annual interest expense by approximately $10.0 million before considering applicable hedges. LIBOR phaseout creates additional benchmark-transition risk.
- IKEA has a $75.0 million purchase option for the Paramus land in October 2021. If exercised, the Company expects approximately $7.0 million of net cash proceeds and an approximately $60.0 million gain; if not exercised, rent would support amortization of the $68.0 million mortgage over the remaining lease term.
- The Company has approximately $4.5 million of purchase obligations, primarily construction commitments, and approximately $960,000 of standby letters of credit.
- A Sears-related lawsuit remains stayed following Sears’ bankruptcy; the Company estimates reasonably possible losses, if any, at no more than approximately $650,000. Other ordinary-course litigation is not expected to be material.
- Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. Real estate impairment evaluation, particularly capitalization rates and COVID-19-related assumptions, was identified as a critical audit matter.
Most Important Facts for Investors to Verify
- Whether COVID-19-related rent collections, deferrals, abatements and tenant bankruptcies materially affect 2021 cash flow and FFO.
- The status and creditworthiness of Bloomberg, including lease terms and renewal outlook.
- Refinancing plans and available terms for the October 2021 Paramus mortgage and the 2024–2025 731 Lexington Avenue and Rego Park II maturities.
- Whether the Paramus IKEA purchase option is exercised and whether the projected gain and cash proceeds are realized.
- Re-leasing prospects and required capital expenditures for the former Century 21 space and other vacant retail space.
- The sensitivity of property valuations, impairment testing and debt covenants to office demand, retail conditions, interest rates and capitalization rates.
- The implications of Vornado’s management relationship, ownership position and related-party fees for governance and operating costs.
- The sustainability of the $18.00-per-share annualized dividend relative to FFO, operating cash flow and upcoming debt obligations.