Alexander’s, Inc. 10-Q Summary
Business context and reporting period
Alexander’s, Inc. is a New York metropolitan-area REIT with seven properties engaged in leasing, managing, developing and redeveloping real estate. Vornado Realty Trust owns 32.4% of the outstanding common stock and manages, leases and develops the properties. This filing covers the three and six months ended June 30, 2021; the interim financial statements are unaudited.
Financial performance and key metrics
- Revenue: Second-quarter rental revenue was $51.4 million, up from $45.5 million; six-month revenue was $107.5 million, up from $99.6 million.
- Net income: Second-quarter net income was $25.9 million, or $5.05 per diluted share, versus $12.3 million, or $2.41, in the prior-year quarter. Six-month net income was $43.8 million, or $8.55 per share, versus $16.9 million, or $3.30.
- FFO: Second-quarter FFO was $21.1 million, or $4.12 per diluted share, versus $18.0 million, or $3.51. Six-month FFO was $46.9 million, or $9.16 per share, versus $41.7 million, or $8.15.
- Margins: Net income margin was approximately 50.4% for the quarter and 40.7% for the six months, compared with approximately 27.1% and 17.0%, respectively, in the comparable 2020 periods. The comparison was materially affected by the 2021 real estate gain and marketable-securities gains.
- Cash flow: Six-month operating cash flow was $62.5 million, compared with $52.8 million. Investing activities provided $2.8 million, including $9.3 million of net real estate-sale proceeds, while financing activities used $46.1 million, primarily for dividends.
- Liquidity: Cash, cash equivalents and restricted cash totaled $469.1 million at June 30, 2021. Including $10.3 million of marketable securities, reported liquidity was $479.4 million.
- Debt: Mortgages payable, net of deferred issuance costs, were $1.157 billion. Gross mortgage debt was $1.165 billion, with estimated fair value of $1.124 billion. Approximately $1.003 billion was variable-rate debt, and the company uses an interest-rate cap and swap to mitigate exposure.
- Portfolio: The portfolio comprised 2.455 million square feet, including 236,000 square feet out of service for redevelopment. Nonresidential in-service occupancy was 95%; residential occupancy was 83%.
- Dividends: The company paid $46.1 million during the first six months, or $9.00 per common share.
Material changes versus the prior comparable period
- Rental revenue increased 8.0% for the quarter and 8.0% for the six months. The increases primarily reflected prior-year tenant receivable write-offs, higher revenue from certain retail tenants placed on a cash basis, new tenants and a six-month lease termination fee.
- Operating expenses increased 18.4% for the quarter and 13.7% for the six months, primarily because of higher recoverable real estate taxes and common-area-maintenance costs.
- Interest and debt expense declined by $1.1 million for the quarter and $4.5 million for the six months, primarily because of lower LIBOR.
- The change in fair value of marketable securities was a $3.7 million gain in the quarter and a $4.3 million gain for the six months, compared with gains of $1.8 million and a loss of $9.6 million, respectively, in 2020.
- The company sold a Bronx land parcel on June 4, 2021 for $10.0 million, generating $9.3 million of net proceeds and a $9.1 million financial-statement gain.
- Cash flow benefited from the real estate sale, but 2020 financing cash flow had benefited from $145.7 million of proceeds related to the reduction of the company’s participation in a Rego Park II mortgage loan; no comparable borrowing proceeds occurred in 2021.
Guidance, outlook, risks and unusual items
- No formal earnings or revenue guidance was provided. 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.
- IKEA exercised its option to purchase the Paramus land parcel for $75.0 million. The company expects the sale to close in the fourth quarter of 2021, with approximately $4.0 million of net cash proceeds after debt repayment and closing costs and an anticipated financial-statement gain of approximately $60.0 million. The related $68.0 million mortgage matures October 4, 2021.
- COVID-19 continues to affect tenant financial health. Rent collections for the second quarter were approximately 97% overall, including 100% from the office tenant, 93% from retail tenants and 98% from residential tenants. Rent deferrals or abatements may continue.
- Bloomberg accounted for approximately 53% of total revenue in the first six months. Loss of Bloomberg or deterioration in its ability to pay would materially affect results and financial condition.
- The company may refinance or repay maturing debt, but availability and terms of refinancing are uncertain. A 1% change in base rates was estimated to affect annualized diluted earnings by approximately $1.96 per share.
- The company faces insurance availability and cost risks, including exposure to uninsured losses, deductibles and losses exceeding coverage. The Rego Park I Sears litigation remains stayed following Sears’s bankruptcy; the company estimates reasonably possible losses, if any, should not exceed approximately $650,000.
- The filing reported no material changes to previously disclosed risk factors, and management concluded that disclosure controls and procedures were effective.
Important facts for investors to verify
- Confirm the timing and final economics of the expected Paramus/IKEA sale, including mortgage repayment, net proceeds and gain recognition.
- Monitor Bloomberg’s lease, creditworthiness and share of total revenue concentration.
- Track retail and residential occupancy, rent collections and any additional COVID-19 deferrals or abatements.
- Review upcoming debt maturities, refinancing plans and sensitivity to LIBOR or other reference-rate changes.
- Distinguish recurring FFO and operating cash flow from reported net income, which benefited from the Bronx sale and marketable-securities fair-value gains.
- Evaluate related-party fees and transactions with Vornado, which totaled $5.0 million during the first six months of 2021.