Alexander’s, Inc. 10-Q Summary
Business Context and Reporting Period
Alexander’s, Inc. is a Delaware REIT that leases, manages, develops and redevelops six properties in the New York City metropolitan area. Vornado Realty Trust manages the Company and provides leasing and development services; Vornado owned 32.4% of outstanding common stock as of September 30, 2022. This unaudited filing covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Rental revenues | $53.7 million | $49.0 million | $152.8 million | $156.5 million |
| Net income | $15.1 million | $11.4 million | $44.5 million | $55.2 million |
| Net income per diluted share | $2.95 | $2.22 | $8.67 | $10.77 |
| FFO, non-GAAP | $22.5 million | $21.2 million | $66.5 million | $68.1 million |
| FFO per diluted share | $4.40 | $4.13 | $12.96 | $13.29 |
| Net cash from operating activities | Not separately provided | Not separately provided | $76.2 million | $90.9 million |
Net income margins were approximately 28.1% in Q3 2022 and 29.1% for the first nine months of 2022. The Company reported 2,241,000 square feet in service and 213,000 square feet out of service for redevelopment. In-service occupancy was 96% excluding residential space and 98% for residential space.
At September 30, 2022, real estate, net was $689.4 million, cash and cash equivalents were $264.9 million, restricted cash was $19.5 million and U.S. Treasury bills were $197.9 million. Total liquidity, including cash, restricted cash and Treasury bills, was $482.3 million. Mortgages payable, net of deferred debt issuance costs, were $1.091 billion, with total mortgage principal of $1.097 billion. Debt maturities are concentrated in 2024 and 2025, including the $500 million 731 Lexington Avenue office mortgage maturing in June 2024.
Cash dividends paid during the first nine months were $69.2 million, or $13.50 per common share. Total equity was $248.3 million at September 30, 2022, compared with $252.6 million at December 31, 2021.
Material Changes Versus the Prior Comparable Period
- Q3 rental revenues increased $4.8 million, or approximately 9.8%, primarily from $2.0 million of Century 21 bankruptcy proceeds, higher real estate tax reimbursements, leasing activity and higher residential occupancy. These increases were partly offset by $1.8 million of lower revenue following the October 2021 sale of the Paramus property.
- Nine-month rental revenues declined $3.7 million, or approximately 2.4%, mainly because of the Paramus sale, lower real estate tax reimbursements and the absence of a prior-year lease termination fee. Higher leasing activity, Century 21 bankruptcy proceeds and residential occupancy partly offset the decline.
- Q3 net income increased $3.7 million, while nine-month net income decreased $10.7 million. The nine-month comparison was affected by the prior-year $9.1 million real estate sale gain and $3.4 million gain from marketable securities.
- Q3 FFO increased 6.4% to $22.5 million, while nine-month FFO decreased 2.4% to $66.5 million.
- Interest and debt expense increased $2.9 million in Q3 and $2.6 million for the first nine months, primarily because of higher LIBOR, partly offset by lower interest expense after the Paramus debt payoff.
- Operating cash flow declined $14.7 million, or approximately 16.2%, to $76.2 million. Cash, cash equivalents and restricted cash declined $199.1 million, primarily because the Company purchased $197.4 million of Treasury bills and paid $69.2 million of dividends.
- Accumulated other comprehensive income increased to $27.5 million from $7.5 million at year-end, primarily from changes in the fair value of interest rate derivatives and other items.
Outlook, Risks, Contingencies and Unusual Items
Management stated that operating cash flows over the next twelve months, together with existing cash balances, are expected to fund operations, dividends, debt amortization and capital expenditures. The filing provides no formal earnings or revenue guidance. Management may refinance maturing debt or pay it down, but cautions that financing may not be available on acceptable terms.
- Management continues to identify COVID-19 effects, rising interest rates, inflation, tenant financial health, economic conditions and real estate market conditions as material uncertainties.
- Bloomberg accounted for approximately 53% of nine-month 2022 revenue, creating significant tenant concentration risk. No other tenant exceeded 10% of revenue.
- Variable-rate debt totaled $702.5 million at September 30, 2022. Management estimated that a 1% change in base rates would affect annualized earnings by approximately $7.0 million, or $1.37 per diluted share. A $500 million mortgage is capped at 6.0% LIBOR, and a $300 million mortgage is fixed at 1.72% through May 2025 through an interest rate swap.
- New World Mall exercised a 10-year extension through January 2037, resulting in approximately $17 million of additional right-of-use assets and lease liabilities.
- After quarter-end, the Company invested an additional $166.8 million in Treasury bills. IKEA announced plans to close its 112,000-square-foot Rego Park I store, but remains obligated under its lease through December 2030, subject to specified termination rights and payments.
- Approximately $900,000 of standby letters of credit were outstanding. The Company disclosed ordinary-course litigation that management does not expect to be material.
- Insurance coverage and future availability of coverage, particularly for terrorism and other events, may affect operating costs and refinancing capacity. The Company remains responsible for uninsured losses, deductibles and losses exceeding coverage.
Important Facts for Investors to Verify
- Verify the timing and refinancing terms for the $500 million June 2024 mortgage and other 2025 maturities.
- Assess Bloomberg’s lease durability, credit quality and contribution to revenue.
- Monitor exposure to variable interest rates, LIBOR transition and the effectiveness of the interest rate cap and swap.
- Evaluate occupancy, leasing activity and redevelopment progress at the Rego Park properties.
- Assess the financial effect of IKEA’s announced store closure, including lease termination rights and payments.
- Reconcile reported FFO to GAAP net income and remember that FFO is non-GAAP and does not represent operating cash flow or cash available for dividends.
- Confirm the sustainability of the $4.50 quarterly dividend in relation to operating cash flow, debt service and capital requirements.