Alexander’s, Inc. 10-Q Summary
Business Context and Reporting Period
Alexander’s, Inc. is a New York metropolitan-area real estate investment trust managed by Vornado Realty Trust. The company leases, manages, develops and redevelops commercial and residential properties. This Form 10-Q covers the three and nine months ended September 30, 2021. The portfolio comprised seven properties totaling approximately 2.454 million square feet; in-service commercial space was 96% occupied and residential space was 93% occupied.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Rental revenue | $49.0 million | $43.5 million | $156.5 million | $143.1 million |
| Net income | $11.4 million | $6.6 million | $55.2 million | $23.5 million |
| Net income per diluted share | $2.22 | $1.29 | $10.77 | $4.59 |
| FFO per diluted share | $4.13 | $3.00 | $13.29 | $11.15 |
| Net cash from operations | Not separately provided | Not separately provided | $90.9 million | $55.5 million |
Net income margins were approximately 23.3% for the quarter and 35.3% for the nine-month period, compared with approximately 15.2% and 16.4%, respectively, in the comparable periods. These margins benefited from the Bronx land-sale gain and favorable changes in the fair value of marketable securities.
- Total expenses were $31.7 million in the quarter and $99.0 million for the nine months.
- Interest and debt expense was $5.1 million in the quarter and $15.4 million for the nine months.
- Cash, cash equivalents and restricted cash totaled $469.8 million at September 30, 2021. Including $9.4 million of marketable securities, reported liquidity was $479.2 million.
- Mortgages payable, net of deferred issuance costs, totaled $1.157 billion; gross mortgage principal was $1.165 billion. Estimated debt fair value was $1.130 billion.
- Cash dividends paid were $23.1 million in the quarter and $69.2 million for the nine months, equal to $4.50 and $13.50 per share, respectively.
Material Changes Versus the Prior Comparable Period
- Quarterly rental revenue increased $5.5 million, or approximately 12.5%, primarily because of prior-year receivable write-offs and higher revenue from new tenants, partly offset by retail vacancies.
- Nine-month rental revenue increased $13.4 million, or approximately 9.4%, driven by the absence of prior-year tenant receivable write-offs and higher new-tenant revenue, partly offset by vacancies at 731 Lexington Avenue and Rego Park II.
- Quarterly net income increased $4.8 million, while nine-month net income increased $31.7 million. The nine-month increase included a $9.1 million gain on the Bronx land sale and a $14.2 million year-over-year improvement in Macerich marketable-securities valuation.
- FFO increased to $21.2 million, or $4.13 per share, in the quarter and $68.1 million, or $13.29 per share, for the nine months, compared with $15.4 million and $57.1 million, respectively, in the prior-year periods.
- Operating cash flow increased $35.4 million to $90.9 million for the nine months. Financing cash usage was $69.2 million, primarily reflecting dividends, while investing cash usage was $1.8 million.
- Debt balances were broadly unchanged year over year. Rego Park II debt was reduced by $50.0 million in April 2021 using the company’s loan participation.
Guidance, Outlook, Risks and Unusual Items
- Management stated that expected operating cash flow and existing cash balances should be adequate over the next twelve months for operations, dividends, debt amortization and capital expenditures. No formal earnings guidance was provided.
- On October 4, 2021, after quarter-end, the company sold the Paramus Property for $75.0 million. After closing costs and repayment of its $68.0 million mortgage, net proceeds were $4.6 million. The $60.8 million financial-statement gain is expected to be recognized in the fourth quarter of 2021. Management did not expect a special dividend from the real estate transactions.
- Bloomberg represented approximately 54% of nine-month revenue. The loss of Bloomberg or deterioration in its ability to meet lease obligations would materially affect results and financial condition.
- COVID-19 continued to affect tenants, particularly retail tenants, and could materially affect occupancy, collections, cash flow and property values. Management noted that substantially all retail tenants were open, but economic pressures remained.
- The company faces refinancing and interest-rate risk. Approximately $702.5 million of debt was variable-rate at September 30, 2021; management estimated that a 1% change in base rates would affect annual pre-tax income by approximately $7.0 million and diluted earnings per share by approximately $1.37.
- Insurance coverage may not remain available on commercially reasonable terms. The company is responsible for uninsured losses, deductibles and losses exceeding coverage, including specified exposure related to nuclear, biological, chemical and radiological terrorism events.
- Sears litigation relating to the Rego Park I property remained stayed following Sears’ bankruptcy filing. The company estimated reasonably possible losses, if any, would not exceed approximately $650,000.
- Approximately $960,000 of standby letters of credit were outstanding. The company reported no material changes to previously disclosed risk factors.
- Effective November 2, 2021, Gary Hansen became chief financial officer, succeeding Matthew Iocco, who planned to retire after assisting with the transition through December 31, 2021.
Important Facts for Investors to Verify
- Verify the fourth-quarter accounting and cash impact of the October 2021 Paramus Property sale, including the $60.8 million gain and mortgage repayment.
- Monitor Bloomberg’s lease, credit profile and contribution to revenue concentration.
- Review occupancy, leasing progress and redevelopment plans for the 236,000 square feet of out-of-service space.
- Assess refinancing needs and exposure to LIBOR or successor-rate movements on variable-rate mortgages.
- Distinguish GAAP net income from FFO, because FFO excludes real-estate depreciation and certain valuation and sale-related items and is not a cash-flow measure.
- Evaluate the sustainability of dividends relative to recurring operating cash flow after capital expenditures and debt service.