Alexander’s, Inc. 2023 Form 10-K Summary
Business context and reporting period
Alexander’s, Inc. is a New York City-focused REIT engaged in leasing, managing, developing and redeveloping five properties totaling approximately 2.455 million square feet. Vornado Realty Trust manages the Company and leases and develops its properties. This filing covers the fiscal year ended December 31, 2023; separate fourth-quarter results are not disclosed.
- Commercial occupancy was 92.6% and residential occupancy was 95.2% at year-end.
- 731 Lexington Avenue accounted for approximately 66% of rental revenues and Bloomberg accounted for approximately 54%.
- Vornado owned 32.4% of Alexander’s common stock; Steven Roth, Interstate Properties and related partners owned an additional 26.0%, plus 2.3% indirectly through Vornado.
Financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Rental revenues | $225.0 million | $205.8 million | +$19.1 million |
| Operating expenses | $101.2 million | $90.4 million | +$10.8 million |
| Net income | $102.4 million | $57.6 million | +$44.8 million |
| Diluted earnings per share | $19.97 | $11.24 | +$8.73 |
| FFO, non-GAAP | $81.1 million | $87.1 million | -$6.0 million |
| FFO per diluted share | $15.80 | $16.99 | -$1.19 |
| Net cash provided by operating activities | $109.1 million | $102.5 million | +$6.6 million |
- Net income included a $54.0 million gain on the sale of the Rego Park III land parcel. Excluding that gain, reported earnings growth was substantially lower than the GAAP increase suggests.
- Rental revenue increased 9.3%. The filing attributes the increase primarily to $8.1 million of higher straight-line revenue from the IKEA lease modification, $4.2 million of higher reimbursable expenses and capital expenditures, $3.8 million of higher real estate tax reimbursements and $3.4 million from leasing activity.
- Interest and other income increased to $22.2 million from $6.8 million, primarily because of higher average interest rates.
- Interest and debt expense increased to $58.3 million from $28.6 million, including $21.6 million from higher rates and $7.8 million of interest-rate-cap premium amortization.
- Rental revenue less operating expenses was approximately $123.8 million, representing an operating margin of approximately 55.0% before depreciation, general and administrative expenses, interest and other items.
- Cash, cash equivalents and restricted cash totaled $553.0 million at year-end, compared with $214.5 million at December 31, 2022. The increase primarily reflected Treasury bill maturities and real estate-sale proceeds.
- Net real estate was $650.7 million and total equity was $237.7 million at year-end.
Material changes versus the prior comparable period
- The Company sold the Rego Park III land parcel on May 19, 2023, for $71.1 million, generating $67.8 million of net proceeds and a $54.0 million gain.
- The IKEA lease at Rego Park I was modified to accelerate termination to April 1, 2024. IKEA is required to pay rent through March 16, 2026 and a termination payment of up to $10.0 million over the modified lease term.
- Bed Bath & Beyond, which generated approximately $1.5 million of annual revenue, filed for bankruptcy and its 46,000-square-foot Rego Park I lease was rejected in July 2023.
- Commercial occupancy remained affected by 124,000 square feet of vacant space at Rego Park I and 144,000 square feet at Rego Park II.
- The $500.0 million office mortgage secured by 731 Lexington Avenue was extended to June 11, 2024. The loan bears interest at the Prime Rate, capped at 6.0% through maturity under an interest-rate cap.
- Cash dividends paid were $92.3 million, or $18.00 per common share, compared with $92.3 million in 2022.
Debt, liquidity and outlook
- Total mortgage debt was $1.097 billion, or $1.093 billion net of deferred debt issuance costs. The reported debt-to-total-enterprise-value ratio was 66%.
- Debt maturities are concentrated: $500.0 million matures in June 2024 and $502.5 million in 2025, including the $300.0 million 731 Lexington retail mortgage and the $202.5 million Rego Park II mortgage. The remaining $94.0 million matures in 2027.
- Management expects operating cash flow and existing cash balances over the next 12 months to fund operations, dividends, debt service and capital expenditures, but may refinance or repay maturing debt. The filing provides no assurance that refinancing will be available on acceptable terms.
- Approximately $29.0 million of 2024 capital expenditures are expected, funded from operating cash flow, existing liquidity and/or borrowings.
- On February 7, 2024, the Board declared a quarterly dividend of $4.50 per share, an indicated annual rate of $18.00 per share, implying approximately $92.4 million of 2024 cash dividends if maintained.
- Interest-rate caps and swaps hedge portions of variable-rate exposure, but a 1% change in base rates would have an estimated $7.0 million effect on annual interest expense based on year-end variable-rate debt.
Risks, contingencies and unusual items
- Revenue concentration is substantial: Bloomberg represented approximately 54% of rental revenue, and 731 Lexington Avenue represented approximately 66%. Loss of Bloomberg or deterioration in its creditworthiness would be material.
- Office demand remains exposed to work-from-home and hybrid-work trends. Retail properties face risks from tenant bankruptcies, online competition, consumer spending and anchor-tenant performance.
- All properties are concentrated in New York City, exposing the Company to local economic, regulatory, infrastructure, climate and real estate market conditions.
- High leverage and near-term maturities create refinancing and interest-rate risk. Mortgage covenants restrict additional debt, certain leasing activity and prepayments.
- The Company is exposed to uninsured losses, deductibles and insurance availability risks, including terrorism, natural disasters, communicable disease and climate-related events. Terrorism coverage is up to $1.7 billion, but FNSIC bears specified NBCR losses and the Company is ultimately responsible for FNSIC losses.
- Vornado-related management, leasing, development and property-service fees totaled $10.7 million in 2023. The related-party relationship and overlapping ownership may create conflicts of interest.
- Environmental, climate-related and New York City regulatory requirements, including Local Law 97, may increase operating, retrofit, energy and compliance costs.
- Management reported effective disclosure controls and internal control over financial reporting. Deloitte & Touche issued unqualified opinions on the financial statements and internal controls. The critical audit matter concerned real estate impairment estimates and capitalization rates.
Important facts for investors to verify
- Refinancing, repayment or extension plans for the $500.0 million June 2024 mortgage and the $502.5 million of 2025 maturities.
- Bloomberg’s lease term, renewal intentions, credit metrics and continued concentration of rental revenue.
- Re-leasing progress and capital requirements for the IKEA and Bed Bath & Beyond spaces at Rego Park I, and vacant space at Rego Park II.
- Whether the $18.00 annualized dividend is sustainable relative to recurring cash flow and FFO, rather than GAAP net income boosted by the real estate-sale gain.
- Actual interest expense, hedge expirations and exposure to Prime Rate and SOFR after the current caps and swap arrangements expire.
- Potential valuation or impairment sensitivity to capitalization rates, occupancy, rental rates, New York City real estate conditions and climate-related compliance costs.