Executive Summary / Key Takeaways

• Strategic Repositioning for Value: Alexander's, Inc. (ALX) is strategically transforming its concentrated portfolio of five prime New York City properties, notably repositioning Rego Park I for potential sale or redevelopment and securing its anchor tenant, Bloomberg, at 731 Lexington Avenue. This proactive management aims to unlock significant inherent value in a recovering, supply-constrained urban real estate market.
• Resilient Performance Despite Headwinds: Despite a decrease in rental revenue for the first half of 2025 (down 7.22% YoY to $106.50 million) primarily due to tenant expirations (IKEA, Home Depot), ALX's core business demonstrates resilience. Net income for Q2 2025 was $6.12 million, or $1.19 per diluted share, reflecting the impact of strategic redevelopments and interest rate dynamics.
• Optimistic Market Outlook: Management, through Vornado, expresses strong conviction in New York City's Class A office and retail markets, anticipating a "landlord's market" with rents expected to "rise aggressively" due to frozen new supply and increasing demand for high-quality, well-amenitized spaces. This underpins expectations for significant earnings growth by 2027.
• Strong Liquidity and Debt Management: ALX maintains a solid liquidity position of $390.31 million as of June 30, 2025, and is actively managing its debt maturities, including a recent 60-day extension for a $300 million mortgage loan. This conservative approach prioritizes balance sheet strength amidst volatile capital markets.
• Undervalued Assets with Concentration Risk: Management believes ALX's stock is "substantially undervalued relative to its assets," particularly given the irreplaceable nature of its properties. However, a significant concentration risk exists with Bloomberg L.P. accounting for approximately 61% of rental revenues in the first half of 2025.

The Enduring Value of New York's Prime Real Estate: Alexander's Strategic Repositioning

Alexander's, Inc. (ALX) operates as a highly concentrated real estate investment trust, focusing on five irreplaceable properties within the dynamic New York City metropolitan area. Managed by Vornado Realty Trust , which holds a 32.4% ownership stake, ALX's business model centers on leasing, managing, developing, and redeveloping these prime assets to generate long-term rental income and capital appreciation. The company's strategic narrative is one of unlocking inherent value from its unique portfolio, particularly in a New York market that management believes is poised for aggressive rent growth.

The company's history is marked by a disciplined focus on high-value urban real estate. Its portfolio includes the iconic 731 Lexington Avenue, home to Bloomberg L.P.'s world headquarters, and the Rego Center complex in Queens. This concentrated approach, while offering specialized expertise, also highlights a key aspect of its competitive positioning: a niche player in a vast market. ALX competes with a broad array of real estate investors and developers, including larger, more diversified REITs like Vornado Realty Trust (VNO), Simon Property Group (SPG), Kimco Realty (KIM), and Boston Properties .

ALX's competitive advantage is fundamentally rooted in its prime, irreplaceable locations within New York City. This geographic moat provides enhanced pricing power and stable occupancy in high-demand areas. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, ALX's strong performance in securing and retaining major tenants in its key assets suggests a robust competitive standing. Its operational efficiency in managing these specific, high-value properties allows it to effectively compete against the broader portfolios of VNO or the retail-centric focus of SPG and KIM. Compared to Boston Properties (BXP), which shares a similar NYC office focus, ALX's more concentrated portfolio allows for a hyper-local expertise that can translate into superior tenant relationships and tailored property management.

For a traditional REIT like Alexander's, "technological differentiation" is not typically a core competitive moat in the same vein as a biotech or manufacturing firm. Instead, ALX's "technological approach" manifests in its sophisticated property management systems and data-driven insights, leveraged through its manager, Vornado. This enables optimized leasing strategies, efficient building operations, and enhanced tenant experiences. While specific quantifiable benefits of these internal systems are not publicly detailed, their strategic intent is to contribute to ALX's competitive edge by maximizing asset value and tenant satisfaction. This operational excellence, combined with the physical advantages of its prime locations, forms a crucial part of its competitive moat, allowing it to maintain strong occupancy and rental rates even in challenging market conditions.

The broader industry landscape has seen significant shifts. Management has observed the "retail apocalypse" passing, with the sector now "recovering rapidly" as tourism and retailer sales rebound. Similarly, the "CBD office apocalypse," driven by work-from-home trends, is viewed as "shortsighted." Management firmly believes that office work will prevail, especially in New York, which is seen as the "strongest in the nation" for real estate. This conviction is based on the city's robust employment growth, the "flight to quality" trend among tenants seeking Class A, well-amenitized buildings near transit hubs, and a "frozen" new supply pipeline due to high construction costs and elevated interest rates. This confluence of factors is creating a "landlord's market" where rents are expected to "rise aggressively," potentially registering a "spike."

Portfolio Transformation and Operational Highlights

ALX's strategic initiatives are clearly aimed at capitalizing on these market dynamics. A significant transformation is underway at the Rego Park complex. Following IKEA's early lease termination in April 2024 and Home Depot 's lease expiration at 731 Lexington Avenue in January 2025, ALX is relocating Burlington (BURL) and Marshalls (TJX) from Rego Park I to Rego Park II. This move will fully occupy Rego Park II while creating a "fully vacant blank canvas" at Rego Park I. Management views this five-acre parcel as "extraordinarily valuable" for sale or redevelopment, recognizing its potential beyond the existing 66-year-old structure.

The 731 Lexington Avenue property remains a cornerstone of ALX's portfolio. In May 2024, a critical milestone was achieved with the early renewal of Bloomberg L.P.'s 947,000 square foot office lease for an additional eleven years, pushing its expiry to February 2040. This extension, which involved a $32 million leasing commission, is vital given Bloomberg's substantial contribution to ALX's rental revenues, accounting for approximately 61% in the first half of 2025. This long-term commitment from a major credit tenant underscores the quality and strategic importance of the asset.

Occupancy and leasing trends reflect the company's focused strategy. While overall rental revenues decreased by 7.22% to $106.50 million for the six months ended June 30, 2025, compared to the prior year, this was largely due to the planned expirations of IKEA and Home Depot . These declines were partially offset by higher recoveries of operating expenses and capital expenditures, and increased straight-line rental revenue from new tenants at Rego Park II and the Bloomberg lease extension. The company's commercial occupancy rate stood at 94.8% and residential at 98.7% as of June 30, 2025, demonstrating strong asset utilization.

Management firmly believes that Alexander's stock is "substantially undervalued relative to its assets." A sum-of-the-parts analysis, by any construct, suggests a value "very substantially higher than the trading price of the stock." This conviction fuels the ongoing strategic repositioning, with a "fantasy" scenario even contemplating narrowing the company to primarily the Bloomberg office building to unlock maximum value.

Financial Performance and Liquidity: Navigating Headwinds Towards Growth

Alexander's financial performance in the first half of 2025 reflects a period of transition and strategic investment. For the three months ended June 30, 2025, rental revenues were $51.59 million, a decrease from $53.39 million in the prior year. Net income for the quarter was $6.12 million, or $1.19 per diluted share, down from $8.38 million, or $1.63 per diluted share, in Q2 2024. This decline was primarily driven by the $3.78 million lower rental revenue from Home Depot 's lease expiration, partially offset by higher recoveries and new tenant contributions at Rego Park II.

Year-to-date, for the six months ended June 30, 2025, rental revenues totaled $106.50 million, down from $114.79 million in the prior year. Net income for this period was $18.43 million, or $3.59 per diluted share, compared to $24.49 million, or $4.77 per diluted share, in the first half of 2024. The decrease was largely attributed to a $9.00 million reduction from IKEA's lease expiration and a $6.29 million reduction from Home Depot (HD)'s departure. However, these impacts were partially mitigated by the Bloomberg lease extension, new tenants at Rego Park II, and higher recoveries of operating expenses.

Operating expenses increased slightly to $25.93 million for Q2 2025, up from $24.99 million in Q2 2024, mainly due to higher recoverable operating expenses. Interest and other income decreased by $3.13 million in Q2 2025, primarily due to lower average interest rates and investment balances. Conversely, interest and debt expense saw a favorable decrease of $3.42 million in Q2 2025, driven by lower interest rate cap premium amortization, the downsize of the 731 Lexington Office loan, and generally lower rates, though partially offset by the expiration of the 731 Lexington Retail swap.

ALX maintains a robust liquidity position, with $390.31 million in cash and cash equivalents and restricted cash as of June 30, 2025. This represents a slight decrease of $3.53 million from December 31, 2024, primarily due to cash used in financing activities ($48.19 million, including $46.20 million in dividends paid) and investing activities ($14.63 million for construction and real estate additions), partially offset by strong operating cash flow of $59.29 million. The company is actively managing its debt maturities, exemplified by the 60-day extension of the $300 million mortgage loan on the 731 Lexington Avenue retail condominium to October 3, 2025. Management anticipates that existing cash balances and cash flow from operations will be adequate to fund business operations, dividends, debt service, and capital expenditures over the next twelve months.

Outlook, Guidance, and Risk Factors

Management's outlook, as articulated through Vornado, points to a near-term dip in comparable FFO for 2025, expected to be "slightly lower than 2024." This is largely attributed to the non-recurrence of a positive lease termination income from 2024 and the timing of GAAP earnings recognition from new leases and the lease-up of major projects like Penn One and Penn Two (Vornado's assets). However, this is viewed as a temporary trough, with "significant earnings growth by 2027" anticipated as these new leases come online and market conditions continue to tighten. Steven Roth, Vornado's Chairman, explicitly stated, "I'm expecting that the cash, the actual cash flow or AFFO... We are at the bottom of that cycle, and that's going to go up. In a market which I think is going to get much tighter."

The underlying assumptions for this optimistic long-term outlook are rooted in the unique dynamics of the New York City real estate market. Management foresees a "landlord's market" emerging, driven by "frozen" new supply and robust demand. They predict rents will "rise aggressively," potentially registering a "spike," particularly in the "better space" market where availability is rapidly diminishing. This environment is expected to significantly enhance the value of ALX's prime, existing assets.

ALX's dividend policy reflects a conservative approach to capital allocation. In the current environment, the Board's strategy is to "retain as much cash as we can," prioritizing balance sheet strength. Dividend payments are expected to align with minimum taxable income requirements, with the potential for asset sales to influence the final payout.

Despite the positive outlook, several risks warrant investor attention. The most significant is tenant concentration, with Bloomberg L.P. representing a substantial portion of ALX's rental revenues. The loss of Bloomberg or its inability to fulfill lease obligations would "adversely affect our results of operations and financial condition." Refinancing risk is also pertinent, as ALX's success depends on its "ability to refinance existing debt on acceptable terms as it comes due." The broader capital markets remain "challenged, read, frozen," with lenders often demanding higher rates or greater coverage, which could impact ALX's ability to finance or refinance properties. Furthermore, general economic downturns, interest rate fluctuations, and inflation could continue to affect cash flow.

Conclusion

Alexander's, Inc. presents a compelling investment narrative centered on the strategic unlocking of value from its concentrated portfolio of prime New York City real estate. The company's disciplined approach to asset management, exemplified by the repositioning of Rego Park I and the long-term securing of Bloomberg at 731 Lexington Avenue, positions it to capitalize on a tightening urban market. While short-term financial performance reflects the impact of tenant transitions and interest rate headwinds, management's strong conviction in New York's recovering Class A office and retail sectors, coupled with a supply-constrained environment, points to significant earnings growth by 2027.

ALX's competitive strength lies in its irreplaceable locations and operational excellence, allowing it to command premium rents and maintain high occupancy in a market characterized by a "flight to quality." Despite the inherent risks of tenant concentration and challenging capital markets, ALX's robust liquidity and proactive debt management underscore its resilience. For discerning investors, Alexander's offers a unique opportunity to participate in the long-term appreciation of New York's most valuable real estate, driven by strategic asset optimization and a favorable market cycle, with management actively working to realize the "substantially undervalued" potential of its assets.