Company Overview and History
Alexander's, Inc. (ALX) is a real estate investment trust (REIT) that has been a consistent player in the New York City commercial real estate market for decades. With a portfolio of five properties in the heart of the city, the company has weathered various economic cycles, demonstrating its resilience and adaptability.
Established in 1955, Alexander's has a rich history of navigating the complexities of the New York real estate landscape. The company was incorporated in Delaware in the 1960s and has since focused on leasing, managing, developing, and redeveloping its properties in New York City. Throughout its history, Alexander's has faced and overcome various challenges. In the early 2000s, the company dealt with the aftermath of the 9/11 attacks, which impacted its properties and operations in New York City. Despite this, Alexander's was able to maintain its occupancy rates and continue its redevelopment projects.
More recently, in 2021, Alexander's faced another significant challenge when the COVID-19 pandemic caused disruptions in the real estate market. The company worked closely with its tenants, including its largest tenant Bloomberg L.P., to navigate the pandemic's effects. This included implementing lease modifications and other accommodations to support their tenants during this difficult time, showcasing the company's commitment to maintaining strong relationships with its clients.
Strategic Developments
Over the years, Alexander's has also undertaken several major development and redevelopment projects, such as the expansion and renovation of its 731 Lexington Avenue property, which is the global headquarters for Bloomberg L.P. These strategic initiatives have allowed the company to maintain its position as a prominent real estate owner and operator in New York City. The 731 Lexington Avenue property serves as the company's flagship asset and is home to the global headquarters of the renowned financial data and technology firm, Bloomberg L.P. This high-profile tenant not only accounts for a significant portion of Alexander's revenue but also underscores the company's ability to attract and retain premier tenants.
Financials
In the latest quarter, Alexander's reported net income of $31.2 million, or $6.07 per diluted share, for the nine months ended September 30, 2024. This represented a decrease from the prior year's nine-month period, which included a $53.95 million gain on the sale of the Rego Park III land parcel. Funds from operations (FFO), a key metric in the REIT industry, came in at $57.12 million, or $11.13 per diluted share, for the first nine months of 2024, compared to $55.46 million, or $10.81 per diluted share, in the same period of 2023.
For the three months ended September 30, 2024, Alexander's reported rental revenues of $55.67 million, a slight increase from $55.41 million in the prior year's quarter. This increase was primarily due to higher straight-line rental revenue from Bloomberg's lease extension at the 731 Lexington Avenue property and higher lease termination fee income, partially offset by lower rental revenue from IKEA's lease expiration at the Rego Park I property and lower operating expense reimbursements.
For the nine months ended September 30, 2024, the company's rental revenues were $170.46 million, compared to $162.03 million in the prior year's nine-month period, an increase of $8.44 million. This was primarily driven by higher rental revenue from IKEA's lease modification at Rego Park I, higher straight-line rental revenue from Bloomberg's lease extension at 731 Lexington Avenue, and higher reimbursable operating expenses and capital expenditures, partially offset by lower rental revenue from Bed Bath & Beyond's lease rejection at Rego Park I.
Bloomberg L.P. remains a significant tenant for Alexander's, accounting for rental revenues of $93.18 million and $89.86 million for the nine months ended September 30, 2024 and 2023, respectively, representing approximately 55% of the company's rental revenues in each period. No other tenant accounted for more than 10% of Alexander's rental revenues.
Operating expenses for the three months ended September 30, 2024, were $26.45 million, compared to $25.59 million in the prior year's quarter, an increase primarily due to higher real estate tax expense. For the nine months ended September 30, 2024, operating expenses were $76.70 million, compared to $75.36 million in the prior year's nine-month period.
Net income for the three months ended September 30, 2024, was $6.68 million, or $1.30 per diluted share, compared to $10.75 million, or $2.10 per diluted share, in the prior year's quarter. The decrease in net income was primarily due to higher interest expense related to the refinancing of the office condominium at 731 Lexington Avenue.
For the full fiscal year 2023, Alexander's reported revenue of $224.96 million, net income of $102.41 million, and operating cash flow of $109.11 million. The company's year-over-year revenue growth for the most recent quarter was 0.5%.
Strategic Refinancing
One of the notable events during the period was Alexander's strategic refinancing of the $500 million mortgage loan on the office condominium of its 731 Lexington Avenue property. In June 2024, the company extended the loan's maturity by four months and simultaneously paid down the principal balance by $10 million to $490 million. Subsequently, on September 30, 2024, Alexander's entered into a new $400 million mortgage loan on the same property, with a fixed interest rate of 5.04% and a maturity date of October 2028. This refinancing allowed the company to secure favorable terms and extend the loan's maturity, further strengthening its financial position.
Liquidity
Alexander's maintains a strong balance sheet, with $397.18 million in liquidity as of September 30, 2024, composed of cash, cash equivalents, and restricted cash. The company's debt profile remains manageable, with a debt ratio of 72.38% and an interest coverage ratio of 1.65 as of the end of the third quarter. These metrics showcase Alexander's financial discipline and prudent capital management.
As of September 30, 2024, the company reported cash and cash equivalents of $354.82 million. Alexander's has a debt-to-equity ratio of 5.181, reflecting its leveraged position in the real estate market. The company also maintains a $900,000 standby letter of credit facility, providing additional financial flexibility. Both the current ratio and quick ratio stand at 10.02, indicating strong short-term liquidity.
Operational Performance
Operationally, the company reported a commercial occupancy rate of 92.1% and a residential occupancy rate of 96.5% as of September 30, 2024. The Bloomberg L.P. lease extension at the 731 Lexington Avenue property, which was executed in May 2024, underscores the company's ability to retain key tenants and strategically manage its portfolio.
On May 3, 2024, Alexander's and Bloomberg entered into an agreement to extend the leases covering approximately 947,000 square feet at the 731 Lexington Avenue property that were scheduled to expire in February 2029 for a term of eleven years to February 2040. In connection with the lease extension, Bloomberg is entitled to a $113.62 million tenant improvement fund, which is accounted for as a lease incentive under GAAP. This extension provides significant revenue stability for Alexander's, given Bloomberg's importance as a tenant.
Future Outlook
Looking ahead, Alexander's continues to navigate the ongoing challenges posed by the evolving economic landscape, including rising interest rates and inflationary pressures. The company's management team has demonstrated its ability to adapt and make strategic decisions to maintain the stability and growth of the business.
The company's focus remains on its core New York City market, where all of its properties are located. This geographic concentration allows Alexander's to leverage its deep understanding of the local real estate market and maintain strong relationships with tenants and local authorities.
Conclusion
In conclusion, Alexander's has established itself as a reliable player in the New York City commercial real estate market, leveraging its extensive experience, strong tenant relationships, and prudent financial management to navigate through various market conditions. The company's recent refinancing efforts, stable operational performance, and strategic lease extensions, particularly with Bloomberg, underscore its commitment to delivering long-term value for its shareholders. While facing challenges such as higher interest expenses and market pressures, Alexander's continues to demonstrate resilience and adaptability in managing its high-quality portfolio of New York City properties.