Executive Summary / Key Takeaways

• Alexander's Inc. (ALX) is a New York City-focused REIT with a concentrated portfolio of prime assets, strategically managed by Vornado Realty Trust, positioning it to benefit from a tightening urban real estate market and a "flight to quality" among tenants.
• Recent financial performance for the nine months ended September 30, 2025, reflects a decrease in net income and FFO, primarily driven by significant tenant expirations (Home Depot, IKEA) and lower interest income, partially offset by new leases at Rego Park II and Bloomberg's lease extension.
• The company is actively repositioning its Rego Park I property into a vacant "blank canvas" for potential sale or redevelopment, a move expected to unlock substantial land value, while securing a long-term lease with major tenant Bloomberg L.P. at 731 Lexington Avenue.
• ALX faces immediate liquidity challenges, notably the unresolved $300 million mortgage loan on the 731 Lexington Avenue retail condominium, which was not repaid at its extended maturity date of October 3, 2025, leading to ongoing restructuring discussions.
• Management believes ALX's stock is "substantially undervalued relative to its assets," with a long-term outlook for aggressive rent increases in New York's "landlord's market" due to frozen new supply and high construction costs.

A Focused Play in New York's Evolving Urban Core

Alexander's Inc. (ALX) operates as a real estate investment trust (REIT) with a concentrated portfolio of five properties across the New York City metropolitan area. Managed and developed by Vornado Realty Trust (Vornado), which held a 32.40% stake as of September 30, 2025, ALX's strategy centers on leveraging its prime locations in a market characterized by limited new supply and increasing demand for high-quality space. The company's core assets include the 731 Lexington Avenue office and retail complex, the Rego Center complex in Queens, and a retail property in Flushing, NY. This focused approach allows ALX to capitalize on deep local market expertise and Vornado's extensive development and leasing acumen.

The broader New York City real estate market is undergoing a significant transformation. Vornado's management highlights that while the city boasts over 400 million square feet of office space, the true competitive arena for "better space" is a narrower 188 million square feet, where availability is rapidly declining, currently at 10.7%. The cost of new construction has "just about doubled over the last six to seven years," and with high debt costs, new supply is "frozen," creating a "landlord's market" where rents are expected to "rise aggressively". This "flight to quality" trend, where tenants prioritize modern, amenitized buildings near transit hubs, directly benefits ALX's portfolio.

ALX's competitive edge stems primarily from its strategically located, high-quality real estate assets and the operational and strategic expertise provided by Vornado Realty Trust, rather than proprietary technological innovations within its properties. As a traditional real estate owner and developer, ALX's differentiation lies in Vornado's proven ability to identify, develop, and manage premier urban properties, ensuring high occupancy and strong rental income. This management strength, combined with ALX's concentrated portfolio in desirable New York City submarkets, allows it to effectively compete with larger, more diversified REITs by offering specialized local market knowledge and a curated tenant experience.

Strategic Repositioning and Operational Dynamics

ALX's recent history is marked by strategic asset repositioning and significant lease events. A cornerstone of its portfolio, the 731 Lexington Avenue office condominium, secured its anchor tenant, Bloomberg L.P., through an eleven-year lease extension in May 2024, pushing the expiry to February 2040. This agreement, which involved a $32.00 million leasing commission, provides long-term stability, though it also underscores a significant tenant concentration risk, with Bloomberg accounting for approximately 60% of rental revenues for the nine months ended September 30, 2025.

Conversely, the retail portion of 731 Lexington Avenue saw Home Depot 's 83,000 square foot lease expire on January 31, 2025, resulting in an approximate $15.00 million reduction in annual rental revenues. Similarly, at Rego Park I, IKEA's 112,000 square foot lease was accelerated to an April 1, 2024, termination, with ALX receiving a $10.00 million termination payment. In a strategic move to unlock value, ALX is relocating the last remaining tenants, Burlington (BURL) and Marshalls (TJX), from the 66-year-old Rego Park I to the adjacent, more recently built Rego Park II. This transformation of Rego Park I into a "blank canvas" is intended to facilitate its sale or redevelopment, as management believes the five-acre parcel is "worth more as land than the 66-year-old building".

Financial Performance and Liquidity Profile

For the nine months ended September 30, 2025, ALX reported net income of $24.40 million, or $4.75 per diluted share, a decrease from $31.17 million, or $6.07 per diluted share, in the prior-year period. Funds from operations (FFO) for the same period stood at $50.52 million, or $9.84 per diluted share, down from $57.12 million, or $11.13 per diluted share. This decline was largely driven by a $10.54 million decrease in rental revenues, primarily attributable to the Home Depot (HD) and IKEA lease expirations, partially offset by new leases at Rego Park II and Bloomberg's extension.

Operating expenses increased by $1.49 million for the nine-month period, mainly due to higher recoverable operating expenses. Interest and debt expense saw a significant decrease of $14.04 million, benefiting from lower rates and the refinancing of the 731 Lexington Office loan, though partially offset by the expiration of an interest rate swap.

ALX's liquidity as of September 30, 2025, was $352.26 million, comprising cash and cash equivalents and restricted cash. However, the company faces an immediate challenge with the $300 million non-recourse mortgage loan on the 731 Lexington Avenue retail condominium, which was not repaid at its extended maturity date of October 3, 2025, leading to ongoing restructuring discussions with lenders. While ALX anticipates sufficient cash flow to cover operations, dividends, and debt service over the next twelve months, the ability to refinance maturing debt on acceptable terms remains a key concern, especially given Vornado's commentary that current lending rates around 8% are "too high" for aggressive refinancing.

The company's TTM financial ratios reflect its current state: a Gross Profit Margin of 47.82%, Operating Profit Margin of 33.59%, and Net Profit Margin of 17.14%. The Debt/Equity Ratio stands at 6.94, indicating a highly leveraged balance sheet. The P/E Ratio is 29.74, and the Dividend Yield is 8.31%, with Free Cash Flow Per Share at $13.90. These figures suggest that while ALX maintains healthy operational margins, its profitability has been impacted by recent tenant transitions and its debt structure.

Competitive Landscape and Outlook

ALX operates in a highly competitive New York City real estate market, vying with numerous investors, property owners, and developers. Its primary direct competitors include larger, more diversified REITs such as Vornado Realty Trust (VNO), Simon Property Group (SPG), Kimco Realty (KIM), and Boston Properties (BXP). While ALX's portfolio is more concentrated, its strength lies in its prime New York City locations and the strategic oversight of Vornado. This localized expertise allows ALX to command strong tenant interest in a market where "flight to quality" is paramount.

Compared to its peers, ALX's smaller scale and limited geographic diversification present vulnerabilities, potentially exposing it more to local market risks than a company like VNO or SPG with broader portfolios. However, ALX's focus on high-quality, redeveloped assets in key urban hubs, particularly the Rego Park repositioning and the stability of the Bloomberg lease, positions it to benefit from the current market dynamics. Vornado's management believes that the lack of new supply and robust demand will lead to "aggressively" rising rents, with potential for "monumental" income appreciation in well-positioned assets.

Looking ahead, management believes ALX's stock is "substantially undervalued relative to its assets". While specific guidance for ALX's FFO for 2025 was not provided, Vornado's broader outlook for its own comparable FFO in 2025 is "slightly lower than 2024," with significant earnings growth projected for 2027, driven by the lease-up of major developments. ALX's dividend policy is currently to pay the minimum required by taxable income to conserve cash, with future asset sales potentially influencing dividend levels. The strategic sale of Rego Park I, if successful, could unlock significant value and provide capital for debt reduction or other accretive opportunities.

Conclusion

Alexander's Inc. presents a compelling, albeit complex, investment thesis rooted in its concentrated portfolio of high-quality New York City real estate assets and the strategic management by Vornado Realty Trust. Despite recent financial headwinds from tenant expirations and ongoing debt restructuring discussions for its 731 Lexington Avenue retail mortgage, ALX is strategically repositioning its assets to capitalize on a tightening urban market. The long-term lease with Bloomberg L.P. provides a stable income base, while the planned redevelopment or sale of Rego Park I offers a clear path to unlocking significant value.

The broader New York City real estate market dynamics, characterized by frozen new supply and a "flight to quality," are expected to drive aggressive rent growth, creating a "landlord's market" that should benefit ALX's prime locations. While the company's smaller scale and tenant concentration are notable risks, management's conviction in the "substantially undervalued" nature of ALX's assets, coupled with Vornado's deep market expertise, suggests a potential for long-term value creation. Investors should monitor the resolution of the 731 Lexington Avenue retail mortgage, the progress of the Rego Park I disposition, and the broader trajectory of New York City rental rates as key indicators of ALX's future performance.