Alexander’s(ALX) - 2019 Q4 - Annual Report

Part I Business Alexander's, Inc. is a REIT owning and managing seven properties in the greater New York City area, with significant revenue from a single tenant, Bloomberg L.P - The company operates as a REIT, focusing on leasing, managing, and developing its seven properties located in the greater New York City metropolitan area It is managed by Vornado Realty Trust[9] - The property portfolio includes six operating properties (731 Lexington Avenue, Rego Park I & II, The Alexander apartment tower, Paramus, and Flushing) and one property to be developed (Rego Park III)[10][11] - As of December 31, 2019, Vornado owned 32.4% of Alexander's common stock, with significant executive management overlaps[14] Revenue from Significant Tenant (Bloomberg L.P.) | Year | Revenue (in thousands) | Percentage of Total Revenue | | :--- | :--- | :--- | | 2019 | $109,113 | ~48% | | 2018 | $107,356 | ~46% | | 2017 | $105,224 | ~46% | Risk Factors The company faces significant risks from geographic concentration, reliance on a single property and tenant, tenant bankruptcies, cybersecurity threats, and related-party conflicts - All properties are located in the greater New York City metropolitan area, concentrating risk related to local economic conditions and real estate demand[23][24] - The 731 Lexington Avenue property accounted for approximately 68% of total revenues in 2019, and its primary tenant, Bloomberg, accounted for 48%, posing severe financial impact if lost[42][43] - The company faces risks from anchor tenant closures and bankruptcies, including Sears at Rego Park I and Kohl's at Rego Park II[40] - Significant ownership and management overlap with Vornado Realty Trust and Interstate Properties creates potential conflicts of interest[86][88][89] - As of December 31, 2019, the company had $974.8 million in total debt, posing risks related to debt service, refinancing, and potential foreclosure[71][72] - The company faces cybersecurity risks, potentially disrupting operations, compromising confidential information, and damaging business relationships[45][46] Unresolved Staff Comments There are no unresolved comments from the Securities and Exchange Commission staff as of the report date - There are no unresolved SEC staff comments as of the filing date of this Form 10-K[95] Properties The company's portfolio comprises seven properties totaling 2.45 million square feet, with key operating assets and significant mortgage loans Property Portfolio Overview (as of Dec 31, 2019) | Property | Type | Total Square Feet | Occupancy Rate (In Service) | | :--- | :--- | :--- | :--- | | 731 Lexington Avenue | Office/Retail | 1,075,000 | 100% (Office), 93% (Retail) | | Rego Park I | Retail | 343,000 | 100% | | Rego Park II | Retail | 609,000 | 92% | | The Alexander | Residential | 255,000 (312 units) | 94% | | Paramus, NJ | Land (Ground Lease) | 30.3 acres | 100% | | Flushing, Queens | Retail (Sub-lease) | 167,000 | 100% | | Rego Park III | Development Land | 140,000 | N/A | - The 731 Lexington Avenue property is encumbered by two mortgage loans totaling $850 million as of December 31, 2019[105][106] - At Rego Park I, Sears closed its 195,000 sq ft store, with IKEA leasing 113,000 sq ft of this space in September 2019[107] - At Rego Park II, Kohl's closed its store in April 2019 but subleased it to At Home in January 2020, remaining obligated until 2031[108] Legal Proceedings The company is involved in ordinary legal actions, including a stayed Sears lawsuit for $650,000 related to Rego Park I - In June 2014, Sears filed a lawsuit regarding its leased space at Rego Park I, with a remaining claim for approximately $650,000[116] - The Sears lawsuit was automatically stayed following Sears' Chapter 11 bankruptcy filing on October 15, 2018[116] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[117] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE under 'ALX', with no equity repurchases in 2019, and underperformed key indices - The company's common stock is listed on the NYSE under the ticker symbol 'ALX', with 212 holders of record as of January 31, 2020[119] - During 2019, the company did not sell any unregistered securities or repurchase any of its equity securities[120] Five-Year Cumulative Total Return Comparison (2014-2019) | Index | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Alexander's | $100 | $91 | $105 | $102 | $82 | $94 | | S&P 500 Index | $100 | $101 | $114 | $138 | $132 | $174 | | NAREIT All Equity Index | $100 | $103 | $112 | $121 | $116 | $150 | Selected Financial Data This section provides a five-year financial summary, showing 2019 revenues of $226.4 million and net income of $60.1 million Selected Financial Data (2017-2019) | (In thousands, except per share) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total revenues | $226,350 | $232,825 | $230,574 | | Income from continuing operations | $60,075 | $56,641 | $80,509 | | Net income | $60,075 | $32,844 | $80,509 | | Net income per common share - diluted | $11.74 | $6.42 | $15.74 | | Dividends per common share | $18.00 | $18.00 | $17.00 | | Total assets | $1,265,511 | $1,285,549 | $1,632,395 | | Mortgages payable, net | $970,961 | $965,826 | $1,240,222 | | Total equity | $253,515 | $285,092 | $343,955 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses 2019 revenue decrease due to Sears vacancy, increased net income, and liquidity from rental income, with FFO at $99.7 million Overview 2019 net income reached $60.1 million ($11.74/share), with the portfolio 96.5% occupied and IKEA signing a key lease Financial Results Summary (FY 2019 vs FY 2018) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Income | $60,075,000 | $32,844,000 | | Diluted EPS | $11.74 | $6.42 | | FFO (non-GAAP) | $99,670,000 | $77,429,000 | | Diluted FFO per Share | $19.47 | $15.13 | - The 2018 results included a $23,797,000 ($4.65/share) expense for potential transfer taxes on the 2012 sale of Kings Plaza Regional Shopping Center[130][131] - As of Dec 31, 2019, the portfolio's 2,230,000 in-service square feet was 96.5% occupied, with 219,000 square feet out of service for redevelopment[133] Results of Operations 2019 rental revenues decreased by $6.5 million due to Sears vacancy, while operating and interest expenses also declined - 2019 vs. 2018: Rental Revenues decreased by $6,475,000 due to Sears vacancy; Operating Expenses decreased by $4,037,000 due to lower bad debt; Interest Expense decreased by $5,632,000 from Rego Park II refinancing[148][152] - 2018 vs. 2017: Rental Revenues increased by $2,251,000; Operating Expenses increased by $8,648,000 due to higher bad debt and real estate taxes; Interest Expense increased by $13,059,000 from rising rates and refinancing[156][157][161] - The company recorded an expense of $8,757,000 in 2019 and $11,990,000 in 2018 from the decrease in the fair value of its investment in Macerich common stock[153][162] Liquidity and Capital Resources Property rental income is the primary liquidity source, with $974.8 million in outstanding debt and cash increasing by $24.5 million in 2019 - Primary source of cash flow is property rental income, expected to be adequate for operations, dividends, and capital expenditures for the next twelve months[168] Outstanding Debt Summary (as of Dec 31, 2019) | Property | Balance (in thousands) | Interest Rate | Maturity | | :--- | :--- | :--- | :--- | | Paramus | $68,000 | 4.72% | Oct. 2021 | | 731 Lexington, retail | $350,000 | 3.10% | Aug. 2022 | | 731 Lexington, office | $500,000 | 2.64% | Jun. 2024 | | Rego Park II | $56,836 | 3.15% | Dec. 2025 | | Total | $974,836 | | | - On February 14, 2020, the company reduced its participation in the Rego Park II mortgage loan to $50,000,000, receiving cash proceeds of approximately $145,000,000[170] - Cash and cash equivalents increased by $24,482,000 during 2019, driven by $126,070,000 in net cash from operations, offset by $92,139,000 used in financing[186] Funds from Operations (FFO) FFO, a non-GAAP measure, increased to $99.7 million ($19.47 per diluted share) in 2019 from $77.4 million in 2018 FFO Reconciliation (in thousands) | | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net income | $60,075 | $32,844 | | Depreciation and amortization of real property | 30,838 | 32,595 | | Change in fair value of marketable securities | 8,757 | 11,990 | | FFO (non-GAAP) | $99,670 | $77,429 | - FFO per diluted share increased to $19.47 in 2019 from $15.13 in 2018, with the 2018 figure including a $4.65 per share negative impact from the Kings Plaza transfer tax expense[197] Quantitative and Qualitative Disclosures about Market Risk The company faces interest rate risk from $906.8 million in variable-rate debt, with a 1% rate increase impacting annual interest expense by $9.1 million Interest Rate Risk Exposure (as of Dec 31, 2019) | Debt Type | Balance (in thousands) | Weighted Avg. Rate | Effect of 1% Rate Change (in thousands) | | :--- | :--- | :--- | :--- | | Variable Rate | $906,836 | 2.85% | $9,068 | | Fixed Rate | $68,000 | 4.72% | $0 | | Total | $974,836 | 2.98% | $9,068 | - The estimated fair value of the company's consolidated debt was $974,000,000 as of December 31, 2019, closely approximating its carrying value[202] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for FY2019, including balance sheets, income statements, and cash flows, with total assets of $1.27 billion Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on the financial statements, identifying real estate impairment as a critical audit matter - The auditor, Deloitte & Touche LLP, provided an unqualified opinion on the financial statements and on the effectiveness of internal control over financial reporting[205][206] - The audit identified the impairment evaluation of real estate as a Critical Audit Matter, highlighting significant management judgment in estimating capitalization rates[209][210] Consolidated Financial Statements As of Dec 31, 2019, total assets were $1.27 billion, total liabilities $1.01 billion, and net income for FY2019 was $60.1 million Consolidated Balance Sheet Highlights (as of Dec 31, 2019) | Account | Amount (in thousands) | | :--- | :--- | | Real estate, net | $716,843 | | Cash and cash equivalents | $298,063 | | Total Assets | $1,265,511 | | Mortgages payable, net | $970,961 | | Total Liabilities | $1,011,996 | | Total Equity | $253,515 | Consolidated Statement of Income Highlights (FY 2019) | Account | Amount (in thousands) | | :--- | :--- | | Rental revenues | $226,350 | | Total expenses | ($126,861) | | Income from continuing operations | $60,075 | | Net Income | $60,075 | - Net cash provided by operating activities was $126.1 million in 2019, with $92.1 million used in financing activities, almost entirely for dividend payments[227][228] Notes to Consolidated Financial Statements Notes detail significant revenue concentration from Bloomberg, extensive related-party transactions with Vornado, and $974.8 million in mortgage debt - Bloomberg accounted for 48% of total revenues in 2019, with its loss adversely affecting financial results[290] - The company has extensive related-party agreements with Vornado for management, development, and leasing services, totaling $12.6 million in fees in 2019[262][268] - In 2018, the company accrued a $23.8 million loss from discontinued operations for potential transfer taxes related to the 2012 Kings Plaza sale, paid in April 2018[271] - The company maintains general liability insurance of $300 million per occurrence and all-risk property insurance of $1.7 billion per occurrence, including terrorism coverage[295][296] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - None reported[313] Controls and Procedures Disclosure controls and internal control over financial reporting were deemed effective by management and audited by Deloitte & Touche LLP - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[314] - Management assessed internal control over financial reporting as effective, an assessment concurred by Deloitte & Touche LLP[318][322] Other Information No other information is reported for this period - None[328] Part III Directors, Executive Officers and Corporate Governance Information on directors and corporate governance is incorporated by reference, listing Steven Roth and Matthew Iocco as executive officers - Most information is incorporated by reference from the Proxy Statement; executive officers listed are Steven Roth (78, Chairman & CEO) and Matthew Iocco (49, CFO)[329][331] Executive Compensation Executive compensation information is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the Proxy Statement[333] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with 11,408 securities to be issued and 494,379 available for future issuance Equity Compensation Plan Information (as of Dec 31, 2019) | Plan Category | Securities to be Issued (a) | Securities Remaining for Future Issuance (b) | | :--- | :--- | :--- | | Approved by security holders | 11,408 | 494,379 | | Not approved by security holders | N/A | N/A | | Total | 11,408 | 494,379 | Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the Proxy Statement[337] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the Proxy Statement[338] Part IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Annual Report, including financial statements, schedules, and a comprehensive list of exhibits - Financial Statement Schedule III - Real Estate and Accumulated Depreciation is included in the filing[341] - A detailed list of exhibits is provided, including governance documents, material contracts, loan agreements, and CEO/CFO certifications[348][350][356] Form 10-K Summary No Form 10-K summary is provided for this period - None[359]