Alexander’s(ALX) - 2020 Q2 - Quarterly Report

PART I. Financial Information This section provides the company's consolidated financial statements and management's discussion and analysis for the reported period Item 1. Financial Statements This section presents unaudited consolidated financial statements, detailing decreased rental revenues and net income due to COVID-19, and shifts in assets and liabilities Consolidated Balance Sheets Total assets and liabilities increased, primarily due to mortgages payable, while total equity decreased Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,384,162 | $1,265,511 | | Cash and cash equivalents | $441,905 | $298,063 | | Real estate, net | $716,559 | $716,843 | | Total Liabilities | $1,159,191 | $1,011,996 | | Mortgages payable, net | $1,118,813 | $970,961 | | Total Equity | $224,971 | $253,515 | - The increase in total liabilities was primarily driven by a rise in mortgages payable, which grew from $971.0 million to $1.12 billion[4] - Total equity decreased from $253.5 million at the end of 2019 to $225.0 million as of June 30, 2020, mainly due to dividends paid exceeding net income[5] Consolidated Statements of Income Rental revenues decreased, leading to a significant 42% drop in net income for the six-month period Income Statement Summary (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Rental Revenues | $45,478 | $55,932 | $99,588 | $112,710 | | Total Expenses | ($29,522) | ($31,429) | ($60,635) | ($62,351) | | Net Income | $12,331 | $11,283 | $16,903 | $29,148 | | Net Income per Share | $2.41 | $2.20 | $3.30 | $5.70 | - For the six months ended June 30, 2020, net income decreased by 42% year-over-year, falling from $29.1 million to $16.9 million. This was largely driven by lower rental revenues and a significant negative change in the fair value of marketable securities[7] Consolidated Statements of Comprehensive Income Comprehensive income for the six months ended June 30, 2020, decreased compared to the prior year Comprehensive Income Summary (in thousands) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three Months Ended June 30 | $12,327 | $11,302 | | Six Months Ended June 30 | $16,924 | $29,180 | Consolidated Statements of Changes in Equity Total equity declined due to dividends paid significantly exceeding net income - Total equity decreased from $253.5 million at December 31, 2019, to $225.0 million at June 30, 2020[15][5] - The primary drivers for the decrease in equity during the first six months of 2020 were dividends paid of $46.1 million, which significantly exceeded the net income of $16.9 million[15] Consolidated Statements of Cash Flows Net cash increased significantly, primarily driven by financing activities including new borrowings Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $52,756 | $50,798 | | Net Cash used in Investing Activities | ($13,009) | ($4,901) | | Net Cash from Financing Activities | $99,541 | ($46,070) | | Net Increase (Decrease) in Cash | $139,288 | ($173) | - The significant increase in cash was driven by $99.5 million in net cash from financing activities, primarily from $145.7 million in proceeds from borrowing, offset by $46.1 million in dividends paid[18] Notes to Consolidated Financial Statements Notes detail rent collection challenges due to COVID-19, significant tenant concentration, and a mortgage loan transaction - Due to the COVID-19 pandemic, the company collected approximately 89% of rent billed for Q2 2020 (92% including deferrals). It wrote off $1.022 million in uncollectible rent and $4.247 million in straight-line rent receivables during the period[24][25] - Bloomberg is a significant tenant, accounting for approximately 53% of total revenues for the first six months of 2020[37] - Vornado Realty Trust, which owns 32.4% of the company's common stock, serves as manager and developer, receiving various fees for its services[38] - On February 14, 2020, the company reduced its participation in the Rego Park II mortgage loan, receiving cash proceeds of approximately $145 million[45] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's adverse impact on financial results, including declining rental revenues and FFO, while highlighting strong liquidity from a mortgage loan transaction Overview The overview details the adverse impact of COVID-19 on New York City properties, rent collection rates, and key financial highlights - The company's properties, all located in the greater New York City area, were adversely affected by the COVID-19 pandemic, with most retail tenants closing in March 2020 and reopening with limitations in June 2020[84] - For the quarter ended June 30, 2020, the company collected approximately 89% of billed rent (92% including deferrals). Collection rates were 100% for office, 76% for retail (83% with deferrals), and 96% for residential tenants[86] Q2 2020 Financial Highlights vs. Q2 2019 | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Net Income per Share | $2.41 | $2.20 | | FFO per Diluted Share (non-GAAP) | $3.51 | $4.75 | Results of Operations Operational results show decreased rental revenues due to tenant vacancies and write-offs, partially offset by lower interest expenses - Q2 2020 rental revenues decreased by $10.5 million compared to Q2 2019, primarily due to a $4.2 million write-off of straight-line rents, $3.0 million from retail tenant vacancies, and $1.0 million in uncollectible rent[93] - Q2 2020 interest and debt expense fell by $4.0 million year-over-year, mainly due to a decrease in LIBOR[98] - For the first six months of 2020, rental revenues decreased by $13.1 million compared to the same period in 2019, driven by tenant vacancies and write-offs related to the pandemic's impact[101] Liquidity and Capital Resources The company maintained strong liquidity, significantly boosted by financing activities including proceeds from a mortgage loan transaction - As of June 30, 2020, the company had a strong liquidity position of $458.3 million, consisting of cash, restricted cash, and marketable securities[110] - Cash and restricted cash increased by $139.2 million in the first half of 2020, largely due to $99.5 million in net cash provided by financing activities, including proceeds from reducing participation in the Rego Park II mortgage loan[111][112] - A non-recourse mortgage loan for the 731 Lexington Avenue retail condominiums matures on August 5, 2020, and the company is in discussions with the lender for refinancing[110] Funds from Operations ("FFO") (non-GAAP) FFO decreased in Q2 2020, reflecting operational challenges during the pandemic FFO Reconciliation Summary (in thousands) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $12,331 | $11,283 | $16,903 | $29,148 | | Adjustments | $5,664 | $13,022 | $24,836 | $20,688 | | FFO (non-GAAP) | $17,995 | $24,305 | $41,739 | $49,836 | - FFO for Q2 2020 was $18.0 million ($3.51 per share), a decrease from $24.3 million ($4.75 per share) in Q2 2019, reflecting the operational challenges during the pandemic[130] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure on its variable-rate debt, with a 1% rate change impacting earnings by $10.5 million, partially mitigated by an interest rate cap Interest Rate Sensitivity Analysis (as of June 30, 2020) | Debt Type | Balance (in thousands) | Weighted Avg. Rate | Effect of 1% Rate Change (in thousands) | | :--- | :--- | :--- | :--- | | Variable Rate | $1,052,544 | 1.33% | $10,525 | | Fixed Rate | $68,000 | 4.72% | $0 | | Total | $1,120,544 | 1.54% | $10,525 | - The company utilizes an interest rate cap with a notional amount of $500 million that caps LIBOR at 6.0% to mitigate some of its interest rate risk[135] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[137] - No changes in internal control over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[138] PART II. Other Information This section covers legal proceedings, updated risk factors, and other required disclosures Item 1. Legal Proceedings The company is involved in ordinary course legal actions not expected to have a material impact, with a specific Sears litigation stayed due to bankruptcy, involving a $650,000 claim - The company states that the outcome of various legal actions arising in the ordinary course of business will not have a material effect on its financial condition or results of operations[141] - A lawsuit from Sears regarding the Rego Park I property is stayed due to Sears' Chapter 11 bankruptcy. The remaining property damage claim is estimated to be approximately $650,000[124] Item 1A. Risk Factors This section updates risk factors, emphasizing the significant and ongoing adverse effects of the COVID-19 pandemic on operations, rent collection, and potential long-term impacts on capital access and asset values - The primary updated risk factor is the continued adverse effect of the COVID-19 pandemic on the business, financial condition, and cash flows[142] - The pandemic has negatively impacted all properties, which are located in the hard-hit New York City metropolitan area, leading to tenant store closures and operational limitations upon reopening[144] - Potential long-term impacts include constrained access to capital, decreased occupancy and rent levels, and a decline in real estate asset values, which could result in non-cash impairment charges[147] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported for the period[148] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None reported for the period[148] Item 4. Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[148] Item 5. Other Information The company reported no other information required to be disclosed in this item - None reported for the period[148] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and financial data in iXBRL format - The report includes required exhibits such as officer certifications and financial statements formatted in iXBRL[148]