Alexander’s(ALX) - 2020 Q3 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements The unaudited consolidated financial statements show a significant decline in net income and rental revenues due to the COVID-19 pandemic Consolidated Balance Sheets (Unaudited) Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | September 30, 2020 | December 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,327,905 | $1,265,511 | +$62,394 | | Cash and cash equivalents | $355,712 | $298,063 | +$57,649 | | Mortgages payable, net | $1,066,403 | $970,961 | +$95,442 | | Total Equity | $208,511 | $253,515 | -$45,004 | Consolidated Statements of Income (Unaudited) Consolidated Statements of Income (Amounts in thousands, except per share) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Change | | :--- | :--- | :--- | :--- | | Rental revenues | $43,499 | $57,760 | -$14,261 | | Net income | $6,604 | $16,493 | -$9,889 | | Net income per common share - basic and diluted | $1.29 | $3.22 | -$1.93 | | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change | | Rental revenues | $143,087 | $170,470 | -$27,383 | | Net income | $23,507 | $45,641 | -$22,134 | | Net income per common share - basic and diluted | $4.59 | $8.92 | -$4.33 | Consolidated Statements of Comprehensive Income (Unaudited) Consolidated Statements of Comprehensive Income (Amounts in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Change | | :--- | :--- | :--- | :--- | | Net income | $6,604 | $16,493 | -$9,889 | | Change in fair value of interest rate cap | -$14 | $22 | -$36 | | Comprehensive income | $6,590 | $16,515 | -$9,925 | | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change | | Net income | $23,507 | $45,641 | -$22,134 | | Change in fair value of interest rate cap | $7 | $54 | -$47 | | Comprehensive income | $23,514 | $45,695 | -$22,181 | Consolidated Statements of Changes in Equity (Unaudited) Consolidated Statements of Changes in Equity (Nine Months Ended Sep 30, 2020, Amounts in thousands) | Metric | December 31, 2019 | September 30, 2020 | | :--- | :--- | :--- | | Balance, Total Equity | $253,515 | $208,511 | | Net income | $23,507 | $23,507 | | Dividends paid | -$69,118 | -$69,118 | | Deferred stock unit grants | $600 | $600 | | Change in fair value of interest rate cap | $7 | $7 | Consolidated Statements of Cash Flows (Unaudited) Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, Amounts in thousands) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $55,521 | $99,953 | -$44,432 | | Net cash used in investing activities | -$23,630 | -$6,566 | -$17,064 | | Net cash provided by (used in) financing activities | $23,910 | -$69,105 | +$93,015 | | Net increase in cash and cash equivalents and restricted cash | $55,801 | $24,282 | +$31,519 | | Cash and cash equivalents and restricted cash at end of period | $369,778 | $313,777 | +$56,001 | - Net cash provided by financing activities in 2020 was primarily driven by $145,708,000 in proceeds from borrowing, partially offset by $69,118,000 in dividends paid and $50,000,000 in debt repayments[16] Notes to Consolidated Financial Statements (Unaudited) 1. Organization - Alexander's, Inc is a real estate investment trust (REIT) incorporated in Delaware, engaged in leasing, managing, developing, and redeveloping properties[18] - The company is managed by Vornado Realty Trust and owns seven properties in the greater New York City metropolitan area[18] 2. COVID-19 Pandemic - The COVID-19 pandemic adversely affected the business, leading to temporary closures for non-essential retail tenants and agreements for rent deferrals and abatements[19][20] Rent Collection Rates for Q3 2020 | Tenant Type | Collection Rate (including deferrals) | | :--- | :--- | | Office | 100% | | Retail | 89% | | Residential | 97% | | Overall | 96% | - Century 21, a tenant leasing 135,000 square feet at Rego Park II shopping center ($6.4 million annual revenue), filed for Chapter 11 bankruptcy on September 10, 2020[22] Rent Write-offs (Amounts in thousands) | Type of Write-off | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Uncollectible tenant receivables | $3,100 (Century 21: $2,716) | $4,122 (Century 21: $2,716) | | Straight-lining of rents receivables | $6,590 (Century 21: $5,919) | $10,837 (Century 21: $5,919) | 3. Basis of Presentation - The consolidated financial statements are unaudited and prepared in accordance with SEC Form 10-Q instructions, with all intercompany amounts eliminated[24] - The company operates in one reportable segment[26] 4. Recently Issued Accounting Literature - The company is evaluating ASU 2020-04 (Reference Rate Reform) for its potential impact[27] - A policy election was made under FASB Staff Q&A for COVID-19 related rent concessions, allowing rent abatements to be recognized as reductions to rental revenue[28] 5. Revenue Recognition - Rental revenues include lease revenues (recognized straight-line), parking revenue, and tenant services[29][30] Summary of Revenue Sources (Amounts in thousands) | Revenue Type | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Lease revenues | $41,394 | $55,267 | $137,479 | $163,597 | | Parking revenue | $1,106 | $1,366 | $3,046 | $4,222 | | Tenant services | $999 | $1,127 | $2,562 | $2,651 | | Total Rental Revenues | $43,499 | $57,760 | $143,087 | $170,470 | Components of Lease Revenues (Amounts in thousands) | Lease Type | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Fixed lease revenues | $33,609 | $36,025 | $101,348 | $107,657 | | Variable lease revenues | $7,785 | $19,242 | $36,131 | $55,940 | | Total Lease Revenues | $41,394 | $55,267 | $137,479 | $163,597 | - Bloomberg accounted for approximately 56% ($80,696,000) of total revenues for the nine months ended September 30, 2020, making it a significant tenant[34] 6. Related Party Transactions - Vornado Realty Trust, which owns 32.4% of the company's common stock, manages the company and its properties[35][36][37][38] Fees Paid to Vornado (Amounts in thousands) | Fee Type | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Company management fees | $700 | $700 | $2,100 | $2,100 | | Development fees | $188 | $0 | $456 | $0 | | Leasing fees | $113 | $1,422 | $172 | $4,000+ (partial data) | | Property management, cleaning, engineering, security fees | $1,074 | $1,239 | $3,519 | $3,000+ (partial data) | | Total | $2,075 | $3,361 | $6,247 | $9,000+ (partial data) | - Amounts due to Vornado as of September 30, 2020, totaled $1,178,000[41] 7. Marketable Securities - The company owned 564,612 common shares of The Macerich Company (MAC) as of September 30, 2020[42] Fair Value of Marketable Securities (Amounts in thousands) | Date | Fair Value | | :--- | :--- | | September 30, 2020 | $3,834 | | December 31, 2019 | $14,409 | The decrease is primarily due to Macerich's share price declining from $26.92 to $6.79 per share 8. Mortgages Payable - In February 2020, the company reduced its participation in the Rego Park II shopping center loan to $50,000,000, receiving approximately $145,000,000 in cash proceeds[43] - In September 2020, the $350,000,000 mortgage loan on the 731 Lexington Avenue retail condominium was amended and extended, with a $50,000,000 paydown[44] - In October 2020, a $94,000,000 interest-only loan with a fixed rate of 2.63% was completed for The Alexander apartment tower[45] Summary of Outstanding Mortgages Payable (September 30, 2020, Amounts in thousands) | Property | Maturity | Interest Rate | Balance | | :--- | :--- | :--- | :--- | | Paramus | Oct. 04, 2021 | 4.72% | $68,000 | | 731 Lexington Avenue, office | Jun. 11, 2024 | 1.05% | $500,000 | | 731 Lexington Avenue, retail | Aug. 05, 2025 | 1.56% | $300,000 | | Rego Park II shopping center | Dec. 12, 2025 | 1.50% | $202,544 | | Total | | | $1,070,544 | 9. Stock-Based Compensation - In May 2020, the company granted Deferred Stock Units (DSUs) to Board members and a newly appointed Director[48] - These DSUs vested immediately and were expensed on the grant date[48] - As of September 30, 2020, there were 14,916 DSUs outstanding[48] 10. Fair Value Measurements - The company uses a fair value hierarchy (Level 1, 2, 3) to measure financial assets and liabilities[49] Financial Assets Measured at Fair Value (Amounts in thousands) | Asset | September 30, 2020 (Total) | September 30, 2020 (Level 1) | | :--- | :--- | :--- | | Marketable securities | $3,834 | $3,834 | | Asset | December 31, 2019 (Total) | December 31, 2019 (Level 1) | | Marketable securities | $14,409 | $14,409 | - Cash equivalents are classified as Level 1, and mortgages payable are classified as Level 2[53] Financial Assets and Liabilities Not Measured at Fair Value (Amounts in thousands) | Instrument | September 30, 2020 (Carrying Amount) | September 30, 2020 (Fair Value) | | :--- | :--- | :--- | | Cash equivalents | $318,260 | $318,260 | | Mortgages payable (excluding deferred debt issuance costs, net) | $1,070,544 | $1,032,000 | | Instrument | December 31, 2019 (Carrying Amount) | December 31, 2019 (Fair Value) | | Cash equivalents | $263,688 | $263,688 | | Mortgages payable (excluding deferred debt issuance costs, net) | $974,836 | $974,000 | 11. Commitments and Contingencies - The company maintains general liability insurance ($300M per occurrence) and all-risk property and rental value insurance ($1.7B per occurrence)[55] - Fifty Ninth Street Insurance Company, LLC (FNSIC), a wholly-owned subsidiary, acts as a direct insurer for NBCR acts of terrorism[56] - IKEA Property, Inc has a purchase option for $75,000,000 on the Paramus land in October 2021, with an expected $60,000,000 gain on sale if exercised[59] - The Rego Park I litigation with Sears Roebuck and Co has a remaining claim for property damages estimated at $650,000[60] - The company paid $23,797,000 in April 2018 related to the Kings Plaza sale, following an unfavorable legal precedent[61] 12. Earnings Per Share Net Income Per Common Share (Amounts in thousands, except per share) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income | $6,604 | $16,493 | $23,507 | $45,641 | | Weighted average shares outstanding | 5,122,206 | 5,118,698 | 5,120,490 | 5,118,030 | | Net income per common share – basic and diluted | $1.29 | $3.22 | $4.59 | $8.92 | Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP reviewed the interim financial information and found no material modifications necessary for conformity with GAAP[67] - The consolidated balance sheet as of December 31, 2019, was fairly stated in all material respects, as per their unqualified opinion[68] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The COVID-19 pandemic significantly impacted rental revenues, net income, and FFO, though the company maintains high occupancy and liquidity Forward-Looking Statements - The report contains forward-looking statements subject to risks, with the COVID-19 pandemic being a significant factor affecting future results[72][73] - Readers are cautioned not to place undue reliance on these statements[74] Critical Accounting Policies - There were no material changes to the company's critical accounting policies for the nine months ended September 30, 2020[76] Overview - Alexander's, Inc is a REIT managed by Vornado Realty Trust, operating seven properties in the greater New York City metropolitan area[78] - The COVID-19 pandemic has adversely affected the business, leading to challenges in rent collection[80][81] Key Financial Results Summary (Amounts in thousands, except per share) | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | Net income | $6,604 | $16,493 | -$9,889 | | Net income per diluted share | $1.29 | $3.22 | -$1.93 | | FFO (non-GAAP) | $15,363 | $25,208 | -$9,845 | | FFO per diluted share | $3.00 | $4.92 | -$1.92 | | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change | | Net income | $23,507 | $45,641 | -$22,134 | | Net income per diluted share | $4.59 | $8.92 | -$4.33 | | FFO (non-GAAP) | $57,102 | $75,044 | -$17,942 | | FFO per diluted share | $11.15 | $14.66 | -$3.51 | - As of September 30, 2020, the portfolio comprised 2,449,000 square feet with 96% occupancy[87] - Significant financing activities included reducing loan participation by $145,000,000 and paying down $50,000,000 on another loan[88][89][90] - Bloomberg remains a significant tenant, accounting for approximately 56% of total revenues[91] Results of Operations – Three Months Ended September 30, 2020, compared to September 30, 2019 - Rental revenues decreased by $14,261,000, primarily due to $6,590,000 in straight-line rent write-offs related to Century 21[93] - Operating expenses decreased by $941,000 due to lower reimbursable operating expenses[94] - Interest and other income, net, decreased by $1,855,000, mainly from lower interest and dividend income[96] - Interest and debt expense decreased by $5,309,000, driven by lower LIBOR[97] - Change in fair value of marketable securities resulted in an expense of $1,231,000 due to a decrease in Macerich's share price[98] Results of Operations – Nine Months Ended September 30, 2020, compared to September 30, 2019 - Rental revenues decreased by $27,383,000, primarily due to $10,837,000 in straight-line rent write-offs and tenant vacancies[100] - Operating expenses decreased by $2,926,000 due to lower reimbursable operating expenses[101] - General and administrative expenses increased by $477,000, mainly due to higher stock-based compensation and professional fees[103] - Interest and other income, net, decreased by $3,955,000 from lower average interest rates[104] - Interest and debt expense decreased by $10,888,000, mainly from lower LIBOR[105] - Change in fair value of marketable securities resulted in an expense of $10,789,000 from a $20.13 decrease in Macerich's share price[106] Liquidity and Capital Resources - Rental revenue, the primary source of cash flow, has been impacted by the COVID-19 pandemic and the Century 21 bankruptcy[108] - As of September 30, 2020, liquidity totaled $373,612,000[109] - Net cash provided by operating activities for the nine months was $55,521,000, a decrease from $99,953,000 in the prior year[110][113] - Net cash provided by financing activities was $23,910,000, a significant shift from a net use of $69,105,000 in the prior year[112][113] - The company expects existing cash and cash flows to be adequate to fund operations and dividends for the next twelve months[109] - The company paid $23,797,000 in additional real property transfer taxes and interest related to the Kings Plaza sale[121] Funds from Operations ("FFO") (non-GAAP) - FFO is a non-GAAP measure used to compare operating performance, excluding real estate depreciation and net gains on sales[124] FFO (non-GAAP) Summary (Amounts in thousands, except per share) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Change | | :--- | :--- | :--- | :--- | | FFO (non-GAAP) | $15,363 | $25,208 | -$9,845 | | FFO per diluted share | $3.00 | $4.92 | -$1.92 | | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | Change | | FFO (non-GAAP) | $57,102 | $75,044 | -$17,942 | | FFO per diluted share | $11.15 | $14.66 | -$3.51 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate fluctuations, with a 1% change in rates materially impacting diluted earnings per share Interest Rate Exposure (September 30, 2020, Amounts in thousands) | Debt Type | Balance | Weighted Average Interest Rate | | :--- | :--- | :--- | | Variable Rate | $1,002,544 | 1.29% | | Fixed Rate | $68,000 | 4.72% | | Total | $1,070,544 | 1.51% | Effect of 1% change in rates on diluted earnings per share: $1.96 - The company holds an interest rate cap with a notional amount of $500,000,000, capping LIBOR at 6.0%[129] Fair Value of Mortgages Payable (Amounts in thousands) | Date | Estimated Fair Value | | :--- | :--- | | September 30, 2020 | $1,032,000 | | December 31, 2019 | $974,000 | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020 - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of September 30, 2020[131] - There were no material changes in internal control over financial reporting during the fiscal quarter[132] PART II. Other Information Item 1. Legal Proceedings Legal actions in the ordinary course of business are not expected to have a material effect on the company's financial condition - Various legal actions in the ordinary course of business are not expected to materially affect financial position, results of operations, or cash flows[134] - Further discussion of the Rego Park I litigation is provided in Note 11 to the financial statements[134] Item 1A. Risk Factors The COVID-19 pandemic continues to be a significant adverse risk factor impacting the company's business and financial condition - The COVID-19 pandemic continues to adversely affect the company's business, financial condition, results of operations, and cash flows[135][138] - Specific impacts include rent deferrals, tenant bankruptcies (e.g., Century 21), and potential declines in real estate asset values[136][137][138] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - None reported[139] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - None reported[139] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[140] Item 5. Other Information No other information was reported under this item - None reported[140] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including loan documents, certifications, and iXBRL financial data Exhibit Index - Key exhibits include loan amendments, CEO and CFO certifications, and financial information formatted in Inline Extensible Business Reporting Language (iXBRL)[142] Signatures The report is duly signed on behalf of Alexander's, Inc by the Chief Financial Officer on November 2, 2020 - The report was signed by Matthew Iocco, Chief Financial Officer, on November 2, 2020[144]