Alexander’s(ALX) - 2020 Q4 - Annual Report

Part I Business Alexander's, Inc. is a REIT managing seven NYC metropolitan area properties, externally managed by Vornado Realty Trust, with Bloomberg L.P. contributing approximately 55% of 2020 revenues - The company's portfolio consists of seven properties in the greater New York City metropolitan area, including six operating properties and one property to be developed[11][12] - Alexander's is managed, leased, and developed by Vornado Realty Trust, which owned 32.4% of the company's common stock as of December 31, 2020. Key executives of Alexander's also hold senior positions at Vornado[13][14] Significant Tenant Revenue Contribution (Bloomberg L.P.) | Year | Revenue (in thousands) | Percentage of Total Revenue | | :--- | :--- | :--- | | 2020 | $109,066 | ~55% | | 2019 | $109,113 | ~48% | | 2018 | $107,356 | ~46% | - The company is considered a "controlled" company under NYSE Rules due to the combined ownership of Vornado and Interstate Properties, which exempts it from certain corporate governance requirements like having a majority of independent directors[20] Risk Factors The company faces material risks from COVID-19 impacts, NYC geographic concentration, single-tenant reliance, substantial debt, and Vornado-related conflicts of interest Risks Related to Our Properties and Industry COVID-19, NYC geographic concentration, and significant revenue reliance on 731 Lexington Avenue and Bloomberg L.P. pose material property and industry risks - The COVID-19 pandemic has adversely affected the business, leading to temporary closures of "non-essential" retail tenants and agreements for rent deferrals and abatements[23] - On September 10, 2020, tenant Century 21, which leased 135,000 square feet at the Rego Park II shopping center, filed for Chapter 11 bankruptcy and closed its store[24][39] - All company properties are located in the greater New York City metropolitan area, making the business highly susceptible to local economic cycles and risks[27][28] Revenue Concentration by Property and Tenant | Entity | Revenue Contribution (2020, in thousands) | Percentage of Total Revenue (2020) | | :--- | :--- | :--- | | 731 Lexington Avenue | $137,718 | ~69% | | Bloomberg L.P. | $109,066 | ~55% | Risks Related to Our Indebtedness and Access to Capital Substantial mortgage indebtedness of $1.16 billion as of year-end 2020, secured by four properties, restricts flexibility and poses refinancing and cash flow risks - As of December 31, 2020, the company had outstanding mortgage indebtedness of $1.16 billion, secured by four of its properties, which contains restrictive covenants[51] - The company's ratio of total debt to total enterprise value was 54.1% as of December 31, 2020. Cash payments for principal and interest were $72.5 million for the year[53] Risks Related to Our Organization and Structure Dependence on CEO Steven Roth, substantial influence from Vornado and Interstate (58.5% ownership), and charter provisions create organizational risks and potential conflicts of interest - The company is dependent on the efforts of its CEO, Steven Roth, and the loss of his services could harm operations[54] - Vornado, Interstate, and its partners collectively own approximately 58.5% of the company's outstanding common stock, giving them substantial influence over the company and potentially creating conflicts of interest[58][63] - The company's charter includes provisions that may delay or prevent a change in control, such as a classified board of directors and limits on stock ownership[55][56][57] General Risks General risks include cybersecurity threats, economic volatility, potential underinsured losses (e.g., terrorism), and the financial impact of the upcoming LIBOR phase-out - The company faces risks from security breaches and cyber attacks, which could disrupt operations, compromise confidential information, and negatively impact financial results[81][82] - The company maintains all-risk property insurance of $1.7 billion per occurrence, including terrorism coverage. A wholly-owned subsidiary, FNSIC, acts as a direct insurer for certain terrorism acts under the Terrorism Risk Insurance Act[86][87] - The planned phase-out of LIBOR after 2021 presents a risk, as the company has outstanding variable-rate debt based on LIBOR. The transition to an alternative rate like SOFR could change interest payments[90][91][92] Unresolved Staff Comments No unresolved comments from the Securities and Exchange Commission staff as of the Annual Report date - There are no unresolved comments from the SEC staff as of the filing date of this Form 10-K[93] Properties The company's portfolio comprises seven properties in the greater NYC metropolitan area, including office, retail, and residential assets, with detailed information on each Summary of Properties (as of December 31, 2020) | Property | Type | Total Sq. Ft. | Occupancy Rate | Key Tenants/Info | | :--- | :--- | :--- | :--- | :--- | | 731 Lexington Ave | Office/Retail | 1,075,000 | 100% (Office), 93% (Retail) | Bloomberg L.P., The Home Depot | | Rego Park I | Retail | 338,000 | 100% (in service) | IKEA, Burlington, Bed Bath & Beyond | | Rego Park II | Retail | 609,000 | 96% | Costco, Kohl's (subleased) | | The Alexander | Residential | 255,000 (312 units) | 82% | Residential tenants | | Paramus, NJ | Land (Ground Lease) | 30.3 acres | 100% | IKEA (ground lessee) | | Flushing, NY | Retail (Sub-lease) | 167,000 | 100% | New World Mall LLC | | Rego Park III | Land for Development | 3.2 acres | N/A | To be developed | - The 731 Lexington Avenue property is encumbered by two separate mortgage loans: a $500 million loan on the office portion maturing in June 2021 (with extensions) and a $300 million loan on the retail portion maturing in August 2025[98][99] - The Paramus, NJ property is ground leased to IKEA until 2041, with a purchase option for IKEA in October 2021 for $75 million. If exercised, it would result in a gain on sale of approximately $60 million[104] Legal Proceedings The company faces ordinary course legal actions, including a stayed Sears lawsuit for approximately $650,000 in property damages at Rego Park I - In June 2014, Sears filed a lawsuit regarding its former lease at the Rego Park I property. The remaining claim is for property damages estimated at approximately $650,000. The case is currently stayed due to Sears' bankruptcy filing in October 2018[109] Mine Safety Disclosures This item is not applicable to the company - Not applicable[110] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ALX common stock is listed on the NYSE, with a $100 investment in 2015 yielding $92 by 2020, underperforming key market indices - The company's common stock is traded on the New York Stock Exchange under the symbol "ALX"[111] Five-Year Cumulative Return Comparison (2015-2020) | Index | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Alexander's | $100 | $116 | $112 | $90 | $103 | $92 | | S&P 500 Index | $100 | $112 | $136 | $130 | $171 | $203 | | NAREIT All Equity Index | $100 | $109 | $118 | $113 | $146 | $138 | Selected Financial Data This section is omitted due to the early adoption of SEC amendments eliminating the Selected Financial Data requirement - The company has omitted this section due to the early adoption of SEC Final Rule Release No. 33-10890, which eliminates the requirement for Selected Financial Data[116][120] Management's Discussion and Analysis of Financial Condition and Results of Operations COVID-19 significantly impacted 2020 financial performance, decreasing rental revenues and FFO, despite 95% Q4 rent collection and $455.9 million year-end liquidity Overview COVID-19 adversely affected retail tenants, leading to decreased Net Income and FFO in 2020, despite 95% Q4 rent collection and significant financing activities - The company collected approximately 95% of rent billed for Q4 2020 (96% including deferrals). This includes 100% from its office tenant, 90% from retail tenants, and 98% from residential tenants[122] - Due to tenant credit issues, the company wrote off $4.1 million in tenant receivables and $10.8 million in straight-line rent receivables during 2020, reducing rental revenues. A significant portion of these write-offs was attributable to Century 21[123] Financial Results Summary (FY 2020 vs. FY 2019) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net Income | $41,939 | $60,075 | | Diluted EPS (per share) | $8.19 | $11.74 | | FFO (non-GAAP) | $82,509 | $99,670 | | FFO per Diluted Share | $16.11 | $19.47 | Results of Operations Rental revenues decreased by $27.2 million in 2020 (due to write-offs and vacancies) and $6.5 million in 2019 (Sears vacancy), while interest expense decreased due to lower LIBOR Comparison of Operations (2020 vs. 2019) | Account | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Rental Revenues | $199,142 | $226,350 | ($27,208) | Write-offs of straight-line rent, uncollectible retail rents, and retail vacancies. | | Operating Expenses | $88,403 | $89,738 | ($1,335) | Lower recoverable operating expenses. | | Interest and Debt Expense | $24,204 | $38,901 | ($14,697) | Decrease in LIBOR. | Comparison of Operations (2019 vs. 2018) | Account | 2019 (in thousands) | 2018 (in thousands) | Change (in thousands) | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Rental Revenues | $226,350 | $232,825 | ($6,475) | Sears vacancy at Rego Park I property. | | Operating Expenses | $89,738 | $93,775 | ($4,037) | Lower bad debt expense compared to 2018 (Sears bankruptcy). | | Interest and Debt Expense | $38,901 | $44,533 | ($5,632) | Refinancing of Rego Park II shopping center loan. | Liquidity and Capital Resources The company maintained strong liquidity of $455.9 million at year-end 2020, with $1.16 billion in total debt, and completed significant financing activities including a new $94 million loan for The Alexander - As of December 31, 2020, the company had $455.9 million of liquidity, comprised of $449.9 million in cash and restricted cash, and $6.0 million in marketable securities[154] - In 2020, the company paid down its 731 Lexington Avenue retail loan by $50 million to $300 million and extended the maturity to 2025. It also completed a new $94 million financing for The Alexander apartment tower at a fixed rate of 2.63%[126][156][157] Outstanding Debt Summary (as of December 31, 2020) | Property | Balance (in thousands) | Interest Rate | Maturity | | :--- | :--- | :--- | :--- | | Paramus | $68,000 | 4.72% | Oct. 2021 | | 731 Lexington Ave, office | $500,000 | 1.06% | Jun. 2024 | | 731 Lexington Ave, retail | $300,000 | 1.55% | Aug. 2025 | | Rego Park II | $202,544 | 1.50% | Dec. 2025 | | The Alexander tower | $94,000 | 2.63% | Nov. 2027 | | Total | $1,164,544 | | | Funds from Operations (FFO) (non-GAAP) Full-year FFO (non-GAAP) decreased to $82.5 million ($16.11 per share) in 2020 from $99.7 million in 2019, though Q4 2020 FFO slightly increased Reconciliation of Net Income to FFO (non-GAAP) | (in thousands) | For the Year Ended Dec 31, 2020 | For the Year Ended Dec 31, 2019 | For the Qtr Ended Dec 31, 2020 | For the Qtr Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income | $41,939 | $60,075 | $18,432 | $14,434 | | Depreciation and amortization | $31,971 | $30,838 | $9,165 | $7,692 | | Change in fair value of marketable securities | $8,599 | $8,757 | ($2,190) | $2,500 | | FFO (non-GAAP) | $82,509 | $99,670 | $25,407 | $24,626 | Quantitative and Qualitative Disclosures about Market Risk The company faces interest rate risk from $1.0 billion in variable-rate debt, with a 1% rate increase potentially adding $10.0 million in annual interest expense, partially mitigated by derivatives Interest Rate Sensitivity (as of December 31, 2020) | Debt Type | Balance (in thousands) | Weighted Avg. Interest Rate | Effect of 1% Change in Base Rates (in thousands) | | :--- | :--- | :--- | :--- | | Variable rate | $1,002,544 | 1.30% | $10,025 | | Fixed rate | $162,000 | 3.51% | $0 | | Total | $1,164,544 | 1.60% | $10,025 | - The company utilizes derivatives to manage interest rate risk, including an interest rate cap with a notional amount of $500 million that caps LIBOR at 6.0%, and an interest rate swap with a notional amount of $300 million that fixes the rate at 1.72%[183][184] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2020, including balance sheets, income statements, and cash flow statements, along with the independent auditor's report Consolidated Balance Sheet Summary | (in thousands) | Dec 31, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Real estate, net | $720,921 | $716,843 | | Cash and cash equivalents | $428,710 | $298,063 | | Total Assets | $1,404,138 | $1,265,511 | | Mortgages payable, net | $1,156,170 | $970,961 | | Total Liabilities | $1,200,910 | $1,011,996 | | Total Equity | $203,228 | $253,515 | Consolidated Statement of Income Summary | (in thousands) | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | :--- | | Rental Revenues | $199,142 | $226,350 | $232,825 | | Total Expenses | ($127,067) | ($126,861) | ($132,207) | | Net Income | $41,939 | $60,075 | $32,844 | | Diluted EPS | $8.19 | $11.74 | $6.42 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - None reported[296] Controls and Procedures Management and independent auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes in Q4 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[297] - Management's assessment, based on the COSO framework, determined that the company's internal control over financial reporting was effective as of December 31, 2020. This assessment was audited by Deloitte & Touche LLP, which issued an unqualified opinion[301][303][306] Other Information No other information is reported under this item - None[312] Part III Directors, Executive Officers and Corporate Governance Information on directors and corporate governance is incorporated by reference from the Proxy Statement, identifying Steven Roth (CEO) and Matthew Iocco (CFO) who also hold Vornado roles - Most information for this section is incorporated by reference from the forthcoming Proxy Statement[313] Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Steven Roth | 79 | Chairman of the Board and Chief Executive Officer | | Matthew Iocco | 50 | Chief Financial Officer | Executive Compensation Executive compensation information is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the Proxy Statement[317] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the Proxy Statement, detailing 14,916 securities for exercise and 490,871 available for future issuance Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be Issued Upon Exercise | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | | Approved by security holders | 14,916 | 490,871 | Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the Proxy Statement[320] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the Proxy Statement[321] Part IV Exhibits, Financial Statement Schedules This section lists Form 10-K exhibits, including consolidated financial statements, Schedule III, and various governance, management, and financing agreements, many with Vornado Realty Trust - The filing includes Financial Statement Schedule III – Real Estate and Accumulated Depreciation[324] - Exhibits filed include governance documents, descriptions of securities, and numerous material contracts such as management and leasing agreements with Vornado Realty Trust and loan agreements for major properties[332] Form 10-K Summary No summary is provided under this item - None[349]