Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion should be read in conjunction with the consolidated financial statements and related notes included under Part II, Item 8 of this Annual Report on Form 10-K.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) within this section is focused on the years ended December 31, 2024 and 2023 , including year-to-year comparisons between these years. Our MD&A for the year ended December 31, 2022 , including year-to-year comparisons between 2023 and 2022 , can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 .
Overview
Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping its properties. All references to “we,” “us,” “our,” “Company” and “Alexander’s” refer to Alexander’s, Inc. and its consolidated subsidiaries. We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE: VNO). We have five properties in New York City.
We compete with a large number of real estate investors, property owners and developers, some of whom may be willing to accept lower returns on their investments. Our success depends upon, among other factors, trends of the global, national and local economies, the financial condition and operating results of current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels. Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due. See “Item 1A. Risk Factors” in this Annual Report on Form 10-K for additional information regarding these factors.
Our business has been, and may continue to be, affected by interest rate fluctuations, the effects of inflation and other uncertainties including the potential for an economic downturn. These factors could have a material impact on our business, financial condition, results of operations and cash flows.
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Overview - continued
Year Ended December 31, 2024 Financial Results Summary
Net income for the year ended December 31, 2024 wa s $43,444,000 or $8.46 per diluted share, compared to $102,413,000 or $19.97 per diluted share for the year ended December 31, 2023. Net income for the year ended December 31, 2023 included $53,952,000 , or $10.52 per diluted share, of income as a result of a net gain on the sale of real estate.
Funds from operations (“FFO”) (non-GAAP) for the year ended December 31, 2024 wa s $77,968,000, or $15.19 p er diluted share, compared to $81,067,000, or $15.80 per diluted share for the year ended December 31, 2023.
Square Footage, Occupancy and Leasing Activity
As of December 31, 2024, our portfolio was comprised of five properties aggregating 2,455,000 sq uare feet. The commercial occupancy rate was 99.1% and the residential occupancy rate was 94.2%.
In May 2024, Alexander’s and Bloomberg entered into an agreement to extend the leases covering approximately 947,000 square feet at our 731 Lexington Avenue property that were scheduled to expire in February 2029 for a term of eleven years to February 2040.
Significant Tenant
Bloomberg accounted for reve nue of $125,349,000, $120,351,000, and $115,129,000 in the years ended December 31, 2024, 2023 and 2022, respectively, representing approximately 55%, 54% and 56% of our rental revenues in each year, respectively. No other tenant accounted for more than 10% of our rental revenues. If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition. In order to assist us in our continuing assessment of Bloomberg’s creditworthiness, we receive certain confidential financial information and metrics from Bloomberg. In addition, we access and evaluate financial information regarding Bloomberg from other private sources, as well as publicly available data.
Financing
On September 30, 2024, we entered into a new $400,000,000 mortgage loan on the office condominium portion of 731 Lexington Avenue. The interest-only loan has a fixed rate of 5.04% and matures in October 2028. The loan is prepayable, at the Company’s option, with no penalty, beginning in October 2026. The new loan replaces the previous $490,000,000 loan that bore interest at the Prime Rate and was scheduled to mature in October 2024.
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Critical Accounting Estimate
In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Accounting estimates are deemed critical if they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Below is the critical accounting estimate used in the preparation of our consolidated financial statements. A discussion of our accounting policies is included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K.
Impairment Analyses for Real Estate
Our properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment analyses are based on current plans, intended holding periods, ability to hold, and available information at the time the analyses are prepared. Assessing impairment can be complex and involves a high degree of subjectivity in determining if impairment indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset. In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, capital expenditures, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions. These estimates can have a significant impact on the undiscounted cash flows or estimated fair value of an asset and could thereby affect the value of our real estate on our consolidated balance sheets as well as any potential impairment losses recognized on our consolidated statements of income.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K for a discussion concerning recent accounting pronouncements.
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Results of Operations – Year Ended December 31, 2024 compared to December 31, 2023
Rental Revenues
Rental revenues were $226,374,000 in the year ended December 31, 2024, compared to $224,962,000 in the prior year, an increase of $1,412,000. This was primarily due to (i) $4,583,000 of higher rental revenue from Bloomberg’s lease extension, and (ii) $2,322,000 of higher real estate tax reimbursements due to higher real estate tax expense, partially offset by (iii) $3,785,000 of lower rental revenue from IKEA’s lease expiration at Rego Park I, (iv) $875,000 of lower rental revenue from Bed Bath & Beyond’s lease rejection at Rego Park I, and (v) $781,000 of lower rental revenue from Old Navy’s lease termination at Rego Park I.
Operating Expenses
Operating expenses were $103,240,000 in the year ended December 31, 2024, compared to $101,210,000 in the prior year, an increase of $2,030,000. This was primarily due to higher real estate tax expense and non reimbursable operating expenses, partially offset by higher capitalized expenses during the current year.
Depreciation and Amortization
Depreciation and amortization was $34,782,000 in the year ended December 31, 2024, compared to $32,898,000 in the prior year, an increase of $1,884,000. This was primarily due to higher depreciation expense on capital projects placed into service.
General and Administrative Expenses
General and administrative expenses were $6,519,000 in the year ended December 31, 2024, compared to $6,341,000 in the prior year, an increase of $178,000. This was primarily due to higher professional fees.
Interest and Other Income
Interest and other income was $24,429,000 in the year ended December 31, 2024, compared to $22,245,000 in the prior year, an increase of $2,184,000. This was primarily due to an increase in average interest rates.
Interest and Debt Expense
Interest and debt expense was $62,818,000 in the year ended December 31, 2024, compared to $58,297,000 in the prior year, an increase of $4,521,000. This was primarily due to higher interest rates, additional costs associated with the refinancing of our office condominium at 731 Lexington Avenue, and higher deferred debt issuance cost amortization, partially offset by lower interest rate cap premium amortization.
Net Gain on Sale of Real Estate
Net gain on the sale of real estate was $53,952,000 in the year ended December 31, 2023, resulting from the sale of the Rego Park III land parcel in Queens, New York in May 2023.
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Related Party Transactions
Vornado
As of December 31, 2024, Vornado owne d 32.4% of our outstanding common stock. We are managed by, and our properties are leased and developed by, Vornado, pursuant to various agreements, which expire in March of each year and are automatically renewable. These agreements are described in Note 5 – Related Party Transactions , to our consolidated financial statements in this Annual Report on Form 10-K.
Steven Roth is the Chairman of our Board of Directors and Chief Executive Officer, the Managing General Partner of Interstate Properties (“Interstate”), a New Jersey general partnership, and the Chairman of the Board of Trustees and Chief Executive Officer of Vornado. As of December 31, 2024, Mr. Roth, Interstate and its other two general partners, David Mandelbaum and Russell B. Wight, Jr. (who are also directors of the Company and trustees of Vornado) owned, in the aggregate, 26.0% of our outstanding common stock, in addition to the 2.3% they indirectly own through Vornado.
Liquidity and Capital Resources
Our cash requirements include property operating expenses, capital improvements, tenant improvements, debt service, leasing commissions, dividends to stockholders as well as development costs. The sources of liquidity to fund these cash requirements include rental revenue, which is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties, as well as our existing cash, proceeds from financings, including mortgage or construction loans secured by our properties and proceeds from asset sales.
As of December 31, 2024, we had $393,836,000 of liquidity comprised of cash and cash equivalents and restricted cash. Recent increases in interest rates and inflation could adversely affect our cash flow from continuing operations but we anticipate that cash flow from continuing operations over the next twelve months, together with existing cash balances, will be adequate to fund our business operations, cash dividends to stockholders, debt service and capital expenditures. We may refinance our maturing debt as it comes due or choose to pay it down. However, there can be no assurance that additional financing or capital will be available to refinance our debt, or that the terms will be acceptable or advantageous to us.
Cash Flows for the Year Ended December 31, 2024
Cash and cash equivalents and restricted cash were $393,836,000 at December 31, 2024, compared to $552,977,000 at December 31, 2023, a decrease of $159,141,000. This resulted from (i) $200,025,000 of net cash used in financing activities and (ii) $13,222,000 of net cash used in investing activities, partially offset by (iii) $54,106,000 of net cash provided by operating activities.
Net cash used in financing activities of $200,025,000 was comprised of (i) debt repayments of $500,000,000, (ii) dividends paid of $92,378,000 and (iii) debt issuance costs of $7,647,000, partially offset by (iv) proceeds from borrowings of $400,000,000.
Net cash used in investing activities of $13,222,000 was comprised of construction in progress and real estate additions of $19,785,000, partially offset by proceeds from an interest rate cap of $6,563,000.
Net cash provided by operating activities of $54,106,000 was comprised of (i) net income of $43,444,000 and (ii) adjustments for non-cash items of $58,440,000, partially offset by (iii) the net change in operating assets and liabilities of $47,778,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $37,897,000, (ii) straight-lining of rents of $13,116,000, (iii) interest rate cap premium amortization of $6,483,000, (iv) other non-cash adjustments of $494,000 and (v) stock-based compensation expense of $450,000.
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Liquidity and Capital Resources - continued
Cash Flows for the Year Ended December 31, 2023
Cash and cash equivalents and restricted cash were $552,977,000 at December 31, 2023, compared to $214,478,000 at December 31, 2022, an increase of $338,499,000. This resulted from (i) $321,812,000 of net cash provided by investing activities and (ii) $109,111,000 of net cash provided by operating activities, partially offset by (iii) $92,424,000 of net cash used in financing activities.
Net cash provided by investing activities of $321,812,000 was comprised of (i) proceeds from maturities of U.S. Treasury bills of $264,881,000, (ii) proceeds from sale of real estate of $67,821,000 and (iii) proceeds from an interest rate cap of $5,049,000, partially offset by (iv) the purchase of an interest rate cap of $11,258,000 and (v) construction in progress and real estate additions of $4,681,000.
Net cash provided by operating activities of $109,111,000 was comprised of (i) net income of $102,413,000 and (ii) the net change in operating assets and liabilities of $16,753,000, partially offset by (iii) adjustments for non-cash items of $10,055,000. The adjustments for non-cash items were comprised of (i) net gain on sale of real estate of $53,952,000 and (ii) other non-cash adjustments of $1,559,000, partially offset by (iii) depreciation and amortization (including amortization of debt issuance costs) of $34,605,000, (iv) interest rate cap premium amortization of $7,770,000, (v) straight-lining of rents of $2,631,000 and (vi) stock-based compensation expense of $450,000.
Net cash used in financing activities of $92,424,000 was comprised of dividends paid of $92,320,000 and debt issuance costs of $104,000.
Dividends
On February 5, 2025, our Board of Directors declared a regular quarterly dividend of $4.50 per share (an indicated annual rate of $18.00 per share). The dividend, if declared by the Board of Directors at the same rate for all of 2025, would require us to pay out approximately $92,400,000 in 2025.
Debt
Below is a summary of our outstanding debt and maturities as of December 31, 2024. We may refinance our maturing debt as it comes due or choose to repay it.
(Amounts in thousands) Balance Interest Rate Maturity
731 Lexington Avenue, office condominium $ 400,000 5.04 % Oct. 09, 2028
731 Lexington Avenue, retail condominium (1)(2)
300,000 1.76 % Aug. 05, 2025
Rego Park II shopping center (1)(3)
202,544 5.60 % Dec. 12, 2025
The Alexander apartment tower 94,000 2.63 % Nov. 01, 2027
Total 996,544
Deferred debt issuance costs, net of accumulated amortization of $7,381
(8,525)
Total, net $ 988,019
(1) Interest rate listed represents the rate in effect as of December 31, 2024 based on SOFR as of contractual reset date plus contractual spread, adjusted for hedging instruments as applicable.
(2) Interest at SOFR plus 1.51% which was swapped to a fixed rate of 1.76% through May 2025.
(3) Interest at SOFR plus 1.45% (SOFR is capped at a rate of 4.15% through December 2025).
Below is a summary of our principal and interest repayments scheduled as of December 31, 2024.
Less than One to Three to More than
(Amounts in thousands) Total One Year Three Years Five Years Five Years
Long-term debt obligations $ 1,098,128 $ 542,746 $ 139,519 $ 415,863 $ —
Total principal and interest repayments (1)
$ 1,098,128 $ 542,746 $ 139,519 $ 415,863 $ —
(1) Interest on variable rate debt is computed using rates in effect as of December 31, 2024 adjusted for hedging instruments as applicable.
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Liquidity and Capital Resources - continued
Capital Expenditures
Capital expenditures consist of expenditures to maintain and improve assets, tenant improvement allowances, lease incentives and leasing commissions. During 2025, we expect to spend approximately $125,000,000 of capital expenditures at our properties. We plan to fund these capital expenditures from operating cash flow, existing liquidity, and/or borrowings.
Commitments and Contingencies
Insurance
W e maintain general liability insurance with limits of $300,000,000 per occurrence and per property, of which the first $30,000,000 includes communicable disease coverage, and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties and excluding communicable disease coverage.
Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Act of 2002, as amended to date and which has been extended through December 2027. Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence and in the aggregate. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a deductible of $338,000 and 20% of the balance of a covered loss, and the Federal government is responsible for the remaining 80% of a covered loss. We are ultimately responsible for any loss incurred by FNSIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism or other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material.
Our loans contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.
Other
There are various legal actions brought against us from time-to-time in the ordinary course of business. In our opinion, the outcome of such pending matters in the aggregate will not have a material effect on our financial position, results of operations or cash flows.
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Funds from Operations (“FFO”) (non-GAAP)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of certain real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. A reconciliation of our net income to FFO is provided below.
FFO (non-GAAP) for the years ended December 31, 2024 and 2023
FFO (non-GAAP) for the year ended December 31, 2024 was $77,968,000, or $15.19 per diluted share, compared to $81,067,000, or $15.80 per diluted share for the year ended December 31, 2023.
The following table reconciles our net income to FFO (non-GAAP):
For the Year Ended
December 31,
(Amounts in thousands, except share and per share amounts) 2024 2023
Net income $ 43,444 $ 102,413
Depreciation and amortization of real property 34,524 32,606
Net gain on sale of real estate — (53,952)
FFO (non-GAAP) $ 77,968 $ 81,067
FFO per diluted share (non-GAAP) $ 15.19 $ 15.80
Weighted average shares used in computing FFO per diluted share 5,132,418 5,129,330
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