Most real estate investment trusts (REITs) own large-scale commercial real estate portfolios. However, Alexander's (NYSE: ALX) is unique in that it holds a small niche portfolio, featuring one notable property and a few other complementary pieces. That allows it to maximize the cash flows of those properties to pay a sizable dividend.
Here's a closer look at this focused REIT.
Alexander's is a diversified REIT with holdings concentrated in the greater New York City metro area. Fellow New York City-focused diversified REIT Vornado Realty Trust (NYSE: VNO) manages the company. Vornado also owns 32.4% of Alexander's common stock and leases and develops its properties.
As of late 2021, Alexander's has seven properties in its portfolio, with nearly 2.5 million square feet of commercial space, including 236,000 square feet of space undergoing redevelopment. Its portfolio consists of:
- 731 Lexington Avenue: An office and retail property in Manhattan with more than 1 million square feet of space, including 939,000 square feet of office and 141,000 square feet of retail. It features the world headquarters of Bloomberg LP and major retail tenants Home Depot and Hutong.
- The Rego Center complex: A retail and apartment complex in the Queens borough of New York City, which includes:
- Rego Park I: A 4.8-acre property with 338,000 square feet of retail space leased to major tenants Burlington, Bed Bath & Beyond, Marshalls, and IKEA.
- Rego Park II: A 6.6-acre property adjacent to Rego Park I, with 615,000 square feet of retail space leased to major tenants like Costco, Kohl's, and T.J. Maxx,
- Rego Park III: A 3.4-acre property adjacent to Rego Park II, currently undergoing redevelopment.
- The Alexander apartment tower: A 255,000-square-foot residential property with 312 units.
- Flushing, New York, ground lease: A 1-acre ground lease through 2037 with New World Mall.
- Paramus, New Jersey, ground lease: A 30.3-acre ground lease to IKEA.
While Alexander's owns a diversified portfolio of office, retail, and residential properties, it has significant exposure to one tenant: Bloomberg LP. That company currently contributes 53% of its total revenue, whereas no other tenant accounts for more than 10%. Because of that, if Alexander's loses Bloomberg as a tenant (or if Bloomberg is unable to fulfill its financial obligations), that would have a significant impact on the REIT.
Alexander's partially offsets some of this risk by receiving confidential financial information and metrics directly from Bloomberg. Further, Bloomberg renewed its lease in 2016, extending it through February 2029. The lease also includes a 10-year renewal option.
Another important factor to point out is Alexander's relationship with Vornado. Alexander's pays the following management fees to that REIT:
- $2.8 million
- 2% of the gross revenue from the Rego Park II shopping center
- $0.50 per square foot for the tenant-occupied office and retail space at 731 Lexington Ave.
- $344,000, escalating at 3% per year, for managing the common areas of 731 Lexington Ave.
- A development fee equal to 6% of development costs
On top of that, Alexander's pays leasing service fees of 3% of the rent for the first 10 years of the lease term (the fees decrease as the lease ages), sales commissions of up to 3% of the gross proceeds, and building maintenance fees.
All told, Alexander's paid more than $5 million in management, development, leasing, and property management fees to Vornado during the first half of 2021.
The pandemic impacted Alexander's results in 2020. Overall, the REIT's FFO declined from $99.7 million, or $19.47 a share, in 2019 to $82.5 million, or $16.11 per share, in 2020.
One issue weighing on the company was rent collection. Its rental collection rate dipped to 89% in the second quarter, while steadily improving to 95% by the fourth quarter. It was able to collect some of the rent it deferred by year-end.
Alexander's completed two financing transactions in 2020. It amended and extended the $350 million mortgage loan on the retail condominium of 731 Lexington Ave. and paid the loan down by $50 million to $300 million, extending the maturity date to August 2025. The REIT also completed a $94 million financing on The Alexander. The interest-only loan matures in November 2027.
The company's financial results improved in 2021. Through the first half, Alexander's generated $46.9 million, or $9.16 per share, of FFO, up from $41.7 million, or $8.15 per share, in the same period of 2020.
Alexander's had two notable business developments in the first half of 2021. In May, the company received notice from IKEA that it would exercise its option to purchase the ground lease under its Paramus, New Jersey, property for $75 million. It expects to close the sale by year end.
In addition, the company completed the sale of a land parcel in the Bronx borough of New York for $10 million. It expects to record gains on both deals. However, it doesn't anticipate paying a special dividend to shareholders.
Alexander's stock price
Alexander's strategy of focusing on owning a diversified portfolio of properties in the New York City area hasn't paid off for investors in recent years: