ALX - Alexander's

[thepupil]

Great catch on the 731 Retail covvy. I missed that completely and a payoff of low cost debt is obviously the least desirable use of cash, but maybe worth it to keep Home Depot?

 

Bear thesis is that it’s an illiquid controlled company that owns NYC office/retail that may have to use its cash to prop up its ailing retail exposure, I guess.

 

Also it’s paying out $23mm/quarter which uses some of the retail NOI which is under pressure so we’ll probably see a divvy cut.

 

Another bearish point is that while the Bloomberg lease is awesome; the fact that the whole building rolls in 2029 probably prevents ALX from doing a traditional  10-year conduit CMBS or LifeCo loan when the office condo loan becomes open for prepayment. That’s why they’ve done shorter maturity on this thing; if they could get 10 years, the last time around they probably would have.

 

It’s really cheap money, but given the low LTV and presumed safety of Bloomberg; it’d be nice if they could re-lever the property, but I don’t think anyone would make that loan without knowing whether or not Bloomberg is extending. You could make that loan in 2014 (and then again in 2017) but we’re too close to 2029 now (I think).

 

I think a bullish point is that a company owned by the former mayor who is worth $50B+ is probably not your first guy to try to get out of a lease obligation and leave NYC. Think about the press that would cause. “Even Bloomberg is Escaping New York”

 

 

[Spekulatius]

 

I think a bullish point is that a company owned by the former mayor who is worth $50B+ is probably not your first guy to try to get out of a lease obligation and leave NYC. Think about the press that would cause. “Even Bloomberg is Escaping New York”

 

Well, he doesn’t have to escape N.Y., He just has to move to a different building offering better infrastructure and/or a cheaper lease. Just threading such will give him better lease terms if he decides to stay.

2029 is a long time though, things could be substantially better or worse until then.

[thepupil]

Yes, of course the company  could leave after 2029; I meant before.

 

When you see $80B companies that are trading at like 18x EBITDA saying they are going to modify rent, you start to get a little paranoid about how money good your contract is (SBUX).

 

 

[rb]

Yes, of course the company  could leave after 2029; I meant before.

 

When you see $80B companies that are trading at like 18x EBITDA saying they are going to modify rent, you start to get a little paranoid about how money good your contract is (SBUX).

I think we're talking about 2 different things here. For SBUX rent is much more of a big deal than for Bloomberg. And I'm not sure if Starbucks is gonna be able to pull it off. I think they're gonna be ripped to shreds. Think "Starbucks buying back stock but not paying the rent" type headlines all over the place.

 

But Bloomberg is paying what? Say 110 million a year in rent? They maybe would go for a 20% reduction. I know that Bloomberg is not above acting shitty but do they really want the headaches just to save 22 million in rent per year? That's basically fuck all for Bloomberg.

[Mephistopheles]

Yes, of course the company  could leave after 2029; I meant before.

 

How would that work? Wouldn't they be obliged to pay terms of the lease per the contract? Or find a replacement tenant who can pay the same amount?

[rb]

I guess looking in a bigger way at NYC office real estate, the prices of all the REITs are wrong. The market either dies and you're gonna loose your money or the market does't die and all these REITs are real bargains right now. You place your bets one way or the other.

 

But how many times was this cat supposed to die? The 70, early 90s, in 2001 these buildings were supposedly worth nothing because nobody was gonna work in an NYC tower ever again. Yet 5 years later Jared Kushner pays 1.6B for 666 Park. Sure that was one of the dumbest deals in the history of real estate but there were plenty others not that far away.

 

Now everything is down because we're all gonna work from home to the end of times. But look who are the tenants of these buildings. In NYC it is basically financials, law firms, and media. I just don't see how an IB analyst does great work from his 350 sqft NYC apartment with a laptop and a shitty VPN connection. Or picture this nice situation, an associate for Skadden Arps jumps on a call. His roomate, an associate for Morgan Stanley is 10 ft away. They use stacks of pitch books and confidential documents as a coffee table.

 

In my view from an economic and real estate point of view NYC is just not set up to work from home. Sure, you do it in a pinch cause you have no other option. But I think it would work out badly as the status quo. That's why my bet is that the market doesn't collapse. The only real danger as i see it is buildings that have financing coming up and can't roll over the debt. But didn't the Fed kinda take care of that?

[thepupil]

Yes, of course the company  could leave after 2029; I meant before.

 

How would that work? Wouldn't they be obliged to pay terms of the lease per the contract? Or find a replacement tenant who can pay the same amount?

 

 

Sorry guys for leading down this low probability path; pre-covid, I assumed (on a leverage neutral basis) that fully occupied long duration leased office buildings with high credit quality tenants would exhibit a fundamental risk profile between that of stocks and bonds; obviously that has not been the case with respect to the mark to market.

 

The far more relevant risk is retail eating up the cash/ decreasing NOI / cash flow, which BG2008's sister has nicely highlighted for us.

 

I own the stock and obviously think Bloomberg will pay.

 

It’s just when you see something with 9 years of guaranteed profit trading down 8% a day, you start to really question your assumptions.

 

Retail is the bigger risk. Bloomberg will pay rent.

[BG2008]

Yes, of course the company  could leave after 2029; I meant before.

 

How would that work? Wouldn't they be obliged to pay terms of the lease per the contract? Or find a replacement tenant who can pay the same amount?

 

 

Sorry guys for leading down this low probability path; pre-covid, I assumed (on a leverage neutral basis) that fully occupied long duration leased office buildings with high credit quality tenants would exhibit a fundamental risk profile between that of stocks and bonds; obviously that has not been the case with respect to the mark to market.

 

The far more relevant risk is retail eating up the cash/ decreasing NOI / cash flow, which BG2008's sister has nicely highlighted for us.

 

I own the stock and obviously think Bloomberg will pay.

 

It’s just when you see something with 9 years of guaranteed profit trading down 8% a day, you start to really question your assumptions.

 

Retail is the bigger risk. Bloomberg will pay rent.

 

Let's say that the $454mm of cash is used partially to pay down the retail mortgage at Lexington Ave to the tune of $200mm.  I think leaving $150mm in there is okay.  NYC street retail is hurt bad, but not so much that there is no value.  That's an incremental $6mm of FFO that they  aren't getting at the moment assuming 3% interest savings.  Stills leaves $254mm of cash.  I would rather them pay out a $80 special divvy instead. 

 

Obviously, leasing Rego I and Rego II are going to be increasingly hard.  Rego I doesn't have much debt.  Rego II is anchored by Costco.  It's a MMA fight trying to get parking there on the weekends. 

 

 

[Gregmal]

I'm too lazy to start a thread, but since we've covered some of the Alex's(ALEX and ALX), I thought I'd bring up the Mrs....Alexandria REIT, ticker ARE. Pretty boring but in REITland and office space land, I dont think there are many things moatier than biotech and life sciences office space. You certainly aint studying infectious diseases at home.

[fareastwarriors]

I'm too lazy to start a thread, but since we've covered some of the Alex's(ALEX and ALX), I thought I'd bring up the Mrs....Alexandria REIT, ticker ARE. Pretty boring but in REITland and office space land, I dont think there are many things moatier than biotech and life sciences office space. You certainly aint studying infectious diseases at home.

 

Is it (ARE) cheap though? 

[Gregmal]

I'm too lazy to start a thread, but since we've covered some of the Alex's(ALEX and ALX), I thought I'd bring up the Mrs....Alexandria REIT, ticker ARE. Pretty boring but in REITland and office space land, I dont think there are many things moatier than biotech and life sciences office space. You certainly aint studying infectious diseases at home.

 

Is it (ARE) cheap though?

 

Eh, not ALX cheap, but its a much higher quality(not to mention significantly larger) company. Top tenants are basically all of the largest Pharma companies. They've got FB as well. And how many REITs have a VC team?

[thepupil]

Do you own ARE? I get to a 4.6% cap rate / 1x NAV; is that right? $1.2/ $26B. that seems completely deserved given that it does indeed appear to be very high quality. It’s like a portfolio of 731’s: long term leases where tenant responsible for opex with high quality tenants, in diverse geographies. It is a beauty and prices as such. 

 

If we assume all retail is worthless, burn the cash, and count the L+90 loan at par; ALX trades for a 4 cap. 68/$1700, so it is possible that ALX could be more expensive in an extreme scenario where every retail square foot has no value and ALX lights a fire to $450mm

[BG2008]

Pupil,

 

I need to brush up on this.  Given that ALX is a REIT, I assume that there is appraisal rights (need to look into this).  I am pretty confident that I can go to court and argue that private market value for ALX is much higher than what it is currently trading at.  We should band together like blood brothers and vow to go to appraisal court if such tail risk take under happens.

 

Appraisal rights have really gotten kicked in the teeth in Delaware recently. I think it was the Dell case, but the state of appraisal rights now, IIRC, is that if you don’t take the deal price, your appraisal price may come back as the price where it was before the deal.

 

https://corpgov.law.harvard.edu/2018/03/01/the-new-new-regime-in-delaware-appraisal-law/

 

Thanks for sharing this.  There are some patterns in that article worth noticing. 

 

1) Most of these cases of punishment were for hedge funds who bought shares and bought in litigation experts.  The courts likely viewed this as opportunistic and didn't want a bunch of frivolous lawsuits. 

2) There seems to be implied that the court would favor long term holders. Although, they may make the argument that if there is public price discovery for such a long time, then the market is efficient. 

3) The recent cases may thus be an important step along the way to limiting most appraisal litigation to private company transactions and controller squeeze-outs—the context to which, as many have argued, it should be confined.  - Wouldn't VNO trying to do a take under fall into this controller squeeze out?  I guess they only own 30%, but they are significant

4) There were a lot of discussion around synergies from deals.  Most RE deals have robust market comps.  It is probably easier to value the Bloomberg building and the shopping centers than say Dell's business where synergy plays a role. 

 

Great article, but just trying to think things through.

[Gregmal]

Do you own ARE? I get to a 4.6% cap rate / 1x NAV; is that right? $1.2/ $26B. that seems completely deserved given that it does indeed appear to be very high quality. It’s like a portfolio of 731’s: long term leases where tenant responsible for opex with high quality tenants, in diverse geographies. It is a beauty and prices as such. 

 

If we assume all retail is worthless, burn the cash, and count the L+90 loan at par; ALX trades for a 4 cap. 68/$1700, so it is possible that ALX could be more expensive in an extreme scenario where every retail square foot has no value and ALX lights a fire to $450mm

 

I do own ARE but unfortunately it falls into the category of relatively immaterial position because I prefer to waste my time with stocks that are "cheap". Also in that category are shit co's like Visa, MasterCard, and LMT. Its a perpetual New Year's resolution to focus more on quality and leave "value" alone.

 

Your numbers look right. Off the top of my head at 2 am 1.1B or so of NOI was what I recall from the most recent 10k. Its probably, if one put a gun to my head, the highest quality REIT I am aware of. But like I said, I'd rather buy subpar assets or incur greater risk at 8-9 caps than just pony up for this bad boy. Why wine and dine the prom queen when you can bang hookers?

 

I also get the negativity with you guys on retail, but you're nuts just writing down or dismissing this stuff entirely as worthless.

 

http://themansourgroup.listinglab.com/RossMorenoValleyCA/index.cfm

 

Imagine that? A Ross Store at a 6 cap in this environment? And no, it's not some 3rd rate broker and a 5th tier firm. Alvin Mansour doesnt take 2nd rate listings.

 

Or CIM, mentioned in another thread? Buy a fucking mall for $100M post COVID? Interesting redevelopment plans.

 

https://labusinessjournal.com/news/2020/may/04/cim-group-buys-crenshaw-plaza/

[thepupil]

Do you own ARE? I get to a 4.6% cap rate / 1x NAV; is that right? $1.2/ $26B. that seems completely deserved given that it does indeed appear to be very high quality. It’s like a portfolio of 731’s: long term leases where tenant responsible for opex with high quality tenants, in diverse geographies. It is a beauty and prices as such. 

 

If we assume all retail is worthless, burn the cash, and count the L+90 loan at par; ALX trades for a 4 cap. 68/$1700, so it is possible that ALX could be more expensive in an extreme scenario where every retail square foot has no value and ALX lights a fire to $450mm

 

I do own ARE but unfortunately it falls into the category of relatively immaterial position because I prefer to waste my time with stocks that are "cheap". Also in that category are shit co's like Visa, MasterCard, and LMT. Its a perpetual New Year's resolution to focus more on quality and leave "value" alone.

 

Your numbers look right. Off the top of my head at 2 am 1.1B or so of NOI was what I recall from the most recent 10k. Its probably, if one put a gun to my head, the highest quality REIT I am aware of. But like I said, I'd rather buy subpar assets or incur greater risk at 8-9 caps than just pony up for this bad boy. Why wine and dine the prom queen when you can bang hookers?

 

I also get the negativity with you guys on retail, but you're nuts just writing down or dismissing this stuff entirely as worthless.

 

http://themansourgroup.listinglab.com/RossMorenoValleyCA/index.cfm

 

Imagine that? A Ross Store at a 6 cap in this environment? And no, it's not some 3rd rate broker and a 5th tier firm. Alvin Mansour doesnt take 2nd rate listings.

 

Or CIM, mentioned in another thread? Buy a fucking mall for $100M post COVID? Interesting redevelopment plans.

 

https://labusinessjournal.com/news/2020/may/04/cim-group-buys-crenshaw-plaza/

 

I think there are lots of prom queens within the REITs that are down 40-50%. BXP (and CUZ) for example has 51mm sq feet of mostly prom queens and has traded to a 7-8 cap, which at that price it’s kind of like “why deal with this Penn Station/ 220CPS / NYC oversupply bullshit, I’ll just own the SPG’s* of office”. Of course, BXP probably will never be taken out so it’s less event-y than others and BXP is 26% NYC and 7% DC which aren't the best office markets.

 

And I don’t think I’d own ALX (50% retail) or VNO (18%) if I thought retail was worthless, was just illustrating that the max price you are paying for 731 office is about what you are paying for ARE. The other ALEX is 100% retail. Have owned other retail in the past and call options on SPG and MAC sing to me like a siren.

 

I think ARE will probably do well over time; it’s a really big quality premium right now. Same EV as BXP with 56% of the rental revenue and 52% of the footage; long term FFO/share growth about the same. You’re really paying up for the pure play life sciences. Credit spreads on their 2030’s are the same (within 20 bps).

 

*by this I mean the lowest cost of capital (until now), highest quality, guys with scale and that the sell side likes, the accretive issuers, the true REITs

[rb]

I've seen it mentioned somewhere that VNO breaks down financials for the ALX properties. I've spent a good amount of time going thorough VNO's financials but can't seem to find it. I'm looking to break down the expenses to property level for their retail portfolio in order to value them independently. I can break out the expenses for the office building based on the BBG lease, but the rest is kind of a blur.

 

Thanks

[thepupil]

https://s23.q4cdn.com/623119702/files/doc_financials/2020/Q1/VNO-3.31.20-Exhibit-99.2-Financial-Supplement-Final.pdf

 

See page 9 of the supplemental which tells you that ALX gives VNO $10-$11mm / quarter of NOI at share. Annualized to $40-$44mm.

 

We know that VNO owns 32.4% of ALX, so that gives us an ALX total NOI of $120-125mm

 

We know from the Bloomberg lease that Bloomberg is $65-$68mm of that NOI. Therefore ALX retail NOI is about $60mm.

 

Page 41 of the VNO supplemental provides additional ALX info. Rent per foot by building.

 

BG2008 has done more detailed work on the retail and the nice queens apartment building and can chime in.

 

I don’t think we have expenses by building. Unfortunately the loan on the 731 Lex retail is bank loan not CMBS. I think you’d have to guesstimate unless BG2008 has some more thoughts on how to get retail expense by building.

 

Also, his VIC writeup should be accessible to all now with the 45 day VIC access. It’s pretty awesome.

 

https://www.valueinvestorsclub.com/idea/ALEXANDERS_INC/8290569563

[rb]

First off. thanks to the pupil for all his contribution the the thread. I tried to in vain to find BG's comments about the apartment building in queens. Couldn't find them, instead I read 25 pages of BG's posts, which isn't all that bad in itself.

 

Anyway, as I mentioned previously, I'm trying to price this thing piece by piece. Right now I'm gonna look at the 731 retail piece.

 

As per BG's sister contribution from the 2020 Q1 10q they won't be able to extend the mortgage on the 731 retail because they'll be in violation of covenants. Thanks BG's sister! Well it actually turns out that they breached their debt service covenant on that property in Q3 2019! No mention of this fact in the 2019Q3 10Q or the 2019 10K. Only some vague footnote about extension covenants in 2020Q1 10Q. But let's move on because now that we know about the covenant breach we can piece together numbers on this property.

 

I assume the covenant got triggered by H&M pulling out. Per the mortgage they need to keep a debt service ratio of basically projected cash NOI to debt service of 1.1:1. Debt service is the higher of:

 

a) Actual interest payment with 30 year amortization = $19M

b) 10 year treasury +2.5% with 30 year amortization = 20.6M

c) Principal x 6.44% = 22.5M

 

In 2017 they had 174,000 sqft @ 99.4% ocupancy and $181.72 per foot rent and were in compliance with the covenant. That means that they had at least of 24.8M NOI and that expenses were less than $6.6M.

 

In 2019 they breach the covenant (I'm assuming H&M paid average rent). They still have 177,000 sqft @ 99.4 occupancy. That means 172,956 sqft. Less H&M's 27,000 sqft you get 145,956 sqft. Avg weighted rent is now 193.81. Based on that you get that expenses are at least 3.5M.

 

So now we know that expenses for 731 retail are between 3.5 and 6.6 million. These expenses would include the VNO management piece which I don't have the patience to break out right now. I may update the post with that. But now this is where shit gets weird:

 

First, from the 2018 10k to 2019 10k the building goes from 174k sqft @99.4 occupancy to 155k sqft @ 92.7 occupancy. Did the building shrink or something? Well no, they put 8,000 sqft into the various category and 20,000 sqft just vanished. I guess it's better to have a 155k sqft with 7.3% vacancy than 174k sqft with 17.4% vacancy? I don't know.

 

Second, the avg weighted rent went from $194 a foot to $277 a foot. This is really bizarre. I can think of a couple of unlikely scenarios of why that is:

 

1. The rent for H&M was so low that it dragged the average rent way down. But then why leave?

2. In 2019 there was the mother of all rent steps. This would explain why H&M would pack up. But I've never heard of this kind of rent step. Additionally, if this were the case they wouldn't breach because they're making way more in rent (39.5M) even without H&M than before with H&M (33.5M).*

 

* I also saw that next door at 715 Lexington they had a crazy increase in rent from 105 a foot in 2018 to 211 a foot in 2019. So I thought that maybe there was some crazy expense increase that gets passed through on rent, maybe some weird property tax levy or something. But then next door to that at 968 3rd avenue rents went from 165 a foot in 2018 to 168 a foot in 2019 so I guess it's not that.

 

If anyone has a better idea of what's going on, please chime in.

[thepupil]

Re the apartment, was referring to his VIC writeup which includes the following:

 

The Alexander - $7.8mm of NOI @ 4.25% cap rate $184mm of value with no debt so $184mm of equity

 

The Alexander – This is simply one of the nicest multi-family in central Queens.  It is farther from the city but offers 2 bedrooms in the high $3,000 range with views of the city.  It’s cheaper than Long Island City.  This is a very good asset.

 

You’ll have to ask him how he got to $7.8mm NOI.

 

I appreciate your everyone’s effort to tear ALX apart and really get all into the details. I haven’t done enough work to answer your valid questions about what’s going on with 731 retail.

[rb]

Thanks Pupil. I'm not on VIC so I didn't see that.

 

So BG, how did you get 7.8M NOI on the residential building? Don't leave CoBF hanging in favour of VIC.

[Spekulatius]

$277/sqft rent For retail in NYC? Ouch! I think we will see some serious resets on those numbers going forward. I guess investing in this is going to be like pissing against the wind.

 

Great sleuthing here from rb, thepupil and Bg2008.

[bizaro86]

First off. thanks to the pupil for all his contribution the the thread. I tried to in vain to find BG's comments about the apartment building in queens. Couldn't find them, instead I read 25 pages of BG's posts, which isn't all that bad in itself.

 

Anyway, as I mentioned previously, I'm trying to price this thing piece by piece. Right now I'm gonna look at the 731 retail piece.

 

As per BG's sister contribution from the 2020 Q1 10q they won't be able to extend the mortgage on the 731 retail because they'll be in violation of covenants. Thanks BG's sister! Well it actually turns out that they breached their debt service covenant on that property in Q3 2019! No mention of this fact in the 2019Q3 10Q or the 2019 10K. Only some vague footnote about extension covenants in 2020Q1 10Q. But let's move on because now that we know about the covenant breach we can piece together numbers on this property.

 

I assume the covenant got triggered by H&M pulling out. Per the mortgage they need to keep a debt service ratio of basically projected cash NOI to debt service of 1.1:1. Debt service is the higher of:

 

a) Actual interest payment with 30 year amortization = $19M

b) 10 year treasury +2.5% with 30 year amortization = 20.6M

c) Principal x 6.44% = 22.5M

 

In 2017 they had 174,000 sqft @ 99.4% ocupancy and $181.72 per foot rent and were in compliance with the covenant. That means that they had at least of 24.8M NOI and that expenses were less than $6.6M.

 

In 2019 they breach the covenant (I'm assuming H&M paid average rent). They still have 177,000 sqft @ 99.4 occupancy. That means 172,956 sqft. Less H&M's 27,000 sqft you get 145,956 sqft. Avg weighted rent is now 193.81. Based on that you get that expenses are at least 3.5M.

 

So now we know that expenses for 731 retail are between 3.5 and 6.6 million. These expenses would include the VNO management piece which I don't have the patience to break out right now. I may update the post with that. But now this is where shit gets weird:

 

First, from the 2018 10k to 2019 10k the building goes from 174k sqft @99.4 occupancy to 155k sqft @ 92.7 occupancy. Did the building shrink or something? Well no, they put 8,000 sqft into the various category and 20,000 sqft just vanished. I guess it's better to have a 155k sqft with 7.3% vacancy than 174k sqft with 17.4% vacancy? I don't know.

 

Second, the avg weighted rent went from $194 a foot to $277 a foot. This is really bizarre. I can think of a couple of unlikely scenarios of why that is:

 

1. The rent for H&M was so low that it dragged the average rent way down. But then why leave?

2. In 2019 there was the mother of all rent steps. This would explain why H&M would pack up. But I've never heard of this kind of rent step. Additionally, if this were the case they wouldn't breach because they're making way more in rent (39.5M) even without H&M than before with H&M (33.5M).*

 

* I also saw that next door at 715 Lexington they had a crazy increase in rent from 105 a foot in 2018 to 211 a foot in 2019. So I thought that maybe there was some crazy expense increase that gets passed through on rent, maybe some weird property tax levy or something. But then next door to that at 968 3rd avenue rents went from 165 a foot in 2018 to 168 a foot in 2019 so I guess it's not that.

 

If anyone has a better idea of what's going on, please chime in.

 

Thanks for this rb! Great stuff. For the square footage decrease/rent increase, I'm wondering whether they went from reporting gross square feet to net rentable square feet or something similar? Excluding common areas and service spaces would lower square footage but increase rent per square foot.

[realassetsvalue]

I may update the post with that. But now this is where shit gets weird:

 

First, from the 2018 10k to 2019 10k the building goes from 174k sqft @99.4 occupancy to 155k sqft @ 92.7 occupancy. Did the building shrink or something? Well no, they put 8,000 sqft into the various category and 20,000 sqft just vanished. I guess it's better to have a 155k sqft with 7.3% vacancy than 174k sqft with 17.4% vacancy? I don't know.

 

Second, the avg weighted rent went from $194 a foot to $277 a foot. This is really bizarre. I can think of a couple of unlikely scenarios of why that is:

 

1. The rent for H&M was so low that it dragged the average rent way down. But then why leave?

2. In 2019 there was the mother of all rent steps. This would explain why H&M would pack up. But I've never heard of this kind of rent step. Additionally, if this were the case they wouldn't breach because they're making way more in rent (39.5M) even without H&M than before with H&M (33.5M).*

 

* I also saw that next door at 715 Lexington they had a crazy increase in rent from 105 a foot in 2018 to 211 a foot in 2019. So I thought that maybe there was some crazy expense increase that gets passed through on rent, maybe some weird property tax levy or something. But then next door to that at 968 3rd avenue rents went from 165 a foot in 2018 to 168 a foot in 2019 so I guess it's not that.

 

If anyone has a better idea of what's going on, please chime in.

 

Good point and no idea on the change in rent PSF. Will have to think about that.

 

The mystery of the disappearing building area is resolved by looking at the office area I think. Office goes from 889k sq ft in 2018 10-K to 920k sq ft in 2019 10-K with 896k sq ft in service and 24k development / not available for lease. On page 26 of the 10-K they state: "On June 28, 2019, we entered into a lease agreement with Bloomberg for an additional 49,000 square feet at our 731 Lexington Avenue property." Admittedly these numbers don't fully add up - I assume there has been some remeasurement going on as bizaro suggests but the primary change has been Bloomberg taking more space. Bloomberg has leased the full building piecemeal over the years and there are a couple of leases in place with extensions, expansions, etc. so I've found it difficult and time consuming to fully bottom out and thus haven't.

 

Its a little sweetener on top of the rent step this year - 24k additional sq ft at ~$75 PSF NNN rent would be an additional ~1.8m of NOI. Not game changing numbers-wise but continues to indicate Bloomberg's commitment to the location (albeit who knows what they will do in 9 years time)...

[rb]

Thanks for this rb! Great stuff. For the square footage decrease/rent increase, I'm wondering whether they went from reporting gross square feet to net rentable square feet or something similar? Excluding common areas and service spaces would lower square footage but increase rent per square foot.

I don't think they did that. ALX reporting (kinda crap) doesn't say how they measure the space. However the VNO supplement has this little footnote that hasn't changed beteween 2018 and 2019.

 

(1) Weighted average annual rent per square foot and average occupancy percentage for office properties excludes garages and diminimous amounts of storage space. Weighted average annual rent per square foot for retail excludes non-selling space.

 

The numbers in the VNO supplement also match ALX so I'm guessing that the rent bump wasn't due to change in measurement.

 

Thanks, realassetsvalue, good catch on the BBG lease. Yea the numbers don't really add up. Going from 889 to 920 is less than 49. I'm  guessing they haven't started development on the other 18K and there's more to come in the future. I guess they took 19k sqft from the retail part and gave it too bbg. The rest probably came from adjacent space that wasn't feasible to rent to anyone other than BBG (I'm thinking lobby/hallway type stuff)  plus some of the afore mentioned "non-selling" space that's good to go as office space now.

[rb]

Ok, back with more on this stuff.

 

I'm starting to to think that bizaro is right and there was no big rent jump in 2019 and they just changed the way they report it without changing any of the language around the reporting. That is to say that the reported rents were below actual in years prior to 2019. Why do I think this? It's because I have trouble reconciling their rent revenue pre 2019. If I use their stated rents per foot I come in well below reported revenue in 2017 and 2018. But 2019 comes in kinda ok. Also if i plug in 2019 rents in 2017 and 2018 I come in much closer to stated revenue. See attached image. Also notice the almost 100% jump in rent at Flushing. Weird right? Now I didn't read the Flushing lease yet but I doubt it has a 100% step.

 

So what does this mean? Using the new numbers and doing the previous calculation I get that the expense on the Retail Condo is between 16 and 23 million a year. This also seems more realistic than 5 million which was the previous number.

 

What about NOI on the retail piece which is really what I wanted to get to? H&M Rent with the new numbers would have been about 7.5 million (27,000 sqft@277/ft). We know that they breached the debt service covenant on Sept 30, 2019. The loan agreement stipulated that they need to post collateral daily in the amount of the shortfall. Restricted cash was 5.4M at end of Q2 2019 and went to 9.5M at the end of Q3 2019. They knew they were gonna be in breach. So I think they deposited collateral before then and the balance @ Sept 30 reflects the extra collateral. All of this and assuming they weren't right at the edge of the covenant with H&M on board points to the fact that they were around 4-5 million short on NOI. That means that the NOI on the 731 Lex Retail is (or was) around $20 million mark.