ALX - Alexander's

[bizaro86]

I'm at a relative's cabin and have next to no internet (phone only) so can't really dig into this. But from your latest post rb it sounds like maybe they started reported gross rents vs net rents previously? If their old rents were lower than net revenue that would make sense if they weren't including expense reimbursement.

 

That also makes sense that Flushing would see the biggest jump, as it probably has the highest expenses relative to rental value.

[rb]

If it was as simple as net rent vs gross rent I would have caught that in a minute. But it's more complicated than that.

 

For example we know that in 2018 Bloomberg net rent was $86 a foot but they had it listed at $117.66. Also when I was reconciling rent to revenue I was coming about 33 million short (199.7 in rent vs 232.8 in revenue). But their reimbursements were 80 million. Who the hell knows what they were reporting in the damn rent numbers.

[fareastwarriors]

If it was as simple as net rent vs gross rent I would have caught that in a minute. But it's more complicated than that.

 

For example we know that in 2018 Bloomberg net rent was $86 a foot but they had it listed at $117.66. Also when I was reconciling rent to revenue I was coming about 33 million short (199.7 in rent vs 232.8 in revenue). But their reimbursements were 80 million. Who the hell knows what they were reporting in the damn rent numbers.

 

Any luck with IR for clarification?

[rb]

Didn't even try.

[thepupil]

10Q is out. I think a loan mod is in our future. I'd be cool with ALX just handing back the keys, but I'm not sure if that's in either party's interest. I prefer my ALX with $450mm of cash and no 731 Lex retail, rather than $100mm of cash and a paid off 731 Lex retail. I imagine we'll end up between the two extremes, as BG2008 has noted.

 

The non-recourse mortgage loan for the retail condominiums of our 731 Lexington Avenue property matures on August 5, 2020; we are in discussions with the lender.

 

I don't think we know who the lender is, but at L+140, I have to assume its a bank and not a debt fund or anything like that.

 

https://www.recapitalnews.com/alexanders-refinances-retail-portion-at-bloomberg-tower/

 

 

[rb]

They can't just had back the keys. The mortgage is recourse to ALX.

 

It's one of the Chinese banks that had the mortgage. Can't remember which one.

[thepupil]

10Q says it it’s non recourse (quoted above). What is source for recourse?

[rb]

The mortgage document is attached to the 10k as an exhibit.

[thepupil]

how do you reconcile that with

 

This which appears in the 10-K 3 times

 

Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance. 

 

and the most recent 10Q explicitly says the mortgage in question is non-recourse.

 

 

[rb]

I've found that ALX goes to the edge of the playing field with some disclosures like this.

 

So the reconciliation is like this. The mortgage itself is not specifically marked "recourse" but the loan to the sub is guaranteed by the parent. So the mortgage itself is non-recourse, but it really isn't.

[KJP]

how do you reconcile that with

 

This which appears in the 10-K 3 times

 

Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance. 

 

and the most recent 10Q explicitly says the mortgage in question is non-recourse.

 

You can look at the mortgage itself to confirm it's non-recourse.  It's here:  https://www.sec.gov/Archives/edgar/data/3499/000000349915000025/exhibit103.htm

 

See Section 13.1 on page 114.

 

ALX may have provided a limited guaranty related to interest hedging.  See Sections 9.15(4), 10.13 and Exhibit K.

 

To the extent someone believes ALX's is liable beyond the guaranty in Exhibit K, which provision of the mortgage document creates that liability?

 

EDIT:  Under 9.15(4), even the interest guarantee is optional.  The agreement contemplates at various points other circumstances in which ALX might provide a guarantee.  Has that happened?

[KJP]

I've found that ALX goes to the edge of the playing field with some disclosures like this.

 

So the reconciliation is like this. The mortgage itself is not specifically marked "recourse" but the loan to the sub is guaranteed by the parent. So the mortgage itself is non-recourse, but it really isn't.

 

Can you provide a link to the document in which ALX guarantees the principal of the loan?  I have not seen it.

[BG2008]

Whether the mortgage is recourse or non-recourse, what is most important is what ALX will have the highest probability of doing.  It seems like they will pay off some of the debt.  Dividing office and retail into 2 different condos has been a trend that I have seen in the last 10-20 years.  Maybe it existing even before that, but I wasn't really paying that much attention.  There is probably some real synergistic value in owning both the basement and ground floor of a building in addition to the 50 stories of office towers above it even if they have been divided up into 2 separate office and retail condos.  So, it is probably the best course to pay off some of the debt as they come due and own the entire structure.

 

NYC RE can be quite interesting.  You can own the ground (ground lease), structure (building), and the interior (WeWork) and in various different flavors.  Ultimately, everything is kind of all attached together and there is value to owning the whole piece.  Although, I would've loved for my wise grandparents to have entered into a 99 year ground lease and left me with the ground of the Rockfeller Center.  What are the tenants going to do?  Move all the buildings or agree to a ground lease increase?  Btw, in 2006/2007, we were actually toying with the idea of representing the owners of the ground lease of Rockfeller Center.  Back then, interest rates were 5-6%.  So the annuity stream was like a 5% cap rate and you can underwrite to a 2% escalator to a 7% long term return.  I have been thinking about how well you would've done had you bought that from interest rates being where it is today.  We didn't represent the sellers because they did not want to retain us on an exclusive basis. 

[rb]

Sorry for the delay in posting. Lots of meetings today.

 

I have to apologize to my fellow board members. After going through the mortgage doc again, it is clearly non-recourse. There is no Chinese bank either on the mortgage, I was either thinking of an earlier mortgage on the property or of a completely different mortgage altogether. Clearly not about this one.

[thepupil]

Sorry for the delay in posting. Lots of meetings today.

 

I have to apologize to my fellow board members. After going through the mortgage doc again, it is clearly non-recourse. There is no Chinese bank either on the mortgage, I was either thinking of an earlier mortgage on the property or of a completely different mortgage altogether. Clearly not about this one.

 

No worries at all! Appreciate everyone digging in deep on this one! We should know before too long what will happen with 731 retail.

[BG2008]

I will make a huuuge wager that they will pay somewhere in the neighborhood of $100-150mm to reduce the leverage.  I'm telling you huuuge wager!  $1 to be exact.

[thepupil]

Great outcome here, $50mm paydown, 5 year extension, the INTEREST is now guaranteed / recourse (but principal still non-recourse)

 

The old extend and pretend, keeps ALX’s cash (mostly) in the company’s hands, keep the nice L+140 bp (less than 2% interest rate, interest only) loan for 5 more years.the new maturity lines up nicely with when Home Depot lease ends. if they renew, you can probably refi. if they don't, hand back the keys. either way, problem is now a 2025 problem.

 

After this, I see ALX as having ~$400 million of cash and $1B of mortgage debt at a weighted average spread of 114 bps and a total cost in this ZIRP environment of 1.37%. the mortgages have a weighted average maturity of 4.5 years w/ the low LTV office coming in June 2024 and the remainder in late 2025.

 

The $1B of mortgage debt costs just under $14 million in this environment. If libor were 3%, it would cost $42 million. A spike in rates is a risk to ALX, though somewhat mitigated by the chunk of cash.

 

I am curious if the specter of rising taxes on individuals and the addressing of the retail maturity will cause ALX to do anything with its cash (special dividend?). Probably not given that they've held a lot of cash on balance sheet for many years.

 

 

 

 

 

Item 1.01      Entry into a Material Definitive Agreement.                                   

 

On August 19, 2020, 731 Commercial LLC and 731 Retail LLC, wholly-owned subsidiaries of Alexander’s, Inc. (the “Company”) and the obligors (the “Obligors”) on the $350,000,000 mortgage loan (the “Mortgage Loan”) on the retail condominium units of the Company’s 731 Lexington Avenue property, entered into an amendment of the Mortgage Loan (the “Amendment”) with the lenders named therein that, effective as of August 5, 2020, extends the maturity date of the Mortgage Loan from August 5, 2020 to August 26, 2020. The Amendment is intended to allow for the documentation of a further amendment of the Mortgage Loan as described in Item 8.01 of this Current Report on Form 8-K.

 

The information in Item 8.01 of this Current Report on Form 8-K is not incorporated by reference into this Item 1.01 of this Current Report on Form 8-K.

 

Item 2.03

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth under Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference to this Item 2.03.

 

Item 8.01      Other Events.     

 

The Company and the lenders named in the Mortgage Loan have agreed in principle to an amendment of the Mortgage Loan that includes an extension of the maturity date of the Mortgage Loan to August 5, 2025 subject to a principal repayment of $50,000,000 of the Mortgage Loan and a guaranty by the Company of the interest expense associated with the Mortgage Loan and of certain leasing costs of the Obligors. The sole assets of the Obligors are the retail condominium units of the Company’s 731 Lexington Avenue property and except for the new guarantees by the Company, the Mortgage Loan will continue to be non-recourse to the Company. There can be no assurance that the amendment will be obtained or if obtained, the terms and conditions thereof.

 

The above discussion regarding an amendment of the Mortgage Loan may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. For a discussion of factors that could materially affect the outcome of our forward-looking statements and our future results and financial condition, see "Risk Factors" in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A, of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020. Such factors include, among others, risks associated with the timing of and costs associated with property improvements, financing commitments, the financial condition of our tenants, general competitive factors and the impact of the COVID-19 pandemic.

 

The information in this Item 8.01 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act.

[thepupil]

 

The center is anchored by a 145,000 square foot Costco, a 135,000 square foot Century 21 and a 133,000 square foot Kohl’s. On April 13, 2019, Kohl’s closed its store at the property. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031;

 

https://www.bloomberg.com/news/articles/2020-09-10/department-store-century-21-files-for-bankruptcy-will-shut-down

 

 

Unless ALX wants to dip into cash, think they may cut the dividend and we may see more near term downside on that

[BG2008]

 

The center is anchored by a 145,000 square foot Costco, a 135,000 square foot Century 21 and a 133,000 square foot Kohl’s. On April 13, 2019, Kohl’s closed its store at the property. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031;

 

https://www.bloomberg.com/news/articles/2020-09-10/department-store-century-21-files-for-bankruptcy-will-shut-down

 

 

Unless ALX wants to dip into cash, think they may cut the dividend and we may see more near term downside on that

 

Wow, was not expecting that.  Century 21 is a very good discount concept in the NYC area.  They were going to open a store in Roosevelt Field Mall on Long Island and was going to take over the space for a Bloomingdale's furniture store. I guess that's no longer going to happen.

[lnofeisone]

 

The center is anchored by a 145,000 square foot Costco, a 135,000 square foot Century 21 and a 133,000 square foot Kohl’s. On April 13, 2019, Kohl’s closed its store at the property. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031;

 

https://www.bloomberg.com/news/articles/2020-09-10/department-store-century-21-files-for-bankruptcy-will-shut-down

 

 

Unless ALX wants to dip into cash, think they may cut the dividend and we may see more near term downside on that

 

Wow, was not expecting that.  Century 21 is a very good discount concept in the NYC area.  They were going to open a store in Roosevelt Field Mall on Long Island and was going to take over the space for a Bloomingdale's furniture store. I guess that's no longer going to happen.

 

I'm a bit nostalgic. Definitey bought some stuff from the store on 86th st in Brooklyn. Also, surprised we aren't seeing more of a reaction in ALX and still trying to decipher BURL.

[Gregmal]

 

The center is anchored by a 145,000 square foot Costco, a 135,000 square foot Century 21 and a 133,000 square foot Kohl’s. On April 13, 2019, Kohl’s closed its store at the property. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031;

 

https://www.bloomberg.com/news/articles/2020-09-10/department-store-century-21-files-for-bankruptcy-will-shut-down

 

 

Unless ALX wants to dip into cash, think they may cut the dividend and we may see more near term downside on that

 

Wow, was not expecting that.  Century 21 is a very good discount concept in the NYC area.  They were going to open a store in Roosevelt Field Mall on Long Island and was going to take over the space for a Bloomingdale's furniture store. I guess that's no longer going to happen.

 

I'm a bit nostalgic. Definitey bought some stuff from the store on 86th st in Brooklyn. Also, surprised we aren't seeing more of a reaction in ALX and still trying to decipher BURL.

 

Same. Used to buy a bunch of crap for the wife(then girlfriend) at the Dey St location on my way home. Bribery for putting up with the 20 hour work days when starting off.

[thepupil]

I guess the flip side of illiquidity is that you don’t get a rally on good news (extension of 731 retail, only use $50mm) and don’t get a sell off on bad news (large tenant BK)

 

I definitely think you’re buying the office and getting the retail for free here but am very much conditioned to expect a bigger drawdown on negative news so still surprised.

[BG2008]

This falls into the "who cares" territory.  I think at these prices, it was already baked in.

[CorpRaider]

 

The center is anchored by a 145,000 square foot Costco, a 135,000 square foot Century 21 and a 133,000 square foot Kohl’s. On April 13, 2019, Kohl’s closed its store at the property. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031;

 

https://www.bloomberg.com/news/articles/2020-09-10/department-store-century-21-files-for-bankruptcy-will-shut-down

 

 

Unless ALX wants to dip into cash, think they may cut the dividend and we may see more near term downside on that

 

Wow, was not expecting that.  Century 21 is a very good discount concept in the NYC area.  They were going to open a store in Roosevelt Field Mall on Long Island and was going to take over the space for a Bloomingdale's furniture store. I guess that's no longer going to happen.

 

I'm a bit nostalgic. Definitey bought some stuff from the store on 86th st in Brooklyn. Also, surprised we aren't seeing more of a reaction in ALX and still trying to decipher BURL.

 

Same. Used to buy a bunch of crap for the wife(then girlfriend) at the Dey St location on my way home. Bribery for putting up with the 20 hour work days when starting off.

 

Hey, I bought some stuff there! Long time ago.

[thepupil]

so I know I'm a landlord in an anarchist state and all, but at $243, this is is definitely the safest of the anarchist state landlords.

 

Let us assume that all retail is worth zero. Let us assume that the unencumbered multifamily property is worth zero. Let us assume that ALX must use all its cash to pay down the debt on the 731 Lexington to the extent possible.

 

In this case, we would be buying 731 Lexington office for the market cap + $100mm or so of remaining debt. We'd be investing in a single building real estate PE deal. We would be paying $1.34 billion for the property w/ 93% equity

 

What would our (almost) unlevered IRR / MOIC be under various scenarios?

 

One would receive about 47% ($638mm) of the the $1.34 billion from rent from bloomberg until 4/2029 at which point Bloomberg will renew or not and at which point the building would be worth some terminal value. Spinning up the old XIRR function, i get the following: 

 

Bull:    10.1%      2.0x    Bloomberg renews in 2029 and 731 is worth a 4 cap on the then $95/foot net rent.

Base:  6.2%,      1.5x    Bloomberg renews in 2029 and 731 is worth a 6 cap on the then $95/foot net rent

Bear:  -1.7%%  0.9x    Bloomberg does not renew. New tenant pays $50 / foot net (35% haircut to today, 48% haircut to what rent

                                    Bloomberg will be paying in 2029). Building trades at an 8.0% cap rate.

 

The point is not that making a -2% to 10% IRR (0.9-2.0x) over the next 9 years is that attractive. It isn't! But we started by assuming that all retail was worthless, assuming that ALX would do nothing better with its cash than pay down debt that currently costs 1.14%, and we also assumed a decent 312 unit apartment building above the subway in queens was completely worthless. To the extent those assumptions are too bearish: retail is not completely worthless, cash is returned to you earlier/leverage maintained on 731 office, the apartment building is actually worth 7-14% of the market cap, then that shifts the payoff profile and it becomes far more attractive.

 

this is just a convoluted way of saying if everything but the office is worth zero and the office is worth a 7.5% cap rate today*, then there's only 35% more downside to go.

 

See you all at $160 / share.

 

*at a 7.5 cap, one would receive 70% of the basis in the property ($640/916mm) over the lease term.