Alexander’s, Inc. (NYSE:ALX) Q3 2023 Earnings Call Transcript

Alexander's, Inc. (NYSE:ALX) Q3 2023 Earnings Call Transcript October 31, 2023

Operator: Good morning, and welcome to the Vornado Realty Trust Third Quarter 2023 Earnings Call. My name is Rocco, and I will be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen-only mode. [Operator Instructions]. Now I will turn the call over to Mr. Steve Bornstein, Senior Vice President and Corporation Counsel. Please go ahead.

Steve Borenstein: Welcome to Vornado Realty Trust third quarter earnings call. Yesterday afternoon, we issued our third quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com under the Investor Relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors.

A skyline view of real estate properties, reflecting the power of the company's real estate investments.

Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2022, for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer; and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth.

Steven Roth: Thank you, Steve, and good morning, everyone. I begin by joining with the citizens of the free world by saying that we are shocked and sad by the now 2 wars in Ukraine and Gaza. The loss of life and infrastructure is heartbreaking. But the importance of the outcome of these hostilities to our way of life cannot be overestimated. The President of the United States issued an elegant simple one word warning to potential combatants, “Don't”. Domestically, we support Macron in his fight to write the wrong at the University of Pennsylvania. A great many American college campuses have similar issues. The economy has held up better than expected in the face of the Federal Reserve's historic interest rate increases. But make no mistake, in the end, they will slow the economy and will win its battle against inflation.

Real estate capital markets remain challenged, read, frozen, making it extremely difficult to finance or sell assets. Capital is scarce and back breakingly expensive. While these circumstances will cause pain in the short term, they lay the foundation for recovery in fundamentals and values in the future. The direct byproduct of the lack of availability and out of site high cost of financing is that we'll shut down almost all new building. If history is our guide, as demand recovers, the market will tighten, and Class A rents will -- and values will benefit enormously. We have seen this movie before. Despite the difficult markets, our business continues to perform well and on plan for the year. Michael will cover the math and give color in a moment.

As we enter the fourth quarter, we are excited that the construction phase of PENN 2 is nearing completion. As expected, tenant interest is picking up in this unique development as we get closer to delivery. Over the next several quarters, we will launch many new food and beverage offerings in the Penn District and will open a new 3-line public plaza on 33rd Street, all of which will significantly enhance the tenant experience. Demolition of Hotel Pennsylvania is now complete. Our focus now is on leaving, especially PENN 1, PENN 2 and the remainder of the Farley retail, all of which will drive our near-term growth. And we remain focused on protecting our balance sheet and pushing out maturities. In the current events category, 3 weeks ago, Wegmans opened their 90,000 square foot supermarket in the West Village at our 770 Broadway property.

This is their first store in Manhattan and New Yorkers are appreciating the unique offering, crowding the store with lines around the bucket. It's a terrific success. In August, we contributed our Pier 94 leasehold to a joint venture with our partners, Hudson Pacific and Blackstone and in return, will own 50% of the venture. This will be the best studio facility in New York City and the only purpose built one in Manhattan. We appreciate the Mayors and New York City EDC support in completing this important private public partnership. We broke ground last week and expect to deliver the project by the fourth quarter of 2025. We believe in the project's potential and expected to generate at least a very attractive 10% incremental cash yield on our investment.

To conclude, as I've said before, we believe in the great American cities and especially New York. We believe that the future of work will principally be in the office I can imagine millions of American office workers working at home alone at their kitchen tables. We observed that New York City is back. Usage in our office buildings is now 65%. You can feel the energy if you walk the streets and stand at our lobbies. The restaurants and stores are packed and our buildings are pretty much back to normal Monday through Thursday. The key is that [talent] wants to be here. It remains the number one city for college graduates from practically every region of the country. Out to Michael to cover our financials and the market.

Michael Franco: Thank you, Steve, and good morning, everyone. The financial results for the quarter were down from last year due to items that we previously forecasted. Our core office and retail businesses continue to remain resilient with long-term credit leases. Third quarter comparable FFO as adjusted was $0.66 per share compared to $0.81 for last year's third quarter, a decrease of $0.15. This decrease was driven primarily by the following items $0.06 from the onetime real estate tax accrual adjustment recorded at the March in Q3 2022, $0.04 from higher net interest experience from increased rates, $0.03 from additional stock compensation expense related to the compensation plan implemented in June 2023 and $0.02 of other items, primarily lower FFO from sold properties.

We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplement. Despite the challenging environment, our outlook for comparable FFO for 2023 hasn't changed since the beginning of the year, other than the additional G&A expense that we discussed on last quarter's earnings call related to the share-based awards granted in June. Our New York office same-store cash NOI for the quarter was up a healthy 3% and our New York business at all was up 2.1%. Now turning to the leasing markets. Manhattan continues to lead the charge nationally in the office sector. New York City private sector job growth outpaced the national average and Manhattan leasing volume was a healthy 6.5 million square feet this quarter, driven by large headquarters leases in Midtown and downtown, a sign of tenants committing long term to the city.

The fire sector continues to lead the leasing volume accounting for 31% of third quarter activity with the government and professional services sectors close behind at 22% each. Leasing velocity continues to remain steady, concentrated in small- to medium-sized leases. Focusing on our portfolio. During the third quarter, we completed 17 leases totaling 236,000 square feet at average starting rents of over $93 per square foot, highlighted by a new 101,000 square foot lease with law firms Selendy Gay at 1290 Avenue of the Americas, where we are seeing very strong activity. Overall, through the first 3 quarters of the year, we have signed 1.3 million square feet of leases at an industry-leading $98 per square foot starting rent. Notably, 65% of these leases have starting rents over $100 per square foot, representing more than 1/3 of all triple-digit leases done in the market this year.

We consistently perform well above our market share here, reflecting the best-in-class nature of our portfolio. As we have said for the past several quarters and as the stats can to bear out, there is a clear trend with tenants demanding space in better buildings around the 2 main transit hubs in the city, which is where our portfolio is situated. Despite market-wide Class A vacancy being in the high teens, the best submarkets are at equilibrium, which is why you're seeing rents trend up here. And as the delivery of new supply is slowing, existing high-quality assets become the focus of demand, allowing these assets to push pricing. Our recently signed lease and pipeline of future leases at 1290 Avenue of the Americas and 280 Park Avenue and in PENN reflect these dynamics.

Heading into the fourth quarter, our current pipeline remains strong at 1.8 million square feet. This includes 750,000 square feet and 4 deals expected to close in the fourth quarter, which would put us over 2 million square feet for the year, consistent with our historical activity. The pipeline consists of a healthy mix of tenants across a wide variety of buildings in our portfolio. In Chicago, at the mark, while the market remains challenging, we completed 68,000 square feet of leases during the quarter at $55 per square foot average starting rents and have a solid pipeline of 400,000 square feet including 2 leases in negotiation totaling 100,000 square feet. Our new amenity package has generated very positive interest in the marketplace and increased leasing activity.

We are also benefiting from the fact that we are a strong sponsor and have no debt on the asset, and many of our competitor buildings are dealing with financial stress. Turning to retail. We said a few quarters ago that retail had bottomed, and the recent stats published support this with vacancies dropping and asking rents increasing year-over-year in most submarkets. This recovery is being driven by tourism in the city and retailer sales rebounding back to pre-pandemic levels. In our portfolio, we have seen a noticeable pickup in our leasing activity over the past 3 months with almost all our assets seeing tenant interest, especially on Fifth Avenue and Times Square and in the Penn District. We have a healthy pipeline with many leases currently in negotiation.

During the third quarter, we signed 8 leases totaling 29,000 square feet at a positive 33.5% cash mark-to-market. Turning to capital markets now. The financing markets remain quite difficult, particularly for office, driven by the volatility from the Fed sharp rate increases and pressure on the banks to reduce their office exposure. Even in this difficult time, we remain in good shape. We have no significant maturities until mid-2024 and are actively working with our lenders to push out the maturities on our loans, which mature in 2024 and beyond. In this regard, we are pleased to welcome Jason Kirschner as our new Head of Capital Markets. Jason is a well-known, trusted industry colleague with all of our banks, and he's off to a great start.

As always, we continue to remain focused on maintaining balance sheet strength. Our current liquidity is a strong $3.2 billion, including $1.3 billion of cash and restricted cash and $1.9 billion undrawn under our $2.5 billion revolving credit facilities. Lastly, kudos to our sustainability team, which continues to position us at the head of the class in the industry. We just received GRESB's Green Star distinction for the 11th time in GRESB's 5-star rating. With that, I'll turn it over to the operator for Q&A.

See also 20 States That Produce Most Wind Energy and 16 Biggest Lab Grown Meat Companies in 2023.

To continue reading the Q&A session, please click here.