Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alexander's Inc (ALX, Financial) reported a strong start in leasing activities for the year, with significant renewals and new leases.
- The company successfully completed the sale of its portion of UNIQLO's Fifth Avenue flagship for $350 million, which will enhance liquidity.
- The PENN District transformation is attracting a diverse range of tenants, including technology, fashion, financial, legal, academic, and media sectors.
- The company has a robust pipeline of deals, with 2.6 million square feet in negotiation, indicating strong future leasing activity.
- Alexander's Inc (ALX) has strong liquidity with $2.7 billion, including $1.1 billion in cash and restricted cash, and $1.6 billion undrawn under revolving credit facilities.
Negative Points
- Second quarter comparable FFO as adjusted was $0.57 per share, down from $0.72 per share in the same quarter last year.
- Higher projected net interest expense and temporary impact of known vacancies are expected to affect 2024 comparable FFO.
- The company faces challenges in the financing markets, particularly for office spaces, although there are early signs of improvement.
- Concessions for leasing have stabilized but remain stubbornly high, impacting net effective rents.
- The occupancy rate is expected to trend down in the next quarter due to significant tenant move-outs, such as the 275,000 square feet vacated at 770 Broadway.
Q & A Highlights
Q: Steve, you certainly piqued my interest with your 770 Broadway comments. I'm just not sure I fully understand the transaction and discussions. Can you clarify?
A: Steve, I wish I could help you, but I've said all that I'm going to say on that topic. It's an important transaction. We're under a confidentiality agreement, and that's all I can share at this moment.
Q: Can you provide more color on the types of tenants interested in PENN 2? Are these tenants driven by lease expirations or new market requirements?
A: Hi Steve, it's Glenn Weiss. We have a mix of both tenants expiring soon and some expiring in the outer years. At PENN 2, we have interest from technology, fashion, financial, legal, academic, and media sectors. We're seeing very strong activity and are in various stages of negotiation with these tenants.
Q: On the UNIQLO sale, can you talk about the earnings impact and whether you plan to monetize any further assets on Fifth Avenue?
A: The proceeds will go towards repaying our preferred equity, and we expect it to be at least a push in terms of earnings, potentially accretive by a few million dollars. Regarding further monetization, each sale creates more scarcity, driving both rental rates and valuations. We still own a significant portion of the prime Upper Fifth Avenue frontage.
Q: Can you provide an update on the timing of MSG moving into 102 and the capitalized interest policy?
A: MSG has already taken some space, with full delivery by the fourth quarter. Capitalized interest will roll down in 2025, offset by additional GAAP revenue from recent large leases.
Q: Can you discuss the upside potential in your retail portfolio, especially given the positive rent spreads?
A: We have a lot of activity, particularly in PENN and Times Square. Rents are at healthy levels relative to historical figures. On Fifth Avenue, we have one vacancy coming up, and rents have recovered significantly.
Q: What are your plans for the $450 million of unsecured debt maturing in January 2025?
A: Our plan is to pay it off with our significant cash on hand. However, we are also monitoring the financing markets for compelling alternatives.
Q: Was the handshake deal on 770 Broadway included in the pipeline from last quarter? What activity are you seeing around large office users?
A: The 770 transaction was included in the pipeline. We're seeing activity throughout the portfolio, especially from 10,000 to 30,000 square foot tenants. The market is well-mixed with different sized tenants and sectors.
Q: How are concessions trending? Have you seen any improvement?
A: Concessions have stabilized and are stubbornly high but have not increased. This is being offset by higher rents in certain properties and subdistricts.
Q: Can you comment on the potential impact of lower interest rates mixed with recessionary fears on the office sector?
A: The biggest driver for us is the cost of capital. The expectation is that we are on the other side of the interest rate cycle, and rates will be coming down. We are not planning for rates to go back to zero but hope they stabilize at a normalized level.
Q: Can you provide more details on the potential transactions to repatriate portions of the preferred equity in the Times Square joint venture?
A: Both sales and refinancing are in play. We are working on both options for portions of the $1.5 billion of preferred equity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
