Alexander’s (NYSE:NYSE:ALX) is an under-the-radar $1.28 billion NYC REIT that trades below private market value and consists of high-quality real estate and cash. It is currently trading at ~69% of estimated NAV and yields 7.1%. If ALX trades in-line to VNO and SLG’s yield of ~4.7%, then the price of ALX would be ~$380 (implying an upside of ~52% from today’s $250).
I wrote up Alexander’s back in May 2021: High Quality NYC REIT Trading At 70% NAV. Since that write-up, nothing materially has changed, except for the fact that Covid is essentially over and NYC is back- both are massive tailwinds for ALX.
Alexander’s is an NYC-focused REIT that owns six properties in the NYC metro area. Its properties are leased and developed by Vornado (NYSE: VNO) and Vornado owns 32.4% of ALX’s stock. Steve Roth, founder and chairman of Vornado, also owns 26% of ALX’s stock. In other words, since VNO and Roth own >50% of the shares, ALX is a controlled company.
With 5.1m weighted average shares outstanding and a current price of $250, the total market cap is $1.28b.
ALX’s six properties are as follows:
- 731 Lexington Avenue: 1m sqft multi-use building (939,000 sqft office + 140,000 sqft retail); the office space is leased to Bloomberg LP until 2029 (with rent escalations of ~11% every 4 years) and the principal retail tenant is Home Depot (83,000 sqft)
- Rego Park I: 338,000 sqft shopping center in Queens and is anchored by IKEA (120,000 sqft), Burlington (50,000 sqft), Bed Bath & Beyond (46,000 sqft), and Marshalls (36,000 sqft)
- Rego Park II: 615,000 sqft shopping center adjacent to Rego Park I in Queens and is anchored by Costco (145,000 sqft) and Kohl’s (133,000 sqft)
- The Alexander’s Apartments: residential apartments built in 2015 located above Rego Park II and has 312 units aggregating 255,000 sqft
- Flushing: 167,000 sqft building leased to New World Mall through January 2037
- Rego Park III (to be developed): 140,000 sqft land parcel next to Rego Park II; currently used for paid public parking
It recently sold Paramus (30.3 acres of land leased to IKEA) for net proceeds of $4.58m and sold a parcel of land in the Bronx for $10m (net proceeds of $9.3m).
Now for the valuations of the properties:
1A. 731 Lexington Avenue (Office)
Unfortunately ALX doesn’t break down NOI by property but by digging around, it’s possible to find some details on the Bloomberg lease on S&P Ratings. Based on the rent escalations table, Bloomberg is paying $76.66 PSF of base rent in 2021. Multiplying the base rent by the occupied sqft of ~900,000 gets us around $69m of NOI for ALX. According to the recent 10-K, Bloomberg accounted for $113m of revenues in 2021, so $69m of NOI seems reasonable (operating expenses ~39% of rent).
Applying a conservative 5% cap rate gets us to an asset value of $1.38 billion. Backing out $500m of debt gets us an asset value of $880m.
1B. 731 Lexington Avenue (Retail)
Under the Properties table in the recent 10-K, we see that the retail portion is 140,000 sqft with an annual rent PSF of $240, which gets us to $33.6m of annual rent. Assuming a 10x rent multiple we get a value of ~$336. Backing out $300m of debt we get an asset value of $36m.
2. Rego Park I (Retail)
Rego Park I has 338,000 sqft with an average rent of $48.88 PSF, which gets us to ~$16.5m of annual rent. Assuming a 10x rent multiple we get a value of ~$165. The property has no debt, so we get an asset value of $165m.
3. Rego Park II (Retail)
Rego Park II has 615,000 sqft with an average rent of $63.60 PSF, which gets us $39m of annual rent. Assuming a 10x rent multiple we get a value of ~$390m. Backing out $202.5m of debt we get an asset value of $187m.
4. The Alexander’s Apartments (Residential)
The Alexander’s Apartments has 255,000 sqft with an average rent of $46.06 PSF, which gets us to ~$12m of annual rent (or we can use 312 units x $3,212 / month x 12 months = ~$12m / year). Assuming operating expenses are ~35% of rent, we get an NOI of ~$7.8m. Assuming a conservative cap rate of 5% gets us an asset value of $156m. Backing out $94m of debt we get an asset value of $62m.
Flushing has 167,000 sqft with average rent of $31 PSF, which gives us $5.2m of annual rent. Assuming a 10x rent multiple, we get a value of $52m. With no debt, we get an asset value of $52m.
6. Rego Park III
We’ll ignore Rego Park III for now.
Cash + Investments
ALX currently has $463m of cash, $20m of restricted cash.
(It sold its 564,612 shares of Macerich (MAC) for ~$9.5m in December 2021.)
NAV =$880 + 36 + 165 + 187 + 62 + 52 +463 + 20 = $1,865m or $1.86b
P/NAV = 1.28/1.86 = 0.69x
Totaling up the asset values we get ~$1.86b worth of net assets. With the current market cap of $1.28b, we’re able to buy this dollar bill for 69 cents. Note that we used pretty conservative cap rates and rent multiples, so the true asset values are probably even higher. We also didn’t include Rego Park III, which will eventually be developed, so you get a free call option on that.
But at the current price, we’re getting high quality NYC assets at a discount, along with any cap rate compressions and Rego Park III thrown in for free.
- Return to Office: the fears of NYC office buildings going away forever are overblown; people are social creatures who still need face-to-face interaction and collaboration (Goldman Sachs wants workers back in office 5 days a week).
- Completion of Development Projects: the completion of Rego Park III will help boost NOI and dividend payouts
- Insiders: Vornado and Roth own over 50%
- Inflation/Stagflation: real estate performs well in times of inflation and can serve as an inflation-hedge
- Bloomberg: as ALX’s largest tenant (~55% of revenues), Bloomberg is the elephant in the room; if anything were to happen to Bloomberg, it would be detrimental to ALX. However, as many people know, Bloomberg terminals are pretty much indispensable and there really aren’t any great alternatives. As a company and a product, they are both here to stay.
A bet on ALX here seems like a good asymmetric play, as the downside is cushioned with a pile of cash and high quality real estate. With companies already bringing workers back to their NYC offices, the “Death of NYC and Office” narratives will soon be dispelled. As someone based in NYC, I can affirm that the city is rapidly ramping back up; tons of people are out and about, Central Park is overflowing on weekends, subways are packed, and Times Square feels like a can of sardines.
Along with several long-term leases with blue chip tenants (Bloomberg, Costco, Home Depot, IKEA), it also has ~40% of its market cap in cash. The downside here seems pretty limited since ALX probably won’t run into any liquidity problems any time soon; on top of that, as you’re waiting for the price to appreciate, you get to snack on a 7.1% yield.
Based on my analysis above, I recommend a long position in ALX.