Description

Alexander's, Inc. (symbol: ALX) is a REIT that owns properties in the NYC area. The value in the stock is both in income producing properties and development and redevelopment properties in the NYC area. A net asset value analysis puts the per share value at approximately $104.

How does one get to that value?
Alexanders owns seven properties, including four operating properties and three development sites, which include some of the best sites in NYC. An example of Alexander's’ real estate is one of the highest profile development opportunities in New York City, the entire block between 58th and 59th Street and Lexington Avenue and Third Avenue. Adjacent to Bloomingdale's, this opportunity presents Alexander’s with enormous retail, residential and commercial development potential. Bloomberg LP signed an agreement to lease 700,000 feet of office space (out of 850,000 feet of office space) at the project for 25 years at $50 per square feet. The company recently put financing in-place for the property and is starting construction. This puts the value of the 1.3 million square foot project at approximately $381 million, or $73 per share and there is $31 of additional value per share (taking the debt into consideration) in the rest of Alexanders’ properties. (For example: Alexander's owns Kings plaza, which one of the best performing malls on a sales per square foot basis in the United States.) Please see the full value per share calculation at the end of the report.

How is this value going to be realized?
Alexanders is controlled by another REIT, Vornado Realty (VNO)that would like to own Alexanders at a certain point. At what price would Vornado buy Alexanders? Given the intermingled interests, Vornado would have to buy Alexanders close to its fair value, which is currently $104 per share. (Franklin Mutual owns 11% of the stock.) If Vornado wants to buy Alexanders when it generates income out of the 59th Street project, two years from now, then it would have to pay $127 per share (including the 59th Street project valued at completion) plus the additional value created in the rest of Alexanders.

Background
Alexanders, which had been a retailer, filed for bankruptcy in May 1992. In March of 1995 Vornado Realty Trust, a REIT, took control of Alexanders. Vornado recognized the value in Alexanders’ real estate and transformed it into a REIT. Vornado is headed by Steven Roth who is well known as one of the most successful people in real estate and Vornado is one of the best performing real estate stocks of the last twenty years. In fact Steve Roth also started Vornado from the ashes of a failed retailer. Currently, Vornado owns 33% of Alexanders’ stock, and Interstate Properties, a partnership controlled by Steve Roth owns 27%. Vornado’s management team also runs Alexanders which pays Vornado $3 million annually and a 6% development fee for its efforts. Vornado also lent Alexanders $119 million at a rate of approximately 13.75%. Of course, there could be some conflicts of interest between Vornado and Alexanders but in general there is not much criticism among investors about this structure.

The following is the calculation of the estimated value of Alexanders:

Development properties
59th Street & Lexington Avenue: $381 million

[850,000 sq. ft. office space @ $50/ sq. ft. net =$42,500,000 of annual rent
175,000 retail space leased at $150 = 26,250,000 annual rent
=$42,500,000+26,250,000=68,750,000 annual rent capped at 8% is $859 million in value
230,000 square feet of apartments @ $1500 million/foot = $345 million in value. Thus the total value of the project is $1.204 million
Development costs and financing is $700 million thus the value of the project is $504 million. $504 discounted at 15% for two years is $381 million.]

Routes 4&17 Paramus New Jersey and Rego Park II New York: $95 million (2.5 million per acre for Rego Park II and $75 mil. for Paramus based on signed lease)

Operating Properties

Rego Park 1: $133 million (351,000 square feet, 1/3 of Alexanders’ net operating income capped at 9%)

Kings Plaza: $320m (based on a mortgage completed at $223 million, Kings Plaza is 2/3 of Alexanders’ net operating income)

Rooseveld Avenue & Third avenue: $34 million (based on Third avenue’s sale for $15 mil. and Rooseveld Avenue’s sale for 18.8 million announced in the second quarter)

$381 million + $95 million + $133 million + $ 320 million + $34 million = $963 million
$963 million - $515 of net debt +$100 million of cash= $548 million which represents $104/share (there are 5.25 million fully diluted shares at that value)

Catalyst

The completion of the 59th Street Project. The sale of ALX to VNO