ALEXANDERS INC Q3 FY2026 earnings call

• Market Strength: The New York office market is described as the strongest in the country, with Class A vacancy tightening to mid-single digits. Demand is accelerating due to AI job growth and scarce supply, leading to rising rents, with new deals frequently reaching $200-$300 per square foot.
• Leasing Activity: Manhattan office leasing volume is up over 9% from last year. In Q3, the company executed 30 office deals totaling 489,000 square feet at an average starting rent of $123 per square foot, with mark-to-market gains of 37.2% (GAAP) and 25.9% (cash).
• Penn District Transformation: Phase one of the Penn District redevelopment is complete, including Penn One and Penn Two. Penn One is 96% leased with recent deals at $123/sq ft, and Penn Two is 92% occupied with rents in the $125-$135/sq ft range. Total capital spent was $2.5 billion, on budget.
• Key Developments:
  • 350 Park Avenue: A joint venture with Citadel closed, featuring a $1.05 million square foot anchor lease. The project has a projected return on cost of over 9% (unlevered) and over 13% (levered).
  • 623 Fifth Avenue: Construction is on schedule for delivery in Q4 2027. First lease signed at nearly $200/sq ft.
  • 1290 Avenue of the Americas: Transformed into a best-in-class asset, now 97% occupied.
• Other Businesses: The signage business (largest in Manhattan) and cleaning/security services are high-margin, capital-light growth engines generating $120 million in income combined.
• San Francisco: 555 California Street continues to lead the market recovery, with record tenant demand driven by AI/tech sectors and asking rents up nearly 10% year-over-year.

The company reported strong financial performance across its New York-based segments. New York Office Same-Store NOI increased by 11.9% on a GAAP basis and 8.7% on a cash basis. New York Street Retail Same-Store NOI rose by 8.4% on a GAAP basis and 9.3% on a cash basis. Overall, the New York Business segment (including Alexander's) grew by 10.2% on a GAAP basis; however, on a cash basis, growth was 4.9%, or 8.4% when excluding the impact of Bloomberg’s rent abatement at 731 Lexington Avenue. Comparable FFO for the quarter was $0.65 per share, representing a 14% increase year-over-year.

• Full Year 2026: Comparable FFO is expected to be higher than 2025 levels.
• 2027 Outlook: Management expects the current quarter’s comparable FFO run rate ($0.65/share) to remain reasonable through 2027. This implies approximately $2.60 annualized FFO, which is below previous expectations of a $0.40 uplift over 2025, primarily due to higher interest expenses and taking assets offline for redevelopment.
• Long-Term Growth: Significant additional growth is expected in 2028 and beyond as redevelopment projects come online and old rents roll to market rates.
• Same-Store NOI: Strong same-store growth trends observed in Q3 are expected to continue through 2027.

• Interest Rate Environment: Higher interest rates are increasing net interest expense, particularly on senior unsecured bonds, negatively impacting near-term earnings.
• Development Costs & Timing: Capital expenditures for ongoing transformations (e.g., Penn District Phase 2, 623 Fifth Ave) require significant funding. Delays or cost overruns could impact returns.
• Asset Sales Uncertainty: While two assets are in advanced stages of sale, there is no assurance these transactions will close, and pricing has been impacted by volatile capital markets.
• Tenant Credit Risk: Recent news regarding Wall Street law firms’ creditworthiness highlights potential counterparty risks, though management notes tenants are currently less rent-sensitive.
• Vacancy in Retail: While street retail is performing well, there remains significant vacancy in the broader retail portfolio, with potential upside only upon stabilization.

Q: Analyst asked about the potential income upside if the New York retail portfolio reaches 100% occupancy and how future development projects like Penn 15 will be funded. / A: Management estimated that stabilizing the retail portfolio would generate approximately $50 million in additional income. Regarding funding, executives stated that all currently active projects (including 623 Fifth Ave and 34th/8th) are already capitalized. Future projects like Penn 15 are not yet ready for financing decisions but will be capitalized when appropriate.

Q: Analyst inquired about the leasing pipeline strength, tenant mindset regarding AI workforce impacts, and renewal timelines in NY and SF. / A: Management described tenant activity as unprecedented, with rapid space acquisitions and expansions across all industries. AI job growth in Manhattan is complementing this demand. Tenants are less rent-sensitive and more willing to commit to longer terms. Renewal discussions are accelerating earlier than in previous years due to scarcity of quality space.

Q: Analyst questioned whether the projected lease spreads continuing through 2028 were driven by specific buildings or portfolio-wide, and if they could extend beyond 2028. / A: Management noted that mark-to-market gains at Penn One consistently exceed 26%, reflecting successful transformation. While budgets only extend two years out, management believes the gap between expiring rents and rising market rates (potentially 5-10%+) will sustain strong mark-to-margins beyond 2028, especially given minimal new supply.

Q: Analyst asked about the accounting treatment for the 350 Park Avenue JV starting in Q4 and its incremental impact on FFO. / A: Management explained that expenses and interest will be capitalized, resulting in a similar FFO run rate to pre-JV structures. Development fee income will also be recognized. There is no expected negative shock to FFO, as the accounting aligns with prior expectations.

Q: Analyst sought clarity on the use of proceeds from planned asset sales and whether stock buybacks were a priority given the deep discount to NAV. / A: Management confirmed that total proceeds from two advanced-stage asset sales are expected to exceed $1 billion in free cash flow. While capital allocation decisions are premature until funds are secured, executives indicated that such capital would likely be used for opportunistic investments or stock buybacks, given the stock trades at a significant discount to NAV.