Bill Chen's follow up on REITs and $ALX

Summary

• Bill Chen returns two days after his last appearance to lay out Alexander’s ($ALX), where a December 29 restructuring saw the lender on a $300M nonrecourse retail-condo loan under the Bloomberg Tower take an effective 56% haircut. The loan was split into A/B/C tranches and ALX bought the $132.5M A-tranche back — “pay us 44 cents on the dollar” — saving $17.2M a year of interest (a 13-14% effective yield), while a $167.5M PIK C-tranche can be forgiven on a below-par refi. Bill: “I basically spent all New Year’s Eve thinking about this deal.”
• The sum-of-the-parts pencils to roughly $339-340 per share against a $240 stock: at today’s price you pay for the Bloomberg office condo net of debt — a 6 cap on a $78.7M triple-net lease running to 2040, ~$1.31B — plus the cash, and get everything else free. “Everything else” is the retail condo ($132M), the Alexander apartment building ($160M), Rego Park 2 ($433M at a 6 cap on ~$26M estimated NOI), and the Rego 1 development site ($100-200M).
• On the obvious governance discount for Vornado control, Bill argues incentives run the other way: Roth, Wight and Mandelbaum own ~46% of ALX versus ~10.3% of VNO. Roth receives ~$12M a year in ALX dividends, while ALX paid him roughly $1M over three years in compensation. Bill says management has ruled out a take-under and Roth has floated selling every asset except the Bloomberg Tower. “Show me the incentives and they’ll show you the results.”
• Bill bought the position up to 13% of his portfolio on New Year’s Eve because he can’t find a surviving short thesis. Dividend coverage is ~90% now and near-100% after the 2028 step-up to $88.3M; the lone sell-side model still carries $47M of cash interest versus his $32M post-deal; and last year’s half-billion of maturities is resolved. His theory: the stock sits on Goldman Marquee as a recommended short, bucketed into “short office, short mall, short New York City.”
• The 2040 lease extension embeds a 2030 rent reset collared to Class A NYC rents — a floor of $85.7M and a ceiling of $104M versus $78.7M today — plus another escalator in 2035. Nearest catalyst: a Rego 1 sale (“under advanced negotiation” per a footnote), which via REIT payout rules on a ~$50M cost basis would force roughly a $90M special dividend, 7-8% of the market cap.
• Follow-on idea: Whitestone (~$14) is the last remaining sub-$3B grocery-anchored shopping-center REIT after Blackstone bought ROIC and Alexander & Baldwin, worth ~$20-21 at those deal cap rates versus a lowball $15.20 private-equity bid. Bill flags one of the highest one-mile household incomes among public REITs and names Blackstone, KKR, Regency, Kimco and InvenTrust as natural acquirers.
• On REIT buybacks the two split: Bill reads them as a high-hurdle signal — rating agencies may put repurchasing REITs on negative watch or issue a negative rating, so “when you do see them actually engage in it, treat that as a signal” — and wants Camden to lift Q3’s $50M to $150M in Q4. Andrew’s counter from Park Hotels: aggressive NAV-discount buybacks (“we think our NAV is 25, we trade for 10”) at ~$15, stock now $10.93 near literal COVID lows, buyback halted.

Deep dive

1. The December 29 restructuring: a lender takes 44 cents on the dollar

• The setup: Alexander’s ($ALX) — the department store that went bankrupt in the early ’90s — is now essentially the landlord of the Bloomberg global headquarters, an office condo on a triple-net lease to 2040. Beneath it sits a retail condo carrying a $300M nonrecourse loan that matured late last year, while Alexander’s had roughly $400M of cash and half a billion of maturities Bill tracked all year — until the 8-K hit on December 29 and Bill pinged Andrew on New Year’s Eve.
• The mechanics: the loan split into an A-tranche of $132.5M at 7% — “44 cents on a dollar” — which the lender then sold back to Alexander’s; an unfunded B-tranche at 13.5% to finance tenant improvements and leasing; and a subordinated $167.5M C-tranche at 4.5% payment-in-kind, extended ten years, which could be forgiven if a refi comes in below par — “it’s got this very friendly feature to the landlord, which is us, the shareholders.”
• Bill’s reconstruction of the negotiating table: with Alexander’s sitting on almost $300M of cash, Roth telling the lender “hey, take this piece of property back… why don’t you go put in another $60 million and try to find the right tenant” — until the lender capitulated to an effective 56% haircut, keeping only a hope piece that Andrew described as insurance in Carl Icahn’s terminology.
• Andrew’s honest confession on complexity: “I’ve read the 8-K probably five times… and I’m still not quite sure what the heck is going on here.”

2. Andrew’s pushback — and why buying your own debt back pencils

• Andrew’s two-part challenge: he’s seen small caps where lenders settled at 50 cents and shareholders rejoiced — “the lender just don’t think that loan was getting made whole… I don’t know if the stock is worth anything.” And materiality: on a $1.2B market cap dominated by the Bloomberg office, “should we really be paying attention to this one tiny piece?” — he’s been burned before being “right that this one individual tree was great, but every other tree was on fire.”
• Bill’s immediate math: repurchasing the A-tranche saves $17.2M a year of interest, directly impacting FFO — a 13-14% effective yield on the $132M outlay.
• The strategic layer: Bloomberg already leases part of the retail condo (probably $5-6M of rent — TV shows are taped in the lower portion; Home Depot vacated), so retaining it keeps a one-to-one landlord relationship. Spend an incremental $65M on leasing and TI and “they could essentially create $30 million incremental FFO on $200 million of spend… if you could earn that kind of 15% unlevered return, that’s a tremendous use of capital.”

3. Sum of the parts: ~$340 against a $240 stock

• The anchor asset: Bloomberg pays $78.7M triple-net today, stepping to $88.3M in 2028 — “almost as good as a US Treasury from a credit perspective.” At a 6% cap, Bill gets $1.311B for the office alone; he values the retail condo at $132M, the amount paid to buy back the debt.
• Queens fills in the rest: The Alexander apartment building at ~$8M estimated NOI and a 5 cap is $160M; Rego Park 2 — Costco (“it’s a fist fight on the weekends”), Burlington, Marshalls — does ~$26M NOI by Bill’s estimate, $433M at a 6 cap, helped by vacating Rego 1 and removing 330,000+ square feet of competing retail after IKEA’s lease decision.
• Rego 1 as a development site: five acres directly above a subway station, worth $100-200M. The comp is Rego 3 — three irregular acres next to I-495, further from the subway — which sold for $71M; Bill estimates 1.0-1.7M buildable square feet given Queens Boulevard density.
• The tally: ~$2.2B of assets, less $669M debt, plus $195M cash ≈ $1.74-1.75B over 5.13M shares — about $339-340. Andrew’s summary, which Bill endorsed: at $240 you pay for the Bloomberg office net of debt plus the cash, and “you get everything else for free.”

4. The Vornado question: incentives point at Alexander’s

• Andrew’s most obvious pushback beyond “death of New York”: Vornado owns a third, controlled REITs have poor capital-allocation histories, so “you need to slap some type of corporate governance discount on this” against a take-under or self-dealing.
• Bill dug into ownership: Roth, Russell Wight and David Mandelbaum own almost 46% of Alexander’s versus about 10.3% of Vornado. Roth’s three-year comp is nearly $40M at VNO against roughly $1M at ALX — even market-cap-weighted “he’s still getting paid 10 times as much at Vornado” — yet his ~669,000 ALX shares throw off $12M a year in dividends on the $18 payout. “You are more aligned being a shareholder of Alexander than of Vornado.”
• The tea leaves — ALX hosts no earnings calls and provides no supplemental information, so Bill triangulates as a local and mines VNO calls: Bill says management has said “loud and clear” that it will not do a take-under. In 2025 discussions about folding ALX into VNO, the response was that neither side would likely be happy; Roth has also floated selling every asset aside from the Bloomberg Tower — consistent with a shopping center sold to Macerich in 2012 or 2013 for $750M with a $122M special dividend, Rego 3 sold, and Rego 1 in the market.

5. The short case doesn’t survive the math

• Coverage: post-restructuring they could probably cover ~90% of the dividend; the 2028 $10M step-up alone gets “very close to 100%,” and leasing the Bloomberg retail could add $12M of NOI. The shortfall today is maybe $10M a year, Roth “has basically said he’s not going to” cut, and asset sales of potentially $150M, or $100-120M, could leave $60-65M of retained cash after special dividends.
• Bill’s model comparison: the only sell-side analyst covering the name still models $47M of annual cash interest versus Bill’s $32M post-deal — a $15M delta. And the half-billion of second-half-2025 maturities that “made for a better short thesis” has been restructured or refinanced; the next maturity, two-three years out on the apartment building, is “very, very easy” to finance.
• His theory of who’s short: the name is heavily recommended on Goldman Sachs Marquee, and in a market that’s become “a bit of a thematic long-short trade” it gets lumped into “you want to short office, you want to short mall, you want to short New York City.” Hence the New Year’s Eve buying to 13% of portfolio: “the shorts are wrong.”
• On Andrew’s Bloomberg screen showing 42% of float short, Bill’s correction: it’s about 10-11% — but with a wide bid-ask spread, thin liquidity and a special dividend potentially coming, “it’s just a very weird setup… I just don’t know why anyone would want to short this company.”

6. The lease collar and the Rego 1 catalyst

• Andrew recalled that the Bloomberg lease was extended to 2040 in March 2024. Bill said the pricing was a collar pegged to Class A New York rents: at the 2030 reset the minimum is $85.7M and the maximum $104M against $78.7M today — “it will definitely be at least 10% higher… but it could actually be 25-26 million higher.” Andrew thought there was another escalator in 2035.
• Bill’s closing watch item: news on a Rego 1 sale. On a ~$50M cost basis, a $150M sale forces roughly $90M of special dividends under REIT distribution rules — 7-8% of the market cap and “a very, very definitive catalyst.”

7. Whitestone, and the buyback-as-signal debate

• Bill’s pattern rule: “anytime you see Blackstone start buying an asset class which it historically has not been very active in, it’s worth paying attention” — he saw it with warehouses a decade ago. Blackstone bought ROIC in late 2024 and Alexander & Baldwin last year; Whitestone, ~$14 with a lowball $15.20 private-equity bid, is the last sub-$3B grocery-anchored REIT and worth ~$20-21 at those deal cap rates.
• The underappreciated facts: $50M of litigation assets converted to cash, leverage cut from 10x to probably the mid-6s by Bill’s best guess since the 2022 CEO ouster, ~4% annual NOI growth despite “super negative” activist reports — and “one of the highest household incomes within a one-mile radius” of all publicly traded REITs, making it a takeout candidate for Blackstone, KKR, Regency, Kimco or InvenTrust.
• On buybacks, Bill’s frame: rating agencies can put REITs on negative watch or issue a negative rating after repurchases, so the hurdle is high — “when you do actually see them engage in it, treat that as a signal” that management will “stick the neck out.” He’s watching whether Camden lifts Q3’s $50M toward $150M in Q4; “we were buying aggressively in Q4 Camden shares” near a 7% cap rate.
• Andrew’s counter — worth keeping: Park Hotels leaned into buybacks at “we think our NAV is 25, we trade for 10,” and now sits at $10.93 versus an $8 COVID low with the buyback stopped; he also recalls Roth’s SL Green-era letter arguing one good development beats repurchases (“I would counter: you’re assuming the development is good”). Bill’s Piedmont example: heavy post-COVID buybacks “did not really improve” the stock, shareholders got burnt — and eventually the company said it would sell the whole thing.