Alexander’s, Inc. — 2014 Q1 Form 10-Q Summary
Business context and reporting period
Alexander’s is a New York metropolitan-area REIT engaged in leasing, managing, developing and redeveloping six properties totaling approximately 2.178 million square feet. Vornado Realty Trust owned 32.4% of the outstanding common stock and manages, leases and develops the properties. The filing covers the three months ended March 31, 2014; financial statements are unaudited.
Key financial metrics
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Total revenues | $49.468 million | $48.775 million | +$0.693 million |
| Operating income | $24.530 million | $24.928 million | -$0.398 million |
| Net income | $15.244 million | $14.162 million | +$1.082 million |
| Diluted EPS | $2.98 | $2.77 | +$0.21 |
| Funds from operations | $22.474 million | $21.339 million | +$1.135 million |
| FFO per diluted share | $4.40 | $4.18 | +$0.22 |
| Net cash from operating activities | $40.311 million | $33.552 million | +$6.759 million |
| Dividends per common share | $3.25 | $2.75 | +$0.50 |
Property rentals were $34.136 million, essentially unchanged from $34.171 million. Expense reimbursements increased to $15.332 million from $14.604 million, primarily because of higher real estate taxes. Operating expenses increased to $16.490 million from $15.607 million, also primarily due to higher real estate taxes. General and administrative expense increased to $1.187 million from $1.017 million due mainly to higher professional fees.
Net income margin was approximately 30.8%, compared with 29.0% in the prior-year quarter. Operating margin was approximately 49.6%, compared with 51.1%. The improvement in net income was principally driven by lower interest and debt expense, which declined to $9.684 million from $11.148 million.
At March 31, 2014, cash and cash equivalents were $355.328 million, restricted cash was $85.534 million, and marketable securities were $33.363 million. Mortgages payable totaled $1.035 billion, with estimated fair value of $1.055 billion. Total equity was $334.101 million. Portfolio occupancy was 99.4%.
Material changes versus the prior comparable period
- On February 28, 2014, the company refinanced the office portion of 731 Lexington Avenue with a $300 million interest-only loan at LIBOR plus 0.95%, maturing in March 2017, with four one-year extension options.
- The refinancing replaced an existing $312 million loan bearing a fixed 5.33% rate and generated interest-cost savings. The new loan is subject to a LIBOR cap of 6.0% through a $300 million interest-rate cap.
- Debt repayments were $314.937 million and new borrowings were $300 million in the quarter. Financing activities used $35.767 million, including $16.607 million of dividends and $4.223 million of debt issuance costs.
- Cash increased by $7.610 million during the quarter, compared with a $15.112 million increase in Q1 2013.
- Accumulated other comprehensive income increased to $3.405 million from $1.522 million, primarily reflecting a $1.841 million unrealized gain on Macerich shares and a $42,000 increase in the interest-rate cap valuation.
Guidance, outlook, risks and unusual items
Management stated that operating cash flows and existing cash are expected to fund operations, dividends, debt amortization, recurring capital expenditures and Rego Park II development expenditures over the next twelve months. No debt matures in 2014; approximately $398.246 million is scheduled to mature in 2015, including $78.246 million that is cash collateralized.
The Rego Park II apartment tower is expected to contain approximately 300 units and 250,000 square feet and is expected to be completed in 2015. Estimated project cost is approximately $125 million; $4.109 million had been incurred by March 31, 2014. Management cautioned that completion may not occur on schedule or within budget.
Bloomberg accounted for $22.017 million, or 45% of total revenue. The loss of Bloomberg or its inability to meet lease obligations would materially affect results and financial condition. The company also faces exposure to interest-rate changes, refinancing conditions, tenant credit, property values, construction costs, insurance availability and local economic conditions.
Approximately $3.308 million of standby letters of credit were outstanding. Terrorism insurance coverage includes substantial company exposure through its captive insurer, particularly for NBCR events, deductibles and losses exceeding coverage. The Terrorism Risk Insurance Program Reauthorization Act coverage referenced in the filing expires in December 2014.
A Flushing-related appeal was denied on April 16, 2014. Management believes ordinary-course legal matters will not have a material effect. No material changes to previously disclosed risk factors were reported. The filing states that disclosure controls and procedures were effective.
Important facts for investors to verify
- Whether the 731 Lexington Avenue refinancing continues to reduce interest expense and how variable-rate exposure changes as LIBOR moves.
- The company’s ability to refinance or repay approximately $398.246 million of debt maturing in 2015.
- Rego Park II construction costs, timing, leasing progress and eventual returns relative to the approximately $125 million budget.
- Bloomberg’s lease terms, credit condition and continuing contribution of approximately 45% of revenue.
- Dividend sustainability relative to recurring operating cash flow and FFO.
- Availability and cost of terrorism and property insurance after the referenced federal terrorism-insurance program expiration.
- The effect of real estate tax increases, which raised both expense reimbursements and operating expenses.