Alexander’s, Inc. 10-Q Summary
Reporting period: Three and nine months ended September 30, 2013. Alexander’s is a REIT with six properties totaling approximately 2.179 million square feet in the greater New York City area. Vornado Realty Trust manages the company and leases and develops its properties; Vornado owned 32.4% of outstanding common stock at September 30, 2013.
Financial Performance and Position
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Total revenues | $49.9 million | $48.6 million | $146.0 million | $142.8 million |
| Operating income | $24.4 million | $23.8 million | $73.2 million | $72.2 million |
| Net income attributable to Alexander’s | $13.8 million | $18.9 million | $41.1 million | $57.2 million |
| Diluted earnings per share | $2.71 | $3.69 | $8.05 | $11.20 |
| FFO attributable to common stockholders | $21.0 million | $27.5 million | $62.7 million | $82.9 million |
| FFO per diluted share | $4.12 | $5.38 | $12.27 | $16.23 |
- Operating margin was approximately 48.9% in the quarter and 50.2% for the nine months, based on reported operating income and total revenues.
- Property rentals increased modestly, while expense reimbursements increased primarily because of higher real estate taxes and reimbursable operating expenses.
- Net cash provided by operating activities was $54.3 million for the nine months, compared with $72.7 million in the prior-year period. The 2012 amount included $21.4 million from discontinued operations.
- Capital expenditures were $5.9 million. Dividends paid were $42.1 million and debt repayments were $11.9 million.
- Cash and cash equivalents were $347.6 million at September 30, 2013, compared with $353.4 million at December 31, 2012. Restricted cash was $90.5 million and marketable securities were $30.2 million.
- Mortgages payable totaled $1.054 billion, compared with $1.066 billion at December 31, 2012. Estimated fair value of debt was $1.082 billion.
- Total liabilities were $1.141 billion and total equity was $330.5 million at September 30, 2013.
- Portfolio occupancy was 99.4% at September 30, 2013, compared with 99.1% at December 31, 2012.
Material Changes Versus the Prior Comparable Period
- Reported net income and FFO declined primarily because the 2012 periods included income from Kings Plaza, which was sold in November 2012. Discontinued operations contributed $6.9 million in Q3 2012 and $20.0 million in the first nine months of 2012.
- Excluding the discontinued property, income from continuing operations increased to $13.8 million for Q3 2013 from $12.4 million and to $41.1 million for the first nine months from $38.0 million.
- Operating income increased $0.6 million in Q3 and $1.1 million for the nine months. Higher reimbursements were partly offset by higher operating expenses, particularly real estate taxes.
- Interest and debt expense decreased by $0.3 million in Q3 and $0.8 million for the nine months.
- Interest and other income increased due primarily to dividend income on 535,265 Macerich shares received in the Kings Plaza sale.
- The company recorded unrealized losses on Macerich securities of $2.4 million in Q3 and $1.0 million for the nine months in other comprehensive income.
- Dividends per common share were $2.75 for Q3 and $8.25 for the nine months, compared with $3.75 and $11.25, respectively, in the prior-year periods.
Guidance, Outlook, Risks and Unusual Items
- Management stated that operating cash flows over the next twelve months, together with existing cash, are expected to fund operations, dividends, debt amortization and maturities, and recurring capital expenditures.
- No debt was scheduled to mature in 2013; $317.6 million secured by 731 Lexington Avenue office space is scheduled to mature in February 2014. Management may refinance or repay the debt at maturity.
- The company commenced construction of an approximately 300-unit, 250,000-square-foot apartment tower above Rego Park II. Expected capital expenditures are approximately $125 million, but completion on schedule and within budget is not assured.
- Bloomberg accounted for 45% of total revenues for both nine-month periods. The loss or financial deterioration of Bloomberg could materially affect results and financial condition.
- Interest-rate exposure included approximately $313.9 million of variable-rate debt and amounts due to Vornado; management estimated that a 1% increase in base rates would reduce annual earnings by approximately $3.1 million, or $0.61 per diluted share.
- The company faces refinancing, tenant concentration, interest-rate, construction, insurance, regulatory, leasing and real estate market risks.
- An appeal remains pending in litigation involving the Flushing property. The company stated that any reasonably possible loss cannot be estimated.
- Approximately $3.3 million of standby letters of credit were outstanding. The company also disclosed insurance deductibles and potential exposure for losses exceeding coverage.
- There were no material changes to previously disclosed risk factors, no defaults, and no material changes affecting internal control over financial reporting. Disclosure controls were deemed effective.
Investor Verification Checklist
- Verify the February 2014 maturity and refinancing or repayment plan for the $317.6 million 731 Lexington Avenue office mortgage.
- Assess Bloomberg’s lease terms, credit quality, renewal prospects and concentration within total revenue.
- Review the $125 million Rego Park II apartment development budget, timing, financing and leasing assumptions.
- Reconcile recurring operating cash flow and dividends, distinguishing continuing operations from the discontinued Kings Plaza contribution in 2012.
- Monitor Macerich share-price exposure and the effect of unrealized securities gains or losses on comprehensive income.
- Review Vornado-related management, leasing and property-service fees and the $44.0 million owed to Vornado at September 30, 2013.
- Track the Flushing litigation appeal, insurance coverage limitations and other contingent liabilities.