Business Context and Reporting Period
Alexander's, Inc. (NYSE: ALX) is a Real Estate Investment Trust (REIT) incorporated in Delaware, engaged in leasing, managing, developing, and redeveloping properties in the greater New York City metropolitan area. The company is managed by Vornado Realty Trust. This filing covers the quarterly period ended June 30, 2009.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $107,965,000 | $103,244,000 |
| Net Income (Attributable to Alexander's) | $59,059,000 | $53,606,000 |
| Funds from Operations (FFO) | $71,360,000 | $64,617,000 |
| Net Cash Provided by Operating Activities | $12,392,000 | $39,485,000 |
| Total Debt | $1,249,079,000 | $1,221,255,000 |
| Cash and Cash Equivalents | $438,669,000 | $515,940,000 |
| Restricted Cash | $85,752,000 | $5,057,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by approximately 4.6% year-over-year, driven primarily by the placement of anchor tenants (Home Depot, Century 21, Kohl's) into service at the Rego Park II development.
- Net Income Volatility: Net income increased by 10.2%, but this figure is significantly influenced by a $34.3 million reversal of previously recognized Stock Appreciation Rights (SARs) compensation expense in the current period, compared to a $21.3 million reversal in the prior year.
- Operating Cash Flow Decline: Net cash provided by operating activities decreased by 68.6% to $12.4 million. This was primarily due to the non-cash SARs reversal and a $22.8 million cash payment for SARs compensation.
- Investing Activities: Net cash used in investing activities increased to $118.3 million, largely due to $80.7 million in restricted cash (related to a cash-collateralized mortgage) and $37.6 million in capital expenditures for Rego Park II.
- Debt Refinancing: The company refinanced the Rego Park I mortgage loan in March 2009, reducing the interest rate to 0.75% (75 basis points) and fully cash-collateralizing the loan.
Outlook, Risks, and Management Commentary
- Rego Park II Project: Construction is expected to be substantially completed by the end of 2009. Total estimated cost is $410 million, with $332.5 million expended as of June 30, 2009. Anchor tenants have taken possession of their space.
- Significant Tenant Concentration: Bloomberg L.P. accounts for approximately 34% of consolidated revenues. No other tenant accounts for more than 10%.
- Economic Environment: Management notes the ongoing economic recession has negatively affected demand for office and retail space, leading to increased allowances for doubtful accounts (specifically related to Circuit City's bankruptcy).
- Liquidity: Management anticipates that cash from operations and existing balances will be adequate to fund operations and debt amortization for the next twelve months.
- Contingencies: The company is defending against a lawsuit regarding a deposit on the Flushing property but does not believe a loss is probable. An oil spill remediation at Kings Plaza is ongoing, with estimated costs of $2.5 million (mostly covered by insurance).
Investor Verification Checklist
- SARs Impact: Verify the sustainability of net income by excluding the $34.3 million non-cash SARs reversal, which significantly inflated earnings for the period.
- Restricted Cash: Confirm the nature of the $85.8 million in restricted cash, which is tied to the cash-collateralized Rego Park I mortgage and not available for general operations.
- Rego Park II Completion: Monitor the completion timeline and final cost of the Rego Park II project, as delays or cost overruns could impact liquidity.
- Tenant Concentration Risk: Assess the risk associated with Bloomberg L.P. representing nearly one-third of total revenue.
- Debt Maturities: Review the maturity schedule of the $1.25 billion debt portfolio, noting the Rego Park II construction loan matures in December 2010.