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 March 31, 2009.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $53,090,000 | $51,766,000 |
| Net Income (Attributable to Alexander's) | $46,054,000 | $15,152,000 |
| Diluted EPS | $9.03 | $2.98 |
| Funds from Operations (FFO) | $51,643,000 | $20,353,000 |
| FFO per Diluted Share | $10.12 | $4.00 |
| Net Cash from Operating Activities | $5,762,000 | $24,738,000 |
| Total Debt | $1,230,737,000 | $1,221,255,000 |
| Cash and Cash Equivalents | $426,265,000 | $576,530,000 |
| Restricted Cash | $88,988,000 | $5,057,000 |
Material Changes vs. Prior Period
- Net Income Surge: Net income increased by approximately 204% compared to Q1 2008. This increase is primarily driven by a $34,275,000 reversal of previously recognized Stock Appreciation Rights (SARs) compensation expense in Q1 2009, compared to a $625,000 accrual in Q1 2008.
- Revenue Growth: Total revenues increased by $1,324,000 (2.6%), driven by higher expense reimbursements ($1,160,000 increase) due to higher real estate taxes.
- Cash Flow Decline: Net cash provided by operating activities decreased significantly to $5.8 million from $24.7 million. This was due to the non-cash SARs reversal and a $22.8 million cash payment for SARs exercises.
- Investing Outflows: Net cash used in investing activities increased to $105.7 million, largely due to an $83.9 million increase in restricted cash (related to a fully cash-collateralized mortgage at Rego Park I) and $21.8 million in capital expenditures for the Rego Park II project.
- Debt Refinancing: The company repaid and refinanced the Rego Park I mortgage ($78.2 million) at a lower interest rate (0.75%) with 100% cash collateralization.
Outlook, Risks, and Unusual Items
- Unusual Item (SARs): The reversal of $34.3 million in SARs expense is a non-recurring item resulting from the exercise of rights by the CEO and President when the stock price was lower than the grant price. Without this item, GAAP net income would be significantly lower.
- Development Project: The Rego Park II project (600,000 sq. ft. shopping center) is estimated to cost $410 million, with $316.2 million expended as of March 31, 2009. Completion is expected by the end of 2009. There is no assurance the project will be completed on time or within budget.
- Economic Risks: Management notes the ongoing economic recession has negatively affected demand for office and retail space. Occupancy at Kings Plaza decreased by 2.6% in the quarter. The allowance for doubtful accounts increased due to Circuit City's bankruptcy and lease rejection.
- Tenant Concentration: Bloomberg L.P. accounts for approximately 34% of consolidated revenues.
- Legal Contingencies: The company is defending against a lawsuit regarding a deposit on the Flushing property (sub-leased in Feb 2009) and an environmental remediation issue at Kings Plaza (estimated cost $2.5 million, partially insured).
Investor Verification Checklist
- SARs Impact: Verify the sustainability of earnings by excluding the $34.3 million non-cash SARs reversal to assess core operating performance.
- Liquidity Position: Confirm the availability of unrestricted cash ($426 million) versus restricted cash ($89 million) to fund the remaining $94 million needed for the Rego Park II project.
- Debt Covenants: Review the terms of the new Rego Park I loan (100% cash collateralized) and the construction loan for Rego Park II to ensure compliance with covenants during the economic downturn.
- Tenant Risk: Monitor the financial stability of Bloomberg L.P. (34% of revenue) and the impact of Circuit City's lease rejection on future cash flows.
- Development Timeline: Track the progress of the Rego Park II project against the year-end completion target and budget constraints.