Business Context and Reporting Period
Alexander's, Inc. is a Real Estate Investment Trust (REIT) incorporated in Delaware, managed by Vornado Realty Trust. The company owns and operates six properties in the greater New York City metropolitan area, including the 731 Lexington Avenue multi-use building, Kings Plaza Regional Shopping Center, Rego Park I, Paramus (ground lease to IKEA), Flushing (vacant), and Rego Park II (development land). This filing covers the fiscal year ended December 31, 2005.
Key Financial Metrics
| Metric | 2005 | 2004 |
|---|---|---|
| Total Revenues | $187,085,000 | $148,895,000 |
| Net Income (Loss) | $82,241,000 | ($33,469,000) |
| Income from Continuing Operations | $21,298,000 | ($37,331,000) |
| Funds from Operations (FFO) | $102,037,000 | ($18,014,000) |
| Total Debt | $1,079,465,000 | $952,528,000 |
| Cash and Cash Equivalents | $578,406,000 | $128,874,000 |
| Stockholders' Equity | $101,324,000 | $18,368,000 |
Dividends: No dividends were paid in 2005 or 2004 due to Net Operating Loss (NOL) carryovers of approximately $31.7 million.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $38.2 million (25.6%) primarily due to the substantial completion and leasing of the 731 Lexington Avenue property. Property rentals rose to $132.9 million from $110.5 million.
- Profitability Turnaround: The company reported a net income of $82.2 million in 2005 compared to a net loss of $33.5 million in 2004. This swing was driven by a $60.9 million after-tax gain on the sale of 100 residential condominium units at 731 Lexington Avenue and a significant reduction in Stock Appreciation Rights (SARs) compensation expense ($27.6 million in 2005 vs. $76.8 million in 2004).
- Debt Structure: Total debt increased by $127 million. In July 2005, the company secured a $320 million mortgage on the retail space at 731 Lexington Avenue to repay construction loans and related-party debt.
- Liquidity: Cash and cash equivalents increased by $449.5 million, largely due to net proceeds of $455 million from condominium sales.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items: The 2005 net income includes a one-time after-tax gain of $60.9 million from condominium sales. Income from continuing operations was $21.3 million. The 2004 loss was heavily impacted by a $76.8 million non-cash SARs accrual.
- Development Outlook: The company plans to develop Rego Park II (mixed-use retail and residential) and construct a 120,000 sq. ft. building at Kings Plaza leased to Lowe's (commencing 2007). Management anticipates cash from operations will fund operations and debt service for the next 12 months.
- Key Risks:
- Tenant Concentration: Bloomberg L.P. accounted for 34% of consolidated revenues in 2005. Sears accounted for 11% in 2004.
- Environmental: Ongoing remediation at Kings Plaza for petroleum and phthalate contamination. The company has accrued $2.675 million, with $2.612 million paid as of year-end.
- Legal: Pending litigation regarding a failed sale of the Flushing property involving a disputed $1.875 million deposit.
- Related Party: Significant reliance on Vornado Realty Trust for management and leasing services; Vornado owns 33% of the company.
Investor Verification Checklist
- Condominium Sales: Verify the status of the remaining 5 unsold residential units at 731 Lexington Avenue and the sustainability of revenue without these one-time gains.
- Debt Maturities: Review the debt schedule, noting the Rego Park I mortgage matures in June 2009 and the Kings Plaza mortgage in June 2011.
- SARs Liability: Monitor the $87.6 million liability for Stock Appreciation Rights, which is settled in cash and fluctuates with the stock price.
- Environmental Costs: Track potential additional costs for the Kings Plaza remediation if the NYSDEC requires a more extensive approach.
- Flushing Litigation: Monitor the outcome of the lawsuit regarding the return of the $1.875 million deposit.