Business Context and Reporting Period
Alexander's, Inc. filed its Form 10-Q for the quarterly period ended June 30, 1998. The company is a real estate entity managed by Vornado Realty Trust, which owns 29.3% of its common stock. The reporting period covers the three and six months ended June 30, 1998, compared to the same periods in 1997.
Key Financial Metrics
| Metric | Six Months Ended June 30, 1998 | Six Months Ended June 30, 1997 |
|---|---|---|
| Total Revenues | $17,480,000 | $12,759,000 |
| Net Income | $2,038,000 | $(25,000) |
| Net Income Per Share (Diluted) | $0.40 | $(0.01) |
| Funds from Operations | $1,401,000 | $67,000 |
| Cash Flow from Operations | $32,000 | $314,000 |
| Total Debt | $262,405,000 | $208,087,000 |
| Cash and Cash Equivalents | $21,014,000 | $2,691,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $4.7 million (37%) for the six months ended June 30, 1998. This was driven primarily by the acquisition of the remaining 50% interest in Kings Plaza Mall (consolidating operations previously recorded under the equity method), new tenants at Kings Plaza Store and Rego Park I, and parking lot revenue.
- Profitability: The company returned to profitability, reporting net income of $2.0 million compared to a net loss of $25,000 in the prior year. Operating income rose to $8.5 million from $5.7 million.
- Debt Structure: Total debt increased by approximately $54 million. This reflects a new $90 million mortgage loan secured on June 18, 1998, used to acquire the remaining interest in Kings Plaza Mall and repay $34.9 million of existing debt.
- Cash Position: Cash and cash equivalents grew significantly from $2.7 million to $21.0 million, largely due to financing proceeds and condemnation proceeds, offset by significant investing outflows.
Guidance, Outlook, Risks, and Unusual Items
- Major Acquisition: On June 18, 1998, the company acquired Federated Department Store's 50% interest in Kings Plaza Mall for $28 million cash. The company also agreed to pay Federated $15 million for store renovations, recorded as a liability.
- Liquidity and Capital Needs: Current operating properties do not generate sufficient cash flow to cover all expenses. The company relies on redevelopment projects (Paramus, Lexington Avenue, Rego Park II) to generate future cash flow. Capital requirements for Paramus redevelopment are estimated at $90-$100 million, and Lexington Avenue redevelopment could exceed $300 million.
- Environmental Contingency: An environmental study at Kings Plaza Shopping Center identified petroleum and hydrocarbons in soil and groundwater. The company has accrued $1.5 million for cleanup, but costs could increase if the NYDEC requires more extensive remediation.
- Tenant Risk: Caldor, a significant tenant representing 12% of revenues for the six months ended June 30, 1998, rejected its Fordham Road lease in June 1997. The company has filed a claim for damages, but the loss of rental revenue remains a material risk.
- Management Commentary: Management expects cash sources (borrowing, securities sales, asset sales) to be adequate until redevelopment properties generate positive cash flow. No assurance is given regarding the availability or terms of future financing.
Investor Verification Checklist
- Verify the status of the $15 million renovation liability owed to Federated and the timeline for the $30 million construction loan.
- Confirm the progress of environmental remediation at Kings Plaza and potential for cost overruns beyond the $1.5 million accrual.
- Assess the likelihood of recovering damages from Caldor regarding the rejected Fordham Road lease.
- Review the timeline and financing status for the Lexington Avenue and Paramus redevelopment projects, which require significant capital ($300M+ and $90-$100M respectively).
- Monitor the company's ability to service its increased debt load ($262.4 million) given that current operating properties are not yet cash-flow positive.