Business Context and Reporting Period
Alexander's, Inc. filed its Form 10-Q for the quarterly period ended September 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 nine months ended September 30, 1998, compared to the same periods in 1997.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 1998 | Nine Months Ended Sep 30, 1998 | Nine Months Ended Sep 30, 1997 |
|---|---|---|---|
| Total Revenues | $16,201,000 | $33,681,000 | $18,775,000 |
| Net Loss | $(11,942,000) | $(9,904,000) | $(160,000) |
| Net Loss Per Share (Basic/Diluted) | $(2.39) | $(1.98) | $(0.03) |
| Funds from Operations | $2,707,000 | $4,108,000 | $(408,000) |
| Total Debt | $262,269,000 (as of Sep 30, 1998) | ||
| Cash and Cash Equivalents | |||
| Restricted Cash | $11,175,000 (as of Sep 30, 1998) |
Cash Flow (Nine Months Ended Sep 30, 1998):
- Net cash used in operating activities: $(2,904,000)
- Net cash used in investing activities: $(33,259,000)
- Net cash provided by financing activities: $47,938,000
Material Changes Versus Prior Period
- Revenue Growth: Total revenues increased by $14,906,000 (79%) for the nine months ended September 30, 1998, compared to the prior year. This was driven primarily by the acquisition of the remaining 50% interest in the Kings Plaza Mall (consolidating operations) and new tenants at the Kings Plaza Store property.
- Net Loss Expansion: The company reported a net loss of $9,904,000 for the nine months ended September 30, 1998, compared to a net loss of $160,000 in the prior year. This deterioration was primarily due to a $15,096,000 non-cash write-off of the carrying value of the Lexington Avenue building and related predevelopment costs.
- Debt Increase: Total debt increased from $208,087,000 at December 31, 1997, to $262,269,000 at September 30, 1998. This reflects a new $90,000,000 mortgage loan secured against the Kings Plaza Mall.
- Operating Expenses: Operating expenses rose significantly ($6,586,000 increase for the nine months) due to the consolidation of Kings Plaza Mall operations and the commencement of operations at the Kings Plaza Store property, which shifted previously capitalized real estate taxes to income.
Guidance, Outlook, Risks, and Unusual Items
Unusual Items
- Lexington Avenue Write-off: In September 1998, the company commenced razing the Lexington Avenue building, resulting in a $15,096,000 write-off of the building and predevelopment costs.
- Acquisition of Kings Plaza Mall: On June 18, 1998, the company acquired Federated Department Store's 50% interest in the Kings Plaza Mall for $28,000,000 cash, consolidating the joint venture.
Outlook and Capital Resources
- Liquidity: Current operating properties do not generate sufficient cash flow to cover all expenses. The company expects cash flow to become positive as redevelopment properties (Paramus, Rego Park II) commence rent collection.
- Financing: The company secured a $90,000,000 mortgage loan and expects to complete a $30,000,000 construction loan for the Kings Plaza Mall renovation. It anticipates needing significant capital for the Lexington Avenue redevelopment (estimated >$300,000,000) and Paramus redevelopment (estimated ~$100,000,000).
- Subsequent Event: On October 16, 1998, limited partners of the Seven Thirty One Limited Partnership exercised a put option, exchanging their 7.64% interest for a $15,000,000 five-year note.
Risks and Contingencies
- Environmental Liability: The Kings Plaza Shopping Center has soil and groundwater contamination. An accrual of $1,500,000 was recorded, but costs could increase if the NYDEC requires more extensive remediation.
- Tenant Bankruptcy: Caldor rejected its Fordham Road lease in June 1997. While the company has filed a claim for damages, the loss of this revenue stream (approx. 9% of nine-month 1998 revenue) poses a risk.
- Financing Uncertainty: There is no assurance that financing for future redevelopment projects will be obtained on acceptable terms.
Investor Verification Checklist
- Verify the status of the $15,096,000 Lexington Avenue write-off and the timeline for the proposed >$300,000,000 redevelopment.
- Confirm the terms and closing status of the expected $30,000,000 construction loan for Kings Plaza Mall renovations.
- Monitor the resolution of the environmental remediation at Kings Plaza Shopping Center and potential additional costs beyond the $1,500,000 accrual.
- Assess the collectability of the claim against Caldor for lease rejection damages.
- Review the impact of the $15,000,000 note issued to limited partners on October 16, 1998, on future interest expenses.