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 summary covers the fiscal year ended December 31, 2010.
The portfolio consists of seven properties, including the 731 Lexington Avenue office/retail building (anchored by Bloomberg L.P.), Kings Plaza Regional Shopping Center, Rego Park I and II shopping centers, and land parcels in Paramus, NJ, and Flushing, NY.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total Revenues | $241,350,000 | $223,529,000 |
| Net Income (Attributable to Alexander's) | $66,429,000 | $132,190,000 |
| Diluted EPS | $13.01 | $25.89 |
| Funds from Operations (FFO) | $97,271,000 ($19.05/share) | $158,960,000 ($31.14/share) |
| Total Debt Outstanding | $1,246,411,000 | $1,278,964,000 |
| Cash and Cash Equivalents | $397,220,000 | $412,734,000 |
| Debt to Enterprise Value | 42.2% | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by approximately 8% ($17.8 million) compared to 2009, primarily driven by the Rego Park II property coming into service.
- Net Income Decline: Net income attributable to common stockholders decreased by approximately 50% ($65.8 million). This decline was largely due to the absence of a $34.3 million reversal of stock appreciation rights (SARs) compensation expense recorded in 2009 and a $3.1 million litigation loss accrual in 2010.
- FFO Decline: FFO decreased by approximately 39% ($61.7 million), reflecting the same non-recurring items affecting net income.
- Dividends: The company initiated regular quarterly dividends in 2010 ($2.50 per share) after exhausting its Net Operating Loss (NOL) carryover. In January 2011, the dividend was increased to $3.00 per share.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- 2010: Included a $3.1 million litigation loss accrual related to the Flushing property and a $5.1 million income tax benefit from the expiration of a statute of limitations.
- 2009: Included a $34.3 million benefit from the reversal of SARs compensation expense and a $42.5 million income tax benefit.
- Outlook: Management anticipates cash flows from operations will be adequate to fund operations, dividends, and debt service. The Rego Park II development is 89% in service and 100% leased.
- Key Risks:
- Tenant Concentration: Bloomberg L.P. accounted for 34% of consolidated revenues in 2010. Loss of this tenant would materially impact results.
- Debt Maturity: Approximately $508 million of debt matures in 2011, requiring refinancing or repayment.
- Related Party Transactions: Vornado Realty Trust owns 32.4% of the company and manages all properties, creating potential conflicts of interest.
- Environmental: Ongoing remediation of an oil spill at Kings Plaza, with estimated total costs of $2.5 million (partially insured).
Investor Verification Checklist
- Verify the status of the Flushing property litigation appeal and potential financial impact beyond the accrued $3.1 million.
- Confirm the refinancing strategy for the $508 million in debt maturing in 2011, particularly the Kings Plaza and Paramus loans.
- Monitor Bloomberg L.P.'s financial health and lease performance, given its 34% revenue contribution.
- Review the Rego Park II completion timeline and any remaining capital requirements to finish the remaining 11% of the center.
- Assess the sustainability of the new dividend policy ($12.00 annualized) against future taxable income projections.