Business Context and Reporting Period
Alexander's, Inc. filed its Form 10-Q for the quarterly period ended September 30, 2001. The Company is a real estate investment trust (REIT) managed by Vornado Realty Trust, which owns 33.1% of the Company's common stock. The Company's portfolio includes operating properties and significant development projects, most notably the 1.4 million square foot multi-use building at 59th Street and Lexington Avenue.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2000 |
|---|---|---|---|
| Total Revenues | $16,420,000 | $50,372,000 | $47,556,000 |
| Operating Income | $6,878,000 | $20,500,000 | $11,841,000 |
| Net Income (Loss) | $2,242,000 | $29,919,000 | $(3,763,000) |
| EPS (Basic & Diluted) | $0.45 | $5.98 | $(0.75) |
| Cash from Operating Activities | N/A | $7,394,000 | $2,035,000 |
| Total Debt | $458,444,000 (as of Sep 30, 2001) | ||
| Cash and Equivalents |
Liquidity: Cash and cash equivalents increased significantly to $93,103,000 from $2,272,000 at year-end 2000. The Company has $26,000,000 remaining available under a secured line of credit with Vornado.
Material Changes vs. Prior Period
- Profitability Surge: The Company reported a net income of $29.9 million for the nine months ended September 30, 2001, compared to a net loss of $3.8 million in the same period in 2000. This turnaround is primarily driven by non-recurring gains.
- One-Time Gains: The 2001 results include a $19,026,000 gain on the sale of the Fordham Road property and a $3,534,000 extraordinary gain from the early extinguishment of debt related to that sale.
- Expense Reduction: General and administrative expenses dropped significantly ($6.8 million decrease for the nine months) due to the absence of $6.9 million in stock appreciation rights compensation expense recorded in the prior year.
- Refinancing: On June 1, 2001, the Company refinanced its Kings Plaza Regional Shopping Center with a new $223,000,000 mortgage at 7.46%, repaying $115,210,000 of prior debt.
Outlook, Risks, and Management Commentary
- Lexington Avenue Development: The Company signed a 25-year lease with Bloomberg L.P. for 700,000 square feet. However, the project requires over $650,000,000 in funding. Management states there is no assurance the project will be completed on time or within budget, and failure to do so could result in lease cancellation and penalties.
- Paramus Transaction: Subsequent to the period end (October 5, 2001), the Company entered a ground lease with IKEA Property, Inc., securing a $68,000,000 mortgage and repaying $10,000,000 of existing bank debt.
- Environmental Contingency: The Company has accrued $2,675,000 for environmental remediation at Kings Plaza. While the NYDEC has approved a portion of the plan, additional costs could be incurred if a more extensive approach is required.
- Liquidity Risk: Operating properties currently do not generate sufficient cash flow to cover all expenses. The Company relies on development proceeds and financing to fund operations until rents from new developments commence.
Investor Verification Checklist
- Non-Recurring Income: Verify the sustainability of earnings by excluding the $22.6 million in gains from the Fordham Road sale and debt extinguishment.
- Development Funding: Assess the feasibility of raising the required $650+ million for the Lexington Avenue project and the risks associated with the Bloomberg lease penalties.
- Debt Structure: Review the terms of the $119,000,000 indebtedness to Vornado Realty Trust (interest rate reset to 13.74%) and the impact of high interest rates on future cash flows.
- Environmental Liability: Monitor the status of the Kings Plaza remediation to ensure the accrued $2.675 million is sufficient and no further liabilities are recognized.
- Related Party Transactions: Note the significant management fees paid to Vornado ($5.2 million for the nine months) and the concentration of debt owed to Vornado.