Alexander’s, Inc. 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013, including fourth-quarter results. Alexander’s is a New York metropolitan-area REIT managed and leased by Vornado Realty Trust. Its portfolio comprised six operating properties totaling approximately 2.178 million square feet, with 99.4% occupancy at year-end. The company also commenced construction of the approximately 300-unit Rego Park II Apartment Tower.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Total revenue | $196.5 million | $191.3 million | +2.7% |
| Operating income | $97.5 million | $95.6 million | +2.0% |
| Operating margin | 49.6% | 50.0% | Down modestly |
| Income from continuing operations | $54.7 million | $50.0 million | +9.2% |
| Net income attributable to Alexander’s | $56.9 million | $674.4 million | Down sharply |
| Net income per diluted share | $11.14 | $132.04 | Down sharply |
| FFO attributable to common stockholders | $85.7 million, or $16.78 per share | $107.6 million, or $21.07 per share | Down 20.3% |
| Cash flow from operations | $73.9 million | $109.7 million | Down 32.7% |
| Cash and cash equivalents | $347.7 million | $353.4 million | Down $5.7 million |
| Total debt | $1.050 billion | $1.066 billion | Down $16.0 million |
| Total debt to enterprise value | 44.0% | Not clearly provided in the filing text | Not comparable |
Fourth-quarter 2013 revenue was $50.5 million, compared with $48.5 million in the fourth quarter of 2012. Fourth-quarter net income attributable to Alexander’s was $15.8 million, or $3.09 per diluted share, versus $617.2 million, or $120.82 per share, in the prior-year quarter. Fourth-quarter FFO was $23.0 million, or $4.50 per diluted share, versus $24.7 million, or $4.84 per share.
Revenue growth reflected higher occupancy and increased tenant expense reimbursements. Property rentals increased to $135.9 million from $134.8 million, while expense reimbursements increased to $60.6 million from $56.5 million. Operating expenses rose to $64.7 million from $61.8 million, primarily because of higher real estate taxes and reimbursable operating expenses.
Material changes versus the prior comparable period
- Continuing operations improved, but reported net income and FFO declined because 2012 included the substantial gain from the sale of Kings Plaza.
- 2012 discontinued operations included a $599.6 million gain on the Kings Plaza sale; 2013 discontinued-operations income of $2.3 million primarily reflected reversal of previously accrued Kings Plaza-related liabilities.
- Operating portfolio occupancy improved from 99.1% to 99.4%.
- Net cash from operations declined, while 2013 investing activity primarily consisted of $7.7 million of real estate additions and construction spending.
- Debt declined modestly through scheduled repayments. Substantially all properties remained mortgage-encumbered.
- The regular quarterly dividend was increased from $2.75 per share during 2013 to $3.25 per share beginning in January 2014, implying an annual rate of $13.00 per share.
Debt, liquidity and commitments
- Debt consisted of $1.050 billion of mortgages. Major maturities included $314.2 million secured by 731 Lexington Avenue office space in February 2014, $78.2 million at Rego Park I in March 2015, and $320.0 million secured by 731 Lexington Avenue retail space in July 2015.
- Management stated that it was finalizing a $300 million refinancing of the 731 Lexington Avenue office loan.
- Management expected cash from continuing operations and existing cash balances to fund operations, dividends, debt amortization and maturities, and recurring capital expenditures over the next twelve months.
- Contractual obligations totaled $1.172 billion, including $1.113 billion of principal and interest obligations. Standby letters of credit totaled approximately $3.3 million.
- The Rego Park II Apartment Tower was expected to cost approximately $125 million, with $2.3 million incurred by December 31, 2013, and completion expected in 2015.
Guidance, outlook, risks and unusual items
- No formal earnings or revenue guidance was provided. The filing stated that the increased 2014 dividend, if maintained for the full year, would require approximately $66.5 million of distributions.
- Future results depend heavily on New York-area real estate conditions, occupancy, rental rates, tenant credit quality, interest rates, capital availability and the ability to refinance maturing debt.
- Bloomberg represented 45% of 2013 revenue, and 731 Lexington Avenue represented 66% of revenue. Loss of Bloomberg or damage to 731 Lexington Avenue would be material.
- All properties and revenue are concentrated in the greater New York City metropolitan area, increasing exposure to regional economic conditions, terrorism and natural disasters.
- The company is controlled by Vornado, Interstate and related parties, which together beneficially owned approximately 58.7% of outstanding common shares. Vornado owned 32.4% and provides management, leasing and development services, creating related-party and potential conflict-of-interest risks.
- The Flushing property litigation remained on appeal. The company stated that reasonably possible losses, if any, could not be estimated.
- Insurance included $1.7 billion of property and rental-value coverage and $300 million of general liability coverage, but deductibles, coverage limitations and losses exceeding insurance could be material. The federal terrorism insurance program referenced in the filing was scheduled to expire in December 2014.
- The company held $31.5 million of Macerich common shares, whose value could decline and potentially result in an impairment.
- Management and Deloitte & Touche reported effective internal control over financial reporting, and Deloitte issued unqualified audit opinions.
Most important facts for investors to verify
- Completion and terms of the planned $300 million refinancing for the 731 Lexington Avenue office mortgage.
- Upcoming 2015 maturities totaling approximately $398 million, including the 731 Lexington Avenue retail loan.
- Progress, total cost and leasing or operating assumptions for the Rego Park II Apartment Tower.
- Bloomberg’s lease status, credit quality and concentration of revenue exposure.
- Sustainability of the $3.25 quarterly dividend relative to FFO and operating cash flow.
- Status and potential exposure from the Flushing litigation appeal.
- Changes in property insurance availability, terrorism coverage and related deductibles after December 2014.