Alexander’s, Inc. — Form 10-Q Summary
Business context and reporting period
Alexander’s, Inc. is a New York metropolitan-area REIT engaged in leasing, managing, developing and redeveloping six properties totaling approximately 2.179 million square feet. Vornado Realty Trust manages the company and provides leasing and development services; Vornado owned 32.4% of the outstanding common stock at March 31, 2013. This unaudited filing covers the three months ended March 31, 2013, compared with the three months ended March 31, 2012.
Financial performance, cash flow, debt and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenues | $48.775 million | $47.301 million |
| Operating income | $24.925 million | $24.471 million |
| Operating margin | 51.1% | 51.7% |
| Income from continuing operations | $14.162 million | $13.032 million |
| Net income attributable to Alexander’s | $14.162 million | $19.482 million |
| Diluted earnings per share | $2.77 | $3.81 |
| FFO attributable to common stockholders | $21.339 million, or $4.18 per share | $28.030 million, or $5.49 per share |
| Cash flow from operating activities | $33.552 million | $43.618 million |
Property rentals increased to $34.171 million from $33.773 million, while expense reimbursements increased to $14.604 million from $13.528 million. Operating expenses were $15.554 million, including $1.577 million of higher real estate taxes. Interest and debt expense declined to $11.148 million from $11.473 million.
Cash and cash equivalents were $368.508 million at March 31, 2013, up from $353.396 million at December 31, 2012. Including restricted cash and marketable securities, the company held approximately $492.4 million of these liquid assets. Net cash used in financing activities was $18.092 million, including $14.047 million of dividends and $3.963 million of debt repayments. Capital expenditures were $1.267 million.
Mortgages payable totaled $1.062 billion at March 31, 2013, compared with $1.066 billion at December 31, 2012. Estimated fair value of consolidated debt was $1.151 billion. Approximately $316.8 million of debt and amounts due to Vornado were variable-rate obligations, and management estimated that a 1% increase in base rates would reduce annualized diluted earnings per share by approximately $0.62.
The portfolio was 99.2% occupied at March 31, 2013, compared with 99.1% at December 31, 2012. Bloomberg accounted for $21.802 million, or 45% of total revenue, creating significant tenant concentration.
Material changes versus the prior comparable period
- Revenue increased 3.1%, primarily from higher expense reimbursements and modestly higher property rentals.
- Operating income increased 1.9%, but the operating margin declined modestly because expenses grew faster than revenue.
- Income from continuing operations increased 8.7% and continuing-operations diluted EPS rose to $2.77 from $2.55.
- Reported net income and FFO declined because Q1 2012 included Kings Plaza discontinued operations, which contributed $6.392 million of income and $7.867 million of FFO. Kings Plaza was sold in November 2012.
- Operating cash flow decreased $10.066 million, largely because the prior-year period included cash flow from discontinued operations and favorable working-capital effects.
- Dividends paid declined to $14.047 million from $19.151 million; dividends per common share declined to $2.75 from $3.75.
- Marketable securities increased to $34.460 million from $31.206 million. The company recorded a $3.254 million unrealized gain in other comprehensive income on its Macerich shares.
Guidance, outlook, risks and unusual items
Management stated that existing cash and cash flows from continuing operations are expected to be adequate over the next twelve months to fund operations, dividends, debt amortization and maturities, and recurring capital expenditures. No debt maturities were scheduled for 2013; approximately $324.130 million of debt matures in February 2014, which the company may refinance or repay.
The company is evaluating a proposed approximately 300-unit, 250,000-square-foot apartment tower above Rego Park II. Estimated funding is approximately $100 million to $120 million, but there is no assurance that the project will proceed or be completed on schedule or within budget.
- Bloomberg represents 45% of revenue; loss of the tenant or deterioration in its ability to perform could materially affect results.
- Refinancing risk exists, particularly for the February 2014 maturity and in changing interest-rate or capital-market conditions.
- Insurance coverage may not remain available on comparable terms. The company bears deductibles and losses exceeding coverage and ultimately bears losses retained by its terrorism-insurance subsidiary.
- An appeal remains pending in litigation related to the Flushing property. The company states that any reasonably possible loss cannot be estimated.
- Approximately $4.058 million of standby letters of credit were outstanding.
- The company has a contingent exposure of up to $75 million on the 731 Lexington Avenue mortgage in the event of a defined substantial casualty.
- The Paramus property includes an IKEA purchase option exercisable in 2021 for $75 million; if exercised, management estimates approximately $7 million of net cash proceeds and an approximately $60 million gain.
- The filing reports no material changes to previously disclosed risk factors, no defaults upon senior securities and no material changes in internal control over financial reporting. Disclosure controls were deemed effective.
Important facts for investors to verify
- Review the refinancing plan and available sources of repayment for the $324.130 million mortgage maturity in February 2014.
- Assess the credit quality, lease term and renewal prospects of Bloomberg, which contributes 45% of revenue.
- Reconcile recurring operating performance with reported net income and FFO after the Kings Plaza sale and removal of discontinued operations.
- Evaluate the proposed Rego Park II apartment development, including funding, expected returns, timing and construction risk.
- Review Vornado’s related-party management, leasing and development fees and the $45.623 million owed to Vornado at March 31, 2013.
- Monitor the Flushing litigation appeal, insurance availability and potential uninsured casualty exposure.
- Confirm the sustainability of the dividend relative to operating cash flow, debt service and upcoming refinancing requirements.