Alexander’s, Inc. 2011 Third-Quarter Form 10-Q Summary
Business context and reporting period
Alexander’s, Inc. is a Delaware REIT that leases, manages, develops and redevelops seven properties in the greater New York City metropolitan area. Vornado Realty Trust owns 32.4% of the outstanding common stock and manages, leases and develops the Company’s properties. The filing covers the unaudited three and nine months ended September 30, 2011, compared with the corresponding 2010 periods.
Key financial metrics
| Metric | Three months ended September 30, 2011 | Three months ended September 30, 2010 | Nine months ended September 30, 2011 | Nine months ended September 30, 2010 |
|---|---|---|---|---|
| Total revenues | $64.7 million | $61.4 million | $189.6 million | $179.1 million |
| Operating income | $32.9 million | $28.6 million | $98.1 million | $90.7 million |
| Net income attributable to Alexander’s | $20.4 million | $17.9 million | $58.8 million | $48.5 million |
| Net income per diluted share | $4.00 | $3.50 | $11.51 | $9.51 |
| FFO attributable to common stockholders | $28.8 million | $25.6 million | $83.7 million | $71.3 million |
| FFO per diluted share | $5.65 | $5.02 | $16.40 | $13.96 |
| Dividends per common share | $3.00 | $2.50 | $9.00 | $5.00 |
Third-quarter operating margin was approximately 50.8%, compared with 46.5% in the prior-year quarter. Net income attributable to Alexander’s represented approximately 31.5% of revenue, compared with 29.1% in the prior-year quarter. These calculated margins are based on reported figures.
At September 30, 2011, cash and cash equivalents were $509.6 million, restricted cash was $88.0 million and short-term investments were $5.0 million. Real estate, net, was $880.9 million. Notes and mortgages payable totaled $1.336 billion, compared with $1.246 billion at December 31, 2010. Total equity was $357.8 million.
For the nine months, operating cash flow was $67.9 million, compared with $42.7 million in 2010. Investing activities provided $5.3 million, while financing activities provided $39.1 million. Capital expenditures and real estate additions were $10.2 million. Cash dividends paid were $46.0 million.
Material changes versus the prior comparable period
- Revenue increased 5.4% for the quarter and 5.9% for the nine months, primarily from lease-up at Rego Park I, Rego Park II and, for the nine-month period, Kings Plaza.
- Operating income increased 15.2% for the quarter and 8.1% for the nine months.
- Net income attributable to Alexander’s increased 14.3% for the quarter and 21.1% for the nine months. FFO increased 12.6% for the quarter and 17.5% for the nine months.
- Interest and debt expense declined $2.7 million for the quarter and $3.5 million for the nine months, primarily because of lower average interest rates and reversals of previously accrued tax-related interest, partly offset by higher average debt.
- General and administrative expense declined $2.8 million for the quarter and $3.4 million for the nine months, primarily because 2010 included a $3.135 million Flushing litigation accrual. The 2011 nine-month period included a $0.807 million reversal related to the settlement and a $0.300 million deferred stock unit expense.
- The Company completed a $250.0 million Kings Plaza refinancing in June 2011 and retained approximately $95.0 million of net proceeds after repayment of existing debt and costs.
- On October 5, 2011, after the reporting date, the $68.0 million Paramus mortgage was refinanced for the same principal amount with a seven-year interest-only loan at a fixed 2.90%, replacing the 5.92% loan.
Guidance, outlook, risks and unusual items
Management stated that cash from operations over the next twelve months, together with existing cash balances, is expected to fund operations, dividends, debt amortization and maturities, and recurring capital expenditures. During the remainder of 2011, $345.2 million of debt was scheduled to mature; after the October refinancing, $277.2 million remained subject to refinancing or repayment at maturity.
- Bloomberg L.P. accounted for $63.3 million, or 33%, of nine-month 2011 revenue. Loss of Bloomberg or deterioration in its ability to perform could materially affect results and financial condition.
- Variable-rate debt exposure was reported at $568.5 million, with a 1% increase in base rates estimated to reduce annual earnings by approximately $5.7 million, or $1.11 per diluted share.
- The Kings Plaza oil-spill remediation is ongoing. Estimated cleanup costs are approximately $2.5 million; $0.5 million had been paid and the remainder was covered by insurance.
- Approximately $5.0 million of standby letters of credit were outstanding at September 30, 2011. The Company also disclosed ordinary-course legal proceedings that management does not expect to be material in the aggregate.
- The Company maintains substantial property and terrorism insurance but remains exposed to deductibles, uninsured losses and the possibility that comparable coverage may not remain available on commercially reasonable terms. Most mortgage debt is non-recourse, subject to specified exceptions.
- Reported 2011 results included a $2.561 million reversal of an income-tax liability, $1.657 million from collection of prior-period tenant utility costs and the $0.807 million Flushing litigation-accrual reversal. These items increased nine-month 2011 net income and FFO by an aggregate $5.025 million, or $0.98 per diluted share.
- No material changes to previously disclosed risk factors were reported. Management concluded that disclosure controls and procedures were effective, and the independent registered public accounting firm performed a review without identifying required material modifications.
Investor verification checklist
- Verify the refinancing or repayment of the remaining $277.2 million of 2011 maturities and the terms of subsequent debt financing.
- Assess Bloomberg’s lease concentration, credit quality, lease expiration profile and renewal prospects.
- Reconcile reported FFO to net income and adjust for the tax reversal, utility-cost collection and litigation settlement reversal.
- Review variable-rate debt exposure, covenant requirements, interest-rate sensitivity and the reported fair value of debt.
- Monitor Rego Park lease-up, occupancy, capital requirements and future depreciation trends.
- Track Kings Plaza environmental remediation, insurance recoveries and any remaining liability.
- Consider the effect of dividends of $9.00 per share for the first nine months relative to operating cash flow and future debt obligations.