Alexander’s, Inc. 2011 Second-Quarter Form 10-Q Summary
Business Context and Reporting Period
Alexander’s, Inc. is a New York metropolitan-area real estate investment trust engaged in leasing, managing, developing and redeveloping seven properties. Vornado Realty Trust owned 32.4% of the outstanding common stock and provides management, leasing and development services. This unaudited Form 10-Q covers the three and six months ended June 30, 2011, compared with the corresponding 2010 periods.
Key Financial Metrics
| Metric | Three Months 2011 | Three Months 2010 | Six Months 2011 | Six Months 2010 |
|---|---|---|---|---|
| Total revenues | $62.0 million | $59.2 million | $124.9 million | $117.7 million |
| Operating income | $32.8 million | $31.2 million | $65.2 million | $62.2 million |
| Net income attributable to Alexander’s | $20.2 million | $15.5 million | $38.4 million | $30.7 million |
| Net income per diluted share | $3.95 | $3.05 | $7.51 | $6.01 |
| FFO attributable to common stockholders | $28.6 million | $23.2 million | $54.9 million | $45.7 million |
| FFO per diluted share | $5.60 | $4.55 | $10.75 | $8.94 |
| Cash flow from operating activities | Not separately reported | Not separately reported | $24.1 million | $40.5 million |
| Dividends per common share | $3.00 | $2.50 | $6.00 | $2.50 |
Operating margin was approximately 52.9% in the second quarter and 52.2% for the first six months. Cash and cash equivalents increased to $491.0 million at June 30, 2011 from $397.2 million at December 31, 2010. Real estate, net, was $884.3 million, and total assets were $1.772 billion.
Notes and mortgages payable totaled $1.339 billion at June 30, 2011, compared with $1.246 billion at December 31, 2010. Variable-rate debt, including amounts due to Vornado, totaled approximately $569.1 million; the filing estimates that a 1% increase in base rates would reduce annualized earnings by approximately $5.7 million, or $1.11 per diluted share.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased 4.9%, primarily from leasing activity at Kings Plaza, Rego Park I and Rego Park II. Six-month revenue increased 6.1%.
- Second-quarter net income attributable to Alexander’s increased 29.6%; six-month net income increased 25.1%. FFO increased 23.1% for the quarter and 20.2% for the six months.
- Results benefited from $1.657 million of collected prior-period tenant utility costs and an $807,000 reversal of a previously accrued Flushing litigation loss. Together, these items increased second-quarter and six-month net income and FFO by $2.464 million, or $0.48 per diluted share.
- Six-month 2010 results included a $1.238 million loss on early extinguishment of debt; no comparable loss occurred in 2011.
- Operating expenses increased $1.134 million in the quarter and $3.265 million for the six months, mainly due to higher real estate taxes and other operating costs.
- Operating cash flow declined to $24.1 million from $40.5 million, primarily because of working-capital changes, including higher prepaid real estate taxes.
Liquidity, Debt and Financing
- On June 10, 2011, the company refinanced Kings Plaza with a five-year, interest-only $250 million loan at LIBOR plus 1.70%. Net proceeds retained after repayment of the prior loan and costs were approximately $95 million.
- Debt maturities during the remainder of 2011 totaled approximately $345.2 million, including a $68 million Paramus mortgage maturing in October 2011 and a $277.2 million Rego Park II construction loan maturing in December 2011.
- Management stated that expected operating cash flow over the next twelve months, existing cash balances and financing sources should be adequate for operations, dividends, debt amortization and recurring capital expenditures. The filing does not provide formal earnings or FFO guidance.
- Six-month financing cash flow was positive $57.2 million, reflecting $250 million of borrowings, partly offset by $157.1 million of debt repayments, $30.6 million of dividends and $4.4 million of debt issuance costs.
Outlook, Risks, Contingencies and Unusual Items
- Performance depends on occupancy and rental rates, tenant credit quality, local and national economic conditions, capital availability, interest rates, construction costs, regulation and the ability to refinance maturing debt.
- Bloomberg L.P. represented 33% of six-month revenue, creating significant tenant concentration. No other tenant represented more than 10% of revenue.
- The company formed Fifty Ninth Street Insurance Company, LLC to provide terrorism and NBCR coverage. The company remains responsible for losses borne by the captive insurer, deductibles and losses exceeding insurance coverage.
- An oil-spill remediation at Kings Plaza is ongoing. Estimated aggregate costs are approximately $2.5 million; $500,000 had been paid and the remainder was covered by insurance.
- The company settled the Flushing property litigation for $2.4 million in June 2011 and reversed $807,000 of its prior litigation accrual.
- Approximately $8.0 million of standby letters of credit were outstanding at June 30, 2011. Ordinary-course legal proceedings were not expected to have a material aggregate effect.
- The Paramus lease includes a 2021 purchase option for $75 million. If exercised, the company expects approximately $7 million of net cash proceeds and an approximately $62 million gain; if not exercised, the lease rent structure changes to provide debt amortization over the remaining term.
- The interim financial statements were reviewed, not audited, by Deloitte & Touche LLP. Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Verify refinancing and repayment plans for the approximately $345.2 million of debt maturing during the remainder of 2011.
- Assess exposure to variable interest rates and the effect of higher LIBOR on debt service and earnings.
- Monitor Bloomberg’s lease, financial condition and contribution to revenue.
- Separate recurring operating performance from the $2.464 million of unusual second-quarter benefits.
- Review occupancy, leasing progress and stabilization at Kings Plaza, Rego Park I and Rego Park II.
- Confirm the status and insurance recovery of the Kings Plaza environmental remediation.
- Review related-party fees and balances with Vornado, including $41.9 million of leasing fees and $1.4 million of management and property-service fees owed at June 30, 2011.