ALX

Business Context and Reporting Period

Alexander's, Inc. (NYSE: ALX) is a real estate investment trust (REIT) incorporated in Delaware, engaged in leasing, managing, developing, and redeveloping properties in the greater New York City metropolitan area. The company is managed by Vornado Realty Trust. This Form 10-Q covers the quarterly period ended September 30, 2010, and the nine-month period ended on the same date.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 5.1% for the quarter and 7.6% for the nine months compared to the prior year periods. This was primarily driven by new tenants at the Rego Park II property coming into service.
• Net Income Decline: Net income attributable to common stockholders decreased significantly compared to the prior year (down 69% for the quarter and 59% for the nine months). This decline is largely due to the absence of a $34.3 million reversal of stock appreciation rights (SARs) expense recorded in 2009 and a smaller reversal of income tax liabilities in 2010 compared to 2009.
• Operating Expenses: Operating expenses increased due to higher reimbursable costs and real estate taxes, partially offset by a decrease in non-reimbursable expenses.
• Interest Expense: Interest and debt expense increased for the quarter and nine months, driven by interest related to income tax liabilities and lower capitalized interest as portions of the Rego Park II project were placed in service.

Outlook, Risks, and Unusual Items

• Unusual Items:
  • Income Tax Reversal: The company recognized $5.1 million of income in the quarter and nine months ended September 30, 2010, from the reversal of income tax liabilities due to the expiration of the statute of limitations. This is significantly lower than the $42.5 million reversal in the same period in 2009.
  • Litigation Loss: A $3.1 million litigation loss accrual was recorded in the third quarter of 2010 related to the Flushing property dispute, following a court judgment ordering the return of a deposit plus interest and fees. The company has filed an appeal.
  • Debt Extinguishment: A net loss of $1.2 million was recorded in the nine months ended September 30, 2010, from the early extinguishment of Kings Plaza debt.
• Development Project: The Rego Park II shopping center is 89% in service and 100% leased. $379 million has been expended against a $410 million budget. The construction loan matures in December 2010 with a one-year extension option.
• Concentration Risk: Bloomberg L.P. accounted for 35% of consolidated revenues in the nine months ended September 30, 2010. Loss of this tenant would materially adversely affect results.
• Dividends: The company paid quarterly dividends of $2.50 per share in the first half of 2010, indicating an annual rate of $10.00 per share. To maintain REIT status, the company must distribute at least 90% of taxable income.

Investor Verification Checklist

• Rego Park II Completion: Verify the timeline and funding status for the remaining construction costs to complete the Rego Park II project, given the December 2010 loan maturity.
• Bloomberg Lease Status: Monitor the financial health and lease compliance of Bloomberg L.P., which represents 35% of revenue.
• Flushing Property Litigation: Track the status of the appeal regarding the $3.1 million litigation loss and potential additional liabilities.
• Debt Refinancing: Assess the company's ability to refinance or extend the Rego Park II construction loan and the Kings Plaza mortgage maturing in June 2011.
• Tax Liability Reversals: Understand the non-recurring nature of the income tax benefit reversals and their impact on year-over-year earnings comparisons.