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, which also owns 32.4% of Alexander's outstanding common stock. This filing covers the quarterly period ended March 31, 2010.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $58,544,000 | $53,090,000 |
| Net Income Attributable to Alexander's | $15,114,000 | $46,054,000 |
| Net Income Per Share (Diluted) | $2.96 | $9.03 |
| Funds from Operations (FFO) Per Diluted Share | $4.39 | $10.12 |
| Net Cash Provided by Operating Activities | $24,392,000 | $5,762,000 |
| Total Debt | $1,253,369,000 | $1,278,964,000 |
| Cash and Cash Equivalents | $429,519,000 | $412,734,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by $5,454,000 (10.3%) year-over-year. Property rentals rose $4,018,000, primarily due to anchor tenants at the Rego Park II property coming into service. Expense reimbursements increased $1,436,000 due to higher real estate taxes and energy plant costs.
- Net Income Decline: Net income attributable to common stockholders decreased significantly to $15.1 million from $46.1 million. The prior year's results were artificially inflated by a one-time reversal of $34,275,000 in Stock Appreciation Rights (SARs) compensation expense.
- Operating Expenses: Operating expenses remained relatively flat, increasing only $21,000. However, depreciation and amortization increased by $1,730,000 due to the Rego Park II development.
- Debt Reduction: Total debt decreased by $25,595,000. This included a $27,500,000 open market purchase of Kings Plaza debt, which resulted in a $1,238,000 net loss on early extinguishment of debt.
- Cash Flow: Net cash provided by operating activities improved substantially to $24.4 million from $5.8 million, driven by higher net income (excluding the non-cash SARs reversal) and changes in working capital.
Guidance, Outlook, and Risks
- Dividends: On April 29, 2010, the company declared a quarterly dividend of $2.50 per share, payable May 24, 2010. This indicates an annual rate of $10.00 per share. The company anticipates cash from operations and existing balances will fund operations and distributions for the next 12 months.
- Development Progress: The Rego Park II project is 74% in service and 100% leased to anchor tenants (Costco, Century 21, Kohl's). As of March 31, 2010, $379 million of the $410 million budget had been expended. A new lease for 47,000 sq. ft. to Toys "R" Us was signed on April 5, 2010.
- Concentration Risk: Bloomberg L.P. accounted for approximately 35% of consolidated revenues in Q1 2010. No other tenant exceeded 10%.
- Legal and Environmental: The company is defending a lawsuit regarding a non-refundable deposit from a failed 2002 property sale (Flushing Property). Additionally, an oil spill remediation at Kings Plaza is ongoing with estimated costs of $2.5 million, partially covered by insurance.
- Market Risk: The company has exposure to interest rate fluctuations. Approximately $314.5 million of debt is variable rate. A 1% increase in base rates would impact diluted earnings per share by $0.62.
Investor Verification Checklist
- SARs Reversal Impact: Verify the non-recurring nature of the $34.3 million income in Q1 2009 to accurately assess year-over-year operational performance.
- Rego Park II Completion: Monitor the completion timeline and final costs of the Rego Park II project, as $31 million remains in the budget.
- Bloomberg Concentration: Assess the risk associated with Bloomberg L.P. representing 35% of total revenue.
- Debt Maturities: Review the maturity schedule, specifically the $272 million Rego Park II construction loan maturing in December 2010 and the $155 million Kings Plaza mortgage maturing in June 2011.
- Dividend Sustainability: Confirm that taxable income levels support the declared $10.00 annual dividend rate given the REIT distribution requirements.