Business Context and Reporting Period
Alexander's, Inc. 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 filing covers the quarterly period ended March 31, 2007.
Key Financial Metrics
| Metric | Q1 2007 | Q1 2006 |
|---|---|---|
| Total Revenues | $52,196,000 | $48,376,000 |
| Net Income (Loss) | $32,176,000 | ($18,857,000) |
| Diluted EPS | $6.32 | ($3.75) |
| Funds from Operations (FFO) | $37,667,000 | ($13,582,000) |
| Cash and Cash Equivalents | $557,926,000 | $577,733,000 |
| Total Debt | $1,064,912,000 | $1,068,498,000 |
| Operating Cash Flow | ($24,560,000) | $14,041,000 |
Material Changes vs. Prior Period
- Profitability Surge: The company reported a net income of $32.2 million in Q1 2007, a significant turnaround from a net loss of $18.9 million in Q1 2006. This swing is primarily driven by a $14.3 million reversal of Stock Appreciation Rights (SARs) compensation expense in 2007, compared to a $37.6 million accrual of SARs expense in 2006.
- Revenue Growth: Total revenues increased by $3.8 million (7.9%) year-over-year. Property rentals rose by $1.0 million due to new space at 731 Lexington Avenue, while expense reimbursements increased by $2.8 million due to real estate tax reimbursements.
- Cash Flow Deterioration: Despite the reported net income, operating cash flow turned negative at ($24.6 million), down from $14.0 million in the prior year. This was largely due to a $50.5 million cash payment for SARs liabilities and changes in operating assets/liabilities.
- Debt Reduction: Total debt decreased slightly by $3.6 million to $1.065 billion, with all debt carrying fixed interest rates.
Guidance, Outlook, and Risks
- Development Projects: The company is exploring financing alternatives for the proposed Rego Park II development, a mixed-use project requiring over $500 million in funding. As of March 31, 2007, 404,000 square feet of retail space have been leased to major tenants including Century 21, Kohl's, and Home Depot.
- Stock Appreciation Rights (SARs): The company has a significant cash liability for SARs. As of March 31, 2007, the liability stood at $170.7 million. Any increase in the stock price will increase the cash payout required upon exercise.
- Insurance and Terrorism Risk: The company relies on the Terrorism Risk Insurance Extension Act of 2005, which expires in 2007. Failure to extend this act or inability to obtain equivalent coverage could adversely affect financing and refinancing capabilities.
- Environmental Contingencies: An oil spill was discovered at the Kings Plaza site in July 2006. Estimated cleanup costs are approximately $2.5 million, expected to be covered by insurance subject to a $500,000 deductible.
- Legal Proceedings: The company is defending against a lawsuit regarding a non-refundable deposit from a failed property sale (Flushing Property). Management believes the outcome will not be material.
Investor Verification Checklist
- SARs Liability Impact: Verify the sensitivity of the $170.7 million SARs liability to future stock price fluctuations and the company's ability to fund cash settlements.
- Operating Cash Flow Quality: Analyze the divergence between GAAP Net Income ($32.2M) and Operating Cash Flow (($24.6)M) to understand the cash burn related to SARs payments and working capital.
- Rego Park II Financing: Monitor progress on securing the >$500 million required for the Rego Park II development, given the lack of assurance regarding completion timing or budget.
- Terrorism Insurance Renewal: Confirm the status of the Terrorism Risk Insurance Extension Act renewal and its impact on property financing covenants.
- Tenant Concentration: Note that Bloomberg L.P. accounted for approximately 32% of consolidated revenues in Q1 2007, representing a significant concentration risk.