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 June 30, 2006.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2006 | Six Months Ended June 30, 2006 |
|---|---|---|
| Total Revenues | $49,371,000 | $97,747,000 |
| Net Income | $36,851,000 | $17,994,000 |
| Diluted EPS | $7.25 | $3.54 |
| Funds from Operations (FFO) | $42,265,000 ($8.31/share) | $28,683,000 ($5.64/share) |
| Cash and Cash Equivalents | $614,357,000 (as of June 30, 2006) | |
| Total Debt | ||
| Weighted Average Debt Rate | 5.80% (Fixed Rate) |
Material Changes vs. Prior Period
- Net Income Volatility: Net income for the quarter ended June 30, 2006, increased significantly to $36.9 million from $17.5 million in the prior year quarter. This was driven by a $14.7 million reversal of Stock Appreciation Rights (SARs) expense and an $8.2 million after-tax gain on condominium sales. Conversely, net income for the six-month period decreased to $18.0 million from $48.7 million in the prior year, primarily due to a $22.9 million accrual for SARs expense and lower condominium sales gains compared to the prior year.
- Revenue Growth: Total revenues increased 8% for the quarter and 9% for the six-month period compared to the prior year, driven by new tenants at the 731 Lexington Avenue property and increased expense reimbursements.
- Operating Expenses: Operating expenses rose 27% for the quarter and 26% for the six-month period, largely due to costs at 731 Lexington Avenue not fully recoverable under base year leases.
- Interest Income: Interest and other income surged 244% for the quarter and 339% for the six-month period, attributed to higher average cash balances and increased investment yields.
Outlook, Risks, and Unusual Items
- Unusual Items: Results are heavily influenced by non-recurring items, specifically the reversal or accrual of SARs compensation expense and gains from the sale of residential condominiums at 731 Lexington Avenue. All 105 units at this property were sold and closed as of June 30, 2006.
- Development Projects: The company plans to construct a 120,000 sq. ft. building at Kings Plaza for Lowe's (expected 2007 commencement) and is developing a mixed-use project at Rego Park II. There is no assurance these projects will be completed on time or within budget.
- Legal and Environmental Contingencies:
- Kings Plaza: Ongoing environmental remediation for soil/groundwater contamination. A new oil spill was discovered in July 2006; costs are currently undetermined but not expected to be material.
- Flushing Property: Litigation regarding a non-refundable deposit from a failed property purchase. The company is defending against a claim for specific performance or return of the deposit.
- Insurance Risk: The Terrorism Risk Insurance Extension Act of 2005 expires in 2007. Failure to extend this act or inability to obtain equivalent coverage could adversely affect financing and portfolio expansion.
Investor Verification Checklist
- SARs Expense Impact: Verify the sustainability of earnings by excluding the volatile Stock Appreciation Rights (SARs) expense reversals and accruals.
- Condominium Sales Completion: Confirm that the 731 Lexington Avenue condominium sales are fully closed and that future gains from this asset are negligible.
- Debt Maturity Profile: Review the maturity dates of the $1.075 billion in fixed-rate debt, noting the earliest maturity is June 2009 (Rego Park I).
- Environmental Liabilities: Monitor the status of the Kings Plaza oil spill investigation and potential additional remediation costs.
- Tenant Concentration: Note that Bloomberg L.P. accounted for 35% of consolidated revenues in the first six months of 2006.