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 summary covers the fiscal year ended December 31, 2006.
The portfolio consists of seven properties, including the 731 Lexington Avenue multi-use building in Manhattan, Kings Plaza Regional Shopping Center in Brooklyn, Rego Park I in Queens, and land holdings in Paramus, NJ, and Flushing, Queens. Two additional properties (Rego Park II and III) are under development or planned for development.
Key Financial Metrics
| Metric | 2006 | 2005 |
|---|---|---|
| Total Revenues | $198,772,000 | $187,085,000 |
| Net (Loss) Income | $(74,983,000) | $82,241,000 |
| Funds from Operations (FFO) | $(53,242,000) | $102,037,000 |
| Net Cash Provided by Operating Activities | $56,844,000 | $(6,119,000) |
| Total Debt Outstanding | $1,068,498,000 | $1,079,465,000 |
| Cash and Cash Equivalents | $615,516,000 | $578,406,000 |
| Stockholders' Equity | $27,182,000 | $101,324,000 |
Debt Profile: Total debt to total enterprise value was 41.6% at year-end. All debt is fixed-rate with a weighted average interest rate of 5.80%.
Material Changes vs. Prior Period
- Net Loss vs. Net Income: The company reported a net loss of $74.98 million in 2006 compared to net income of $82.24 million in 2005. This reversal was primarily driven by a non-cash accrual of $148.6 million for Stock Appreciation Rights (SARs) compensation expense.
- Revenue Growth: Total revenues increased by $11.7 million (6.3%) to $198.8 million. This was driven by increased property rentals ($137.1 million vs. $132.9 million) and expense reimbursements ($61.7 million vs. $54.1 million), largely due to new tenants at 731 Lexington Avenue.
- Operating Expenses: General and administrative expenses surged to $154.8 million from $32.4 million in 2005, almost entirely due to the SARs accrual. Property operating expenses increased by $7.1 million to $72.0 million due to the full operation of 731 Lexington Avenue and environmental remediation costs.
- Dividends: No dividends were paid in 2006 or 2005 due to the utilization of Net Operating Loss (NOL) carryovers.
Outlook, Risks, and Contingencies
- Development Projects: The company is exploring financing for the Rego Park II development, which may require over $500 million. As of year-end, 404,000 square feet of retail space had been pre-leased to Century 21, Kohl's, and Home Depot. There is no assurance the project will be completed on time or within budget.
- Environmental Matters: An oil spill was discovered at Kings Plaza in July 2006. Estimated cleanup costs are $2.5 million, with a $500,000 deductible accrued. The remainder is expected to be covered by insurance.
- Tenant Concentration: Bloomberg L.P. accounted for 34% of consolidated revenues in 2006. The loss of this tenant or deterioration in its credit quality would materially affect results.
- Related Party Transactions: Vornado Realty Trust owns 32.8% of the company's stock and manages its properties. At year-end, Alexander's owed Vornado $34.2 million for leasing fees and $1.2 million for management fees.
- Liquidity: Management anticipates cash from operations and existing balances ($615.5 million) will be adequate to fund operations and debt service for the next 12 months.
Key Facts for Investor Verification
- SARs Liability: Verify the valuation and cash settlement requirements of the $236.2 million liability for outstanding Stock Appreciation Rights, which significantly impacted net income and FFO.
- Rego Park II Financing: Confirm the status of financing arrangements for the proposed $500+ million development project.
- Bloomberg Lease: Monitor the status of the lease with Bloomberg L.P., which represents nearly one-third of total revenue.
- Environmental Costs: Track the actual costs and insurance recoveries related to the Kings Plaza oil spill remediation.
- Dividend Policy: Assess the timeline for utilizing remaining NOLs ($2.0 million) and the potential for future dividend distributions.