Business Context and Reporting Period
Alexander's, Inc. filed its Form 10-Q for the quarterly period ended June 30, 1999. The company is a real estate investment trust (REIT) managed by Vornado Realty Trust, which owns 29.3% of the company's common stock. Alexander's operates and redevelops retail properties, including the Kings Plaza Mall, which was fully consolidated following the acquisition of the remaining 50% interest in June 1998.
Key Financial Metrics
| Metric | Six Months Ended June 30, 1999 | Six Months Ended June 30, 1998 |
|---|---|---|
| Total Revenues | $32,660,000 | $17,480,000 |
| Net Income | $3,811,000 | $2,038,000 |
| Net Income Per Share (Basic) | $0.76 | $0.41 |
| Operating Cash Flow | $10,569,000 | $32,000 |
| Total Debt | $273,807,000 | $277,113,000 |
| Cash and Cash Equivalents | $15,109,000 | $21,014,000 |
| Funds from Operations | $6,825,000 | $1,401,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 87% year-over-year, driven primarily by the consolidation of the Kings Plaza Mall operations and new tenant leases. Property rentals rose from $12.35 million to $22.15 million.
- Profitability: Net income increased by 87% to $3.81 million. Operating income rose to $11.66 million from $8.54 million.
- Expense Increases: Operating expenses increased significantly to $16.45 million (from $5.01 million) due to the consolidation of Kings Plaza Mall. This included a one-time $3.0 million write-off of an asset related to the straight-lining of rents after tenant Caldor rejected its lease.
- Cash Flow: Operating cash flow improved dramatically to $10.57 million from $32,000, aided by the non-cash write-off adjustment and higher net income.
Guidance, Outlook, and Risks
- Liquidity and Capital Needs: Current operating properties do not generate sufficient cash flow to cover all expenses. The company relies on redevelopment projects (Paramus, Lexington Avenue, Rego Park II) to generate future positive cash flow. Estimated capital requirements are $100 million for Paramus and over $300 million for Lexington Avenue.
- Financing Activity: In May 1999, the company refinanced its Rego Park I property with an $82 million loan. In August 1999, it increased availability on its Kings Plaza Mall mortgage by $30 million to fund renovations and pay liabilities to Federated Department Stores.
- Environmental Contingency: The Kings Plaza Mall site has soil and groundwater contamination. The company has accrued $2.0 million for remediation but faces potential additional costs if the NYDEC requires a more extensive approach. Recovery from third parties is uncertain.
- Tenant Risk: The closure of Caldor stores resulted in the rejection of the Flushing lease, causing a $3.0 million write-off and loss of $2.96 million in annual base rental.
- Market Risk: The company has $126.8 million in variable-rate debt. A 1% increase in interest rates would reduce annual net income by approximately $1.27 million.
Investor Verification Checklist
- Verify the status of the Kings Plaza Mall environmental remediation and potential additional costs beyond the $2.0 million accrual.
- Confirm the timeline and financing availability for the $100 million Paramus and $300 million Lexington Avenue redevelopment projects.
- Monitor the leasing status of the Flushing property following the Caldor lease rejection.
- Review the terms of the $45 million subordinated loan due to Vornado Realty Trust and its impact on liquidity.
- Assess the company's ability to service its $273.8 million debt load given that current operating properties are not yet cash-flow positive.