ALEXANDERS INC quarterly report, Q2 FY2012

Alexander’s, Inc. 2012 Second-Quarter Form 10-Q Summary

Business Context and Reporting Period

Alexander’s, Inc. is a Delaware real estate investment trust owning and operating seven properties totaling approximately 3.389 million square feet in the greater New York City metropolitan area. Vornado Realty Trust manages the company and provides leasing and development services; Vornado owned 32.4% of Alexander’s outstanding common stock as of June 30, 2012. The filing covers the three and six months ended June 30, 2012. The interim financial statements are unaudited and were reviewed by Deloitte & Touche LLP.

Key Financial Metrics

Metric	Three Months Ended June 30, 2012	Six Months Ended June 30, 2012
Total revenue	$63.6 million	$127.3 million
Operating income	$31.9 million	$64.5 million
Net income attributable to Alexander’s	$18.9 million	$38.4 million
Net income per diluted share	$3.70	$7.51
FFO attributable to common stockholders	$27.4 million, or $5.37 per share	$55.4 million, or $10.85 per share
Cash flow from operating activities	Not separately provided	$29.2 million
Dividends per common share	$3.75	$7.50

Second-quarter operating margin was approximately 50.2%; six-month operating margin was approximately 50.7%. These are calculated as operating income divided by total revenue. Cash and cash equivalents were $488.8 million at June 30, 2012, compared with $506.6 million at December 31, 2011. Restricted cash was $89.6 million.

Notes and mortgages payable totaled $1.324 billion, compared with $1.331 billion at year-end 2011. Estimated fair value of the debt was $1.386 billion. Debt maturities include $78.2 million in March 2013 and $333.7 million in February 2014. The company stated that loans may be refinanced at maturity or repaid.

Material Changes Versus Prior Comparable Period

Second-quarter revenue increased 2.5% to $63.6 million, driven primarily by a $1.7 million increase in expense reimbursements; property rentals declined slightly.
Six-month revenue increased 1.9% to $127.3 million.
Second-quarter net income attributable to Alexander’s declined 6.3%, and diluted earnings per share declined from $3.95 to $3.70. Six-month earnings per share remained $7.51.
Second-quarter FFO per share declined from $5.60 to $5.37, while six-month FFO per share increased from $10.75 to $10.85.
Operating expenses increased 6.3% for the quarter and 3.2% for the six months, primarily due to higher real estate taxes, reimbursable operating expenses and bad debt expense.
General and administrative expenses increased by approximately $1.1 million in the quarter and $1.1 million year to date, partly because the prior-year periods included an $807,000 reversal of a Flushing litigation accrual.
Interest and debt expense decreased 11.0% for the quarter and 11.3% for the six months, mainly due to lower average interest rates. The average rate declined to 3.54% from 4.19% in the quarter and to 3.58% from 4.32% for the six months.
Operating cash flow increased to $29.2 million from $24.1 million, but total cash declined by $17.8 million because dividends of $38.3 million and debt repayments of $7.4 million exceeded operating cash flow.
Occupancy increased to 98.0% at June 30, 2012, from 97.8% at December 31, 2011 and 96.8% at June 30, 2011.

Guidance, Outlook, Risks and Unusual Items

Management did not provide formal earnings guidance. Management stated that cash from operations over the next twelve months, together with existing cash balances, is expected to fund operations, dividends, debt amortization and maturities, and recurring capital expenditures.

Bloomberg L.P. represented 33% of consolidated revenue for each six-month period. The loss or financial deterioration of Bloomberg could materially affect results and financial condition.
The company is attempting to sell the 1.2 million-square-foot Kings Plaza Regional Shopping Center, but stated that no assurance exists that a sale will occur.
Interest-rate exposure includes approximately $563.4 million of variable-rate debt and amounts due to Vornado. Management estimated that a 1% change in base rates would affect annualized results by approximately $5.6 million, or $1.10 per diluted share.
Insurance coverage includes up to $1.7 billion per occurrence, but the company remains exposed to deductibles, uninsured losses and losses exceeding coverage. Certain terrorism-related losses are borne partly by the company’s captive insurer and ultimately by Alexander’s.
A Flushing-related claim seeks $50 million from a tenant, which is seeking indemnification from Alexander’s. Management believes the claim is without merit, but the reasonably possible loss cannot be estimated.
Environmental remediation at Kings Plaza is estimated at approximately $3.0 million; $500,000 has been paid and the remainder is covered by insurance.
Approximately $4.0 million of standby letters of credit were outstanding at June 30, 2012.
The company has a $68.0 million interest-only Paramus mortgage maturing in October 2018 and a 2021 purchase option held by IKEA that could produce approximately $7.0 million of net cash proceeds and an estimated $62.0 million gain if exercised.
The company adopted ASU 2011-04 on fair value measurements effective January 1, 2012. Adoption had no material effect on the financial statements.
Management reported effective disclosure controls and procedures and no material changes to internal control over financial reporting. No material changes to previously disclosed risk factors were reported.

Most Important Facts to Verify

Whether Bloomberg’s lease remains secure and whether tenant concentration has changed.
Refinancing plans and available liquidity for the March 2013 and February 2014 debt maturities.
Progress and potential proceeds from the proposed Kings Plaza sale.
Actual exposure from the Flushing litigation and Kings Plaza environmental remediation.
Sustainability of the $7.50 per-share first-half dividend relative to operating cash flow and FFO.
Changes in variable-rate debt and sensitivity to interest-rate increases.