Business Context and Reporting Period
Alexander's, Inc. (NYSE: ALX) 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 fiscal year ended December 31, 2009.
The portfolio consists of seven properties, including the 731 Lexington Avenue office/retail building (anchored by Bloomberg L.P.), Kings Plaza Regional Shopping Center, Rego Park I and II shopping centers, and land parcels in Paramus, NJ, and Flushing, NY. The company operates in a highly competitive environment and faces risks related to economic recession, tenant concentration, and refinancing.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenues | $223,529,000 | $211,097,000 |
| Net Income (Attributable to Alexander's) | $132,190,000 | $76,288,000 |
| Diluted EPS | $25.89 | $14.96 |
| Funds from Operations (FFO) | $158,960,000 | $99,916,000 |
| FFO per Diluted Share | $31.14 | $19.60 |
| Total Debt Outstanding | $1,278,964,000 | $1,221,255,000 |
| Cash and Cash Equivalents | $412,734,000 | $515,940,000 |
| Debt to Enterprise Value Ratio | 52.8% | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by approximately 5.9% to $223.5 million, driven primarily by the placement of anchor tenants (Costco, Century 21, Kohl's) into service at the Rego Park II development.
- Net Income Surge: Net income increased significantly by 73% to $132.2 million. This increase was largely non-operational, driven by:
- A $42.5 million income reversal due to the expiration of the statute of limitations on a liability for income taxes.
- A $34.3 million reversal of previously recognized Stock Appreciation Rights (SARs) compensation expense.
- Operating Expenses: Decreased by $3.8 million to $73.3 million, primarily due to a $3.7 million write-off of receivables related to Circuit City in 2008 that did not recur.
- Interest Expense: Decreased by $4.5 million to $58.0 million, aided by the tax liability reversal and lower interest rates on refinanced debt (Rego Park I) and construction loans.
Guidance, Outlook, and Risks
- Dividend Policy: The company expects taxable income in 2010 to exceed its remaining Net Operating Loss (NOL) carryover of $16.9 million. Consequently, Alexander's expects to pay a dividend in 2010 sufficient to meet the 90% REIT distribution requirement.
- Development Outlook: The Rego Park II project is 67% complete with $367 million expended against a $410 million budget. Completion is expected to be funded by existing construction loans maturing in December 2010.
- Key Risks:
- Tenant Concentration: Bloomberg L.P. accounted for 35% of consolidated revenues in 2009. Loss of this tenant would materially impact results.
- Refinancing Risk: Significant debt maturities are scheduled for 2010 and 2011 (including $266 million for Rego Park II and $183 million for Kings Plaza). The company notes that continued uncertainty in credit markets may impact the ability to refinance on acceptable terms.
- Environmental: An oil spill at Kings Plaza requires ongoing remediation with estimated costs of $2.5 million (partially insured).
Investor Verification Checklist
- Non-Recurring Income: Verify the sustainability of earnings by excluding the $76.8 million in one-time gains (tax liability reversal and SARs reversal) from the 2009 net income.
- Debt Maturity Wall: Assess the refinancing risk for the $266 million Rego Park II construction loan and $183 million Kings Plaza mortgage maturing in late 2010 and mid-2011, respectively.
- Bloomberg Dependency: Monitor the lease status and financial health of Bloomberg L.P., which represents over one-third of total revenue.
- Rego Park II Completion: Track the remaining $43 million construction budget and the timeline for full occupancy to ensure projected cash flows materialize.
- Dividend Requirement: Confirm the 2010 taxable income calculation to ensure the company can meet the 90% REIT distribution mandate without depleting cash reserves.