ALX

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 quarterly period ended June 30, 2010.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $9.7 million (9%) compared to the prior year, driven primarily by new tenants at the Rego Park II property and higher expense reimbursements.
• Net Income Decline: Net income attributable to common stockholders decreased significantly by approximately 48% year-over-year. This decline is largely attributable to a one-time $34.3 million reversal of stock appreciation rights (SARs) compensation expense recorded in the first half of 2009, which did not recur in 2010.
• FFO Decline: FFO decreased by approximately 36% year-over-year, also primarily due to the absence of the 2009 SARs reversal.
• Debt Reduction: Total debt decreased by $19.1 million, reflecting the open market purchase of $27.5 million of Kings Plaza debt (resulting in a $1.2 million loss on extinguishment) and regular amortization.
• Cash Flow Improvement: Net cash provided by operating activities increased substantially to $40.5 million from $12.4 million in the prior year, reflecting stronger operational cash generation absent of the large SARs cash payment made in 2009.

Outlook, Risks, and Unusual Items

• Dividends: The company paid its first quarterly dividend of $2.50 per share in May 2010, indicating an annualized rate of $10.00 per share. Management anticipates cash from operations will be adequate to fund dividends and operations.
• Rego Park II Development: The 600,000 sq. ft. shopping center is 83% in service and 100% leased. $385 million has been expended against a $410 million budget. The construction loan matures in December 2010 with a one-year extension option.
• Significant Tenant Concentration: Bloomberg L.P. accounted for 35% of consolidated revenues in the first six months of 2010. Loss of this tenant would materially adversely affect results.
• Unusual Items: The 2009 period included a $34.3 million non-cash gain from the reversal of SARs liability and a $1.4 million write-off of capitalized costs at the Flushing property. The 2010 period included a $1.2 million loss on early extinguishment of debt.
• Contingencies: The company is defending a lawsuit regarding a non-refundable deposit from a failed property sale (Flushing Property) but does not believe a loss is probable. An environmental remediation plan for an oil spill at Kings Plaza is ongoing, with estimated costs of $2.5 million (mostly covered by insurance).

Investor Verification Checklist

• Bloomberg Lease Status: Verify the financial health and lease compliance of Bloomberg L.P., given its 35% revenue contribution.
• Rego Park II Completion: Monitor the completion timeline and final cost of the Rego Park II project to ensure it stays within the $410 million budget and that the construction loan is refinanced or extended before the December 2010 maturity.
• Debt Maturities: Review the schedule for debt maturities, specifically the $153.5 million Kings Plaza mortgage due in June 2011 and the $68 million Paramus mortgage due in October 2011.
• Dividend Sustainability: Assess whether operating cash flows will consistently support the new $10.00 annualized dividend rate in the absence of one-time gains.
• Vornado Fees: Note the significant fees paid to Vornado Realty Trust for management, development, and leasing, which impact net margins.