ALX

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 filing covers the quarterly period ended September 30, 2007.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Surge: Net income for the nine months ended September 30, 2007, was $80.4 million, a dramatic turnaround from a net loss of $0.6 million in the same period in 2006. The third quarter alone saw net income of $28.6 million compared to a loss of $18.6 million in Q3 2006.
• Stock Appreciation Rights (SARs) Impact: The primary driver of the income improvement was a reversal of SARs compensation expense of $27.4 million for the nine months of 2007 (and $9.4 million for the quarter), compared to an accrual of $55.6 million in the prior year. This reversal was due to a decline in the company's stock price relative to previous periods.
• Revenue Growth: Total revenues increased 4.8% year-over-year for the nine-month period ($155.7 million vs. $148.5 million), driven by lease-ups at 731 Lexington Avenue and the commencement of a ground lease with Lowe's at Kings Plaza.
• Cash Position: Cash and cash equivalents decreased by $85.9 million to $529.6 million, primarily due to $84.7 million in net cash used for investing activities (capital expenditures) and $9.9 million used in financing activities.

Guidance, Outlook, and Risks

• Development Projects: Construction has commenced on the Rego Park II mixed-use project, estimated to cost $400 million for the retail portion, with completion expected in 2009. The company is exploring financing alternatives for this project.
• Significant Tenants: Bloomberg L.P. accounted for approximately 31% of consolidated revenues in the first nine months of 2007. No other tenant exceeded 10%.
• Contingencies and Risks:
  • Insurance: The Terrorism Risk Insurance Extension Act of 2005 expires in 2007. Failure to extend it could adversely affect the company's ability to finance or refinance properties.
  • Environmental: An oil spill was discovered at the Kings Plaza site in July 2006. Estimated cleanup costs are approximately $2.5 million, expected to be covered by insurance subject to a $500,000 deductible.
  • Legal: The company is defending against a lawsuit regarding a non-refundable deposit from a failed property purchase contract in Flushing, though management does not believe the party is entitled to the deposit.
• Accounting Changes: The company adopted FIN 48 (Accounting for Uncertainty in Income Taxes) on January 1, 2007, resulting in a $6.98 million reduction to retained earnings.

Investor Verification Checklist

• SARs Volatility: Verify the sustainability of earnings given that the $27.4 million expense reversal was driven by stock price fluctuations rather than operational cash generation.
• Rego Park II Financing: Confirm the status of financing arrangements for the $400 million Rego Park II development, as the company is currently exploring alternatives.
• Terrorism Insurance: Monitor the status of the Terrorism Risk Insurance Extension Act and its potential impact on debt covenants and refinancing capabilities.
• Concentration Risk: Assess the risk associated with Bloomberg L.P. representing nearly one-third of total revenues.
• Capital Expenditures: Review the $80.6 million in capital expenditures for the nine-month period to ensure alignment with development timelines and cash flow projections.