Alexander's, Inc. 2004 Annual Report (10-K) Summary
Business Context and Reporting Period
Company: Alexander's, Inc. (a Delaware REIT managed by Vornado Realty Trust).
Reporting Period: Fiscal year ended December 31, 2004.
Operations: The Company owns and operates six properties in the greater New York City metropolitan area, including the 731 Lexington Avenue multi-use building (office, retail, and residential), Kings Plaza Regional Shopping Center, Rego Park I, Paramus (ground lease to IKEA), and Flushing (vacant). A significant portion of 2004 activity focused on the phased completion and leasing of the 731 Lexington Avenue development.
Key Financial Metrics
| Metric | 2004 | 2003 |
|---|---|---|
| Total Revenues | $148.9 million | $87.2 million |
| Net Loss | $(33.5) million | $(17.7) million |
| Net Loss Per Share | $(6.68) | $(3.55) |
| Funds From Operations (FFO) | $(18.0) million | $(10.2) million |
| FFO Per Share | $(3.60) | $(2.05) |
| Total Debt | $952.5 million | $731.5 million |
| Cash and Cash Equivalents | $128.9 million | $21.3 million |
| Stockholders' Equity | $18.4 million | $50.9 million |
Debt Profile: Total debt includes a $400 million mortgage on 731 Lexington Avenue office space (5.33%, due 2014), a $65.2 million construction loan (4.92%, due 2006), and $124 million in indebtedness to Vornado Realty Trust (9.00%, due 2006).
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 71% to $148.9 million, driven primarily by the 731 Lexington Avenue property. Property rentals rose $53.8 million, largely due to Bloomberg L.P. ($40.8 million increase) and new retail tenants (Home Depot, Hennes & Mauritz).
- Net Loss Expansion: The net loss widened to $33.5 million from $17.7 million. This was primarily due to a non-cash accrual of $76.8 million for Stock Appreciation Rights (SARs) compensation expense, compared to $44.9 million in 2003. Additionally, $3.1 million was written off for unamortized deferred debt expense.
- Expense Increases: General and administrative expenses rose $32.4 million (mostly SARs accruals). Interest and debt expense increased $26.6 million due to higher average debt balances and reduced capitalization of interest as portions of the Lexington Avenue project were placed in service.
- Balance Sheet: Total assets grew to $1.24 billion, reflecting $146.2 million in capital expenditures for the Lexington Avenue project. Stockholders' equity declined to $18.4 million due to the net loss.
Outlook, Risks, and Management Commentary
- Development Status: The 731 Lexington Avenue project is nearing completion, expected by the end of 2005. As of December 31, 2004, 100% of the office space was leased (including a new lease with Citibank signed in January 2005). Condominium sales are expected to generate approximately $38 million in after-tax income in 2005.
- Liquidity: Management anticipates cash from operations and existing balances will fund operations. Capital requirements for completing Lexington Avenue (estimated at $150 million) will be funded by cash, condominium sales proceeds, and borrowings.
- Key Risks:
- Tenant Concentration: Bloomberg L.P. and Sears accounted for 36% and 11% of 2004 revenues, respectively.
- Related Party Dependence: The Company is managed by Vornado Realty Trust, which owns 33% of the Company's stock. The Company owes Vornado $124 million in debt and significant fees for management, leasing, and development.
- Environmental: Ongoing remediation at Kings Plaza Regional Shopping Center for petroleum and phthalate contamination. An accrual of $2.7 million exists, with $2.55 million paid as of year-end.
- Construction Risk: Failure to complete the Lexington Avenue project on time or within budget could adversely affect cash flows.
- Dividends: No dividends were paid in 2004. The Company has Net Operating Loss (NOL) carryovers of approximately $49.2 million, which offset taxable income and reduce the requirement to distribute dividends to maintain REIT status.
Investor Verification Checklist
- SAR Liability: Verify the cash impact of the $121.7 million liability for Stock Appreciation Rights, which are settled in cash and could strain liquidity if exercised.
- Lexington Avenue Completion: Monitor the timeline and budget adherence for the 731 Lexington Avenue project, as delays could trigger Vornado's completion guarantee and increase costs.
- Condominium Sales: Track the closing of the 83 condominium units under contract to confirm the projected $38 million income recognition in 2005.
- Debt Maturities: Review the $124 million Vornado debt and $65 million construction loan maturing in January 2006 to assess refinancing needs.
- Tenant Concentration: Assess the financial health of major tenants Bloomberg L.P. and Sears, given their combined 47% revenue contribution.