Alexander’s, Inc. 10-Q Summary
Business Context and Reporting Period
Alexander’s, Inc. is a New York metropolitan-area REIT engaged in leasing, managing, developing and redeveloping six properties totaling approximately 2.179 million square feet. Vornado Realty Trust owns 32.4% of the outstanding common stock and provides management, leasing and development services. This unaudited Form 10-Q covers the three and six months ended June 30, 2013.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2013 | Three Months Ended June 30, 2012 | Six Months Ended June 30, 2013 | Six Months Ended June 30, 2012 |
|---|---|---|---|---|
| Total revenues | $47.3 million | $46.9 million | $96.1 million | $94.2 million |
| Operating income | $23.9 million | $23.8 million | $48.8 million | $48.3 million |
| Income from continuing operations | $13.1 million | $12.6 million | $27.3 million | $25.6 million |
| Net income attributable to Alexander’s | $13.1 million | $18.9 million | $27.3 million | $38.4 million |
| FFO attributable to common stockholders | $20.3 million | $27.4 million | $41.7 million | $55.4 million |
| FFO per diluted share | $3.98 | $5.37 | $8.15 | $10.85 |
Operating margins were approximately 50.5% for the quarter and 50.8% for the six-month period. Continuing-operations net margins were approximately 27.8% and 28.4%, respectively.
- Property occupancy was 99.2% at June 30, 2013, compared with 99.1% at December 31, 2012.
- Cash and cash equivalents were $331.9 million at June 30, 2013, compared with $353.4 million at December 31, 2012. Restricted cash was $89.0 million and marketable securities were $32.6 million.
- Net cash provided by operating activities was $16.3 million, compared with $29.2 million in the prior-year period. Capital expenditures were $3.2 million.
- Net cash used in financing activities was $36.1 million, including $28.1 million of dividends and $7.9 million of debt repayments.
- Mortgages payable totaled $1.058 billion, compared with $1.066 billion at December 31, 2012. Estimated fair value of consolidated debt was $1.145 billion.
- Dividends were $2.75 per common share for the quarter and $5.50 per share for the six-month period.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased $0.4 million, or approximately 0.9%; six-month revenue increased $1.9 million, or approximately 2.0%.
- Income from continuing operations increased $0.6 million for the quarter and $1.7 million for the six-month period, primarily reflecting higher revenues, increased interest and other income, and lower interest expense.
- Net income and FFO declined materially because the prior-year periods included Kings Plaza, which was sold in November 2012. Kings Plaza contributed $6.7 million of discontinued-operation income in the 2012 quarter and $13.1 million in the 2012 six-month period.
- FFO declined 25.9% year over year for the quarter and 24.9% for the six-month period; excluding the prior-year Kings Plaza contribution, the underlying comparison is less unfavorable.
- Operating expenses increased $0.3 million for the quarter and $1.3 million for the six-month period, principally due to higher real estate taxes, partially offset by lower reimbursable and non-reimbursable expenses.
- Interest and other income increased by $0.4 million for the quarter and $0.7 million for the six-month period, primarily due to dividend income from Macerich shares received in the Kings Plaza sale.
- Unrealized gains and losses on Macerich shares increased accumulated other comprehensive income by $1.4 million for the six-month period, while the second quarter included a $1.8 million unrealized loss.
Guidance, Outlook, Risks and Unusual Items
- Management expects cash flows from continuing operations, together with existing cash, to fund operations, dividends, debt amortization and maturities, and recurring capital expenditures over the next twelve months. No debt matures in 2013; $320.9 million is scheduled to mature in February 2014.
- The company has commenced construction of an approximately 300-unit, 250,000-square-foot apartment tower above Rego Park II. Expected capital expenditures are approximately $125 million, with no assurance of completion on schedule or within budget.
- Bloomberg accounted for $43.3 million, or 45%, of six-month revenue. Loss of Bloomberg or its inability to perform under its lease would materially affect results and financial condition.
- Interest-rate exposure includes approximately $315.4 million of variable-rate debt and obligations. Management estimates that a 1% increase in base rates would reduce annual earnings by approximately $3.2 million, or $0.62 per diluted share.
- The company has insurance coverage limits of up to $1.7 billion for property and rental-value risks, but remains exposed to deductibles, uninsured losses and the inability to renew coverage on commercially reasonable terms.
- An appeal remains pending in litigation involving the Flushing property; management states that any reasonably possible loss cannot be estimated.
- Approximately $4.1 million of standby letters of credit were outstanding at June 30, 2013. The filing reports no material changes to previously disclosed risk factors.
- Vornado-related fees totaled $1.9 million in the quarter and $3.9 million in the six-month period; amounts due to Vornado were $44.9 million at June 30, 2013.
Most Important Facts for Investors to Verify
- Refinancing or repayment plans and available liquidity for the $320.9 million mortgage maturity in February 2014.
- Construction progress, total cost and expected returns for the Rego Park II apartment tower.
- Bloomberg’s lease terms, credit condition and concentration of company revenue.
- Actual operating cash flow after considering prepaid real estate taxes and other working-capital movements.
- Dividend sustainability relative to recurring cash flow and FFO after the Kings Plaza sale.
- Interest-rate sensitivity, variable-rate debt exposure and the effect of future refinancing costs.
- Status and potential exposure from the Flushing litigation and insurance coverage limitations.