Business Context and Reporting Period
Alexander's, Inc. is a real estate investment trust (REIT) engaged in leasing, managing, developing, and redeveloping properties, primarily managed by Vornado Realty Trust. This Form 10-Q covers the quarterly period ended September 30, 2004, and the nine-month period ended on the same date. The Company's operations are heavily focused on the development of the 731 Lexington Avenue multi-use building in New York City.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2004 | Nine Months Ended Sep 30, 2004 | Nine Months Ended Sep 30, 2003 |
|---|---|---|---|
| Total Revenues | $38,835,000 | $107,399,000 | $59,781,000 |
| Net Loss | $(11,693,000) | $(32,162,000) | $(13,152,000) |
| Net Loss Per Share (Basic/Diluted) | $(2.33) | $(6.42) | $(2.63) |
| Funds from Operations (FFO) | $(7,908,000) | $(20,969,000) | $(8,106,000) |
| Cash and Cash Equivalents | $126,750,000 | $126,750,000 (End of Period) | $20,660,000 (End of Period) |
| Total Debt | $933,979,000 | $933,979,000 | $731,485,000 |
| Stockholders' Equity | $19,605,000 | $19,605,000 | $50,923,000 |
Note: All amounts in thousands except per share data.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased significantly, driven by the commencement of rent recognition for space delivered at 731 Lexington Avenue. Property rentals rose from $12.5 million to $29.0 million in the quarter and from $38.3 million to $80.7 million for the nine-month period.
- Increased Net Loss: Despite revenue growth, the net loss widened for the nine-month period (from $13.2 million to $32.2 million). This was primarily due to a $63.3 million accrual for Stock Appreciation Rights (SARs) compensation expense and a $3.1 million write-off of unamortized deferred debt expense.
- Debt Expansion: Total debt increased by approximately $202.5 million to $934.0 million. This reflects the closing of a $400 million mortgage financing on the 731 Lexington Avenue office space, partially offset by repayments of the previous construction loan.
- Liquidity Improvement: Cash and cash equivalents increased from $21.3 million at year-end 2003 to $126.8 million at September 30, 2004, largely due to net proceeds from financing activities ($199.9 million).
Outlook, Risks, and Unusual Items
- Unusual Items:
- SARs Expense: A significant non-cash charge of $63.3 million for the nine months ended September 30, 2004, related to the increase in the Company's stock price.
- Gain on Sale: A $3.9 million gain was recognized from the sale of 1.29 acres of land in White Plains, New York.
- Debt Write-off: A $3.1 million write-off of unamortized deferred debt expense occurred in Q1 2004 due to the reduction of the construction loan principal.
- Development Status: Construction of 731 Lexington Avenue is expected to be completed in 2005. As of September 30, 2004, $468.9 million of the $630 million budget had been expended. The project includes office, retail, and 105 residential condominium units.
- Risks and Contingencies:
- Completion Risk: There is no assurance the 731 Lexington Avenue project will be completed on time or within budget.
- Legal Proceedings: A dispute exists regarding a $1.875 million non-refundable deposit from a failed purchase contract for the Flushing property. The Company believes it is not entitled to return the deposit but faces potential litigation.
- Environmental: Ongoing remediation is required at the Kings Plaza Regional Shopping Center for soil and groundwater contamination. The Company has accrued $2.675 million for this obligation.
- Insurance: The Company relies on the Terrorism Risk Insurance Act of 2002 for coverage. Lenders may declare a default if coverage is excluded or unavailable in the future.
Investor Verification Checklist
- 731 Lexington Avenue Completion: Verify the timeline and budget adherence for the completion of the 731 Lexington Avenue project, as delays could materially impact cash flows.
- SARs Liability: Monitor the liability for stock appreciation rights, which stood at $108.2 million as of September 30, 2004, and its potential impact on future liquidity if exercised.
- Debt Covenants: Review debt covenants regarding insurance requirements, specifically concerning terrorism coverage, and the potential for acceleration of debt.
- Condominium Sales: Track the progress of condominium unit sales at 731 Lexington Avenue, as proceeds are required to be applied to the construction loan balance.
- Flushing Property Litigation: Monitor the status of the legal dispute regarding the $1.875 million deposit from the Flushing property buyer.