Business Context and Reporting Period
Alexander's, Inc. filed its Form 10-Q for the quarterly period ended March 31, 1999. The company is a real estate investment trust (REIT) managed by Vornado Realty Trust, which owns 29.3% of the company's common stock. Alexander's operates and redevelops shopping centers, with a significant portion of its portfolio currently undergoing redevelopment (Lexington Avenue, Paramus, and Rego Park II).
Key Financial Metrics
| Metric | Q1 1999 | Q1 1998 |
|---|---|---|
| Total Revenues | $16,623,000 | $8,007,000 |
| Net Income | $1,475,000 | $922,000 |
| Earnings Per Share (Basic/Diluted) | $0.29 | $0.18 |
| Operating Income | $5,310,000 | $4,323,000 |
| Funds from Operations (FFO) | $4,679,000 | $563,000 |
| Cash Flow from Operations | $3,862,000 | $13,897,000 |
| Total Debt | $276,962,000 | $277,113,000 (Dec 31, 1998) |
| Cash and Cash Equivalents | $15,076,000 | $15,363,000 (Dec 31, 1998) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 108% to $16.6 million. This was driven primarily by the acquisition of the remaining 50% interest in Kings Plaza Mall in June 1998, resulting in full consolidation of its operations. Property rentals rose from $5.6 million to $11.4 million.
- Expense Increases: Operating expenses surged to $9.0 million from $2.0 million. This includes $4.1 million attributable to the Kings Plaza consolidation and a $3.0 million non-cash write-off of an asset related to the straight-lining of rents after tenant Caldor rejected its lease.
- Cash Flow Volatility: Operating cash flow decreased significantly to $3.9 million from $13.9 million in the prior year. The 1998 figure included a one-time $14.7 million cash inflow from the condemnation of a portion of the Paramus property, which did not recur in 1999.
- Debt Refinancing: On May 12, 1999 (post-period), the company refinanced its Rego Park I property with an $82 million loan at 7.25% interest, repaying the existing $75 million debt.
Outlook, Risks, and Management Commentary
- Liquidity and Capital Needs: Management notes that current operating properties do not generate sufficient cash flow to cover all expenses. The company relies on redevelopment projects (Paramus, Lexington Avenue) to generate future cash flow. Estimated capital requirements are $100 million for Paramus and potentially over $300 million for Lexington Avenue.
- Environmental Contingency: The Kings Plaza Mall has an accrued liability of $1.5 million for environmental remediation of petroleum and hydrocarbons. Additional costs may be incurred if the New York State Department of Environmental Conservation requires a more extensive cleanup approach.
- Tenant Risk: The closure of Caldor stores resulted in the rejection of a lease for the Flushing store, causing the $3 million write-off mentioned above. Annual base rental lost was approximately $2.96 million.
- Financing: The company expects to increase its $90 million mortgage on Kings Plaza Mall by $30 million to fund renovations and pay liabilities to Federated Department Store.
Investor Verification Checklist
- Debt Maturities: Verify the terms and maturity dates of the $277 million total debt, specifically the $45 million subordinated loan to Vornado and the new $82 million Rego Park I loan.
- Environmental Liability: Monitor the status of negotiations with NYDEC regarding the Kings Plaza Mall remediation to assess potential costs beyond the $1.5 million accrual.
- Redevelopment Timelines: Confirm the projected start dates and financing availability for the Paramus and Lexington Avenue projects, as these are critical for future cash flow positivity.
- Tenant Leasing: Track the leasing status of the Flushing store (formerly Caldor) and other vacant spaces to mitigate revenue loss.
- FFO vs. Net Income: Note the significant divergence between Net Income ($1.5M) and Funds from Operations ($4.7M) due to the non-cash write-off and depreciation; FFO is the preferred metric for REIT performance.