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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: DECEMBER 31, 2002
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Commission file number: 1-6064
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ALEXANDER'S, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 51-0100517
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
888 SEVENTH AVENUE, NEW YORK, NEW YORK 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 894-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $1 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES X NO
The aggregate market value of the voting and non-voting common shares held by
non-affiliates of the registrant, i.e. by persons other than officers of
Alexander's Inc. as reflected in the table in Item 12 of this Form 10-K, as of
the last business day of the registrant's most recently completed second fiscal
quarter ended June 30, 2002 was $151,273,000.
As of February 1, 2003, there were 5,000,850 shares of the registrant's common
stock, par value $1 per share outstanding.
Documents Incorporated by Reference
Part III: Proxy Statement for Annual Meeting of Shareholders to be held May 28,
2003
TABLE OF CONTENTS
Item Page
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PART I. 1. Business 4
2. Properties 7
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
Executive Officers of the Company 12
PART II. 5. Market for Registrant's Common
Equity and Related Stockholder Matters 13
6. Selected Financial Data 14
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
7A. Quantitative and Qualitative Disclosures about Market
Risk 23
8. Financial Statements and Supplementary Data 24
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
PART III. 10. Directors and Executive Officers of the Registrant 44 (1)
11. Executive Compensation 44 (1)
12. Security Ownership of Certain
Beneficial Owners and Management 44 (1)
13. Certain Relationships and Related Transactions 44 (1)
14. Controls and Procedures
PART IV 15. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 45
SIGNATURES 46
CERTIFICATIONS 47
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(1) These items are omitted because the Company will file a definitive Proxy
Statement pursuant to Regulation 14A involving the election of directors
with the Securities and Exchange Commission not later than 120 days after
December 31, 2002, which is incorporated by reference.
-2-
Certain statements contained herein constitute forward-looking statements
as such term is defined in Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). This annual report on form 10-K contains
certain forward-looking statements regarding the Company's financial condition,
results of operations and business. You can find many of these statements by
looking for words such as "believes", "expects", "anticipates", "estimates",
"intends", "plans" or similar expressions in this annual report on Form 10-K.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by the forward-looking statements include, but are not
limited to, the following: (a) national, regional and local economic conditions;
(b) the continuing impact of the September 11, 2001 terrorist attacks and the
threat of future terrorist attacks on our tenants and the national, regional and
local economies, including, in particular, the New York City metropolitan areas;
(c) local conditions such as an oversupply of space or a reduction in demand for
real estate in the area; (d) the financial condition of tenants; (e) competition
from other available space; (f) whether tenants consider a property attractive;
(g) whether we are able to pass some or all of any increased operating costs we
experience through to our tenants; (h) how well we manage our properties; (i)
increased interest expense; (j) decreases in market rental rates; (k) the timing
and costs associated with property improvements and rentals; (l) changes in
taxation or zoning laws; (m) government regulations; (n) our failure to continue
to qualify as a real estate investment trust; (o) availability of financing on
acceptable terms; (p) potential liability under environmental or other laws or
regulations; (q) general competitive factors; (r) dependence upon Vornado Realty
Trust; and (s) possible conflicts of interest with Vornado Realty Trust.
For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. You are cautioned not to place undue reliance on our
forward-looking statements, which speak only as of the date of this annual
report on Form 10-K or the date of any document incorporated by reference. All
subsequent written and oral forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. We do not
undertake any obligation to release publicly any revisions to our
forward-looking statements to reflect events or circumstances after the date of
this Form 10-K.
-3-
PART I
Item 1. Business
GENERAL
Alexander's, Inc. (the "Company") is a real estate investment trust
("REIT") engaged in leasing, managing, developing and redeveloping properties.
Alexander's activities are conducted through its manager, Vornado Realty Trust
("Vornado").
Alexander's has six properties consisting of:
Operating properties:
(i) the Kings Plaza Regional Shopping Center on Flatbush Avenue in
Brooklyn, New York, which contains 1,100,000 square feet, is
comprised of a two-level mall containing 470,000 square feet (the
"Mall"), a 289,000 square foot department store leased to Sears and
another anchor department store owned and operated as a Macy's by
Federated Department Stores, Inc. ("Federated");
(ii) the Rego Park I property located on Queens Boulevard and 63rd Road
in Rego Park, Queens, New York, which contains a 351,000 square foot
building, which is 100% leased to Sears, Circuit City, Bed Bath &
Beyond, Marshalls and Old Navy;
(iii) the Paramus property which consists of 30.3 acres of land located at
the intersection of Routes 4 and 17 in Paramus, New Jersey which is
leased to IKEA Properties, Inc; and
Asset held for sale:
(iv) the Flushing property located at Roosevelt Avenue and Main Street in
Flushing, New York, which contains a 177,000 square foot building
that is currently vacant;
Property under development:
(vi) the Lexington Avenue property which comprises the entire square
block bounded by Lexington Avenue, East 59th Street, Third Avenue
and East 58th Street in Manhattan, New York; and
Property to be developed:
(vii) the Rego Park II property, which comprises one and one-half square
blocks of vacant land adjacent to the Rego Park I property.
Lexington Avenue:
The development plans at Lexington Avenue consist of approximately 1.3
million square foot multi-use building. The building will contain approximately
154,000 net rentable square feet of retail (45,000 square feet of which has been
leased to Hennes & Mauritz), approximately 878,000 net rentable square feet of
office (695,000 square feet of which has been leased to Bloomberg L.P.) and
approximately 248,000 net saleable square feet of residential consisting of
condominium units (through a taxable REIT subsidiary). Construction is expected
to be completed in 2004. On July 3, 2002 the Company finalized a $490,000,000
loan with HVB Real Estate Capital (Hypo Vereinsbank) to finance the construction
of the Lexington Avenue property (the "Construction Loan"). The estimated
construction costs in excess of the construction loan of approximately
$140,000,000 will be provided by the Company of which $107,000,000 has been
expended through December 31, 2002. The Construction Loan has an interest rate
of LIBOR plus 2.5% (currently 3.94%) and a term of forty-two months subject to
two one-year extensions. The Company received an initial funding of $55,500,000
under the Construction Loan of which $25,000,000 was used to repay the Company's
term loan to a bank in the amount of $10,000,000 and a secured note in the
amount of $15,000,000. Of the total construction budget of $630,000,000,
$162,000,000 has been expended through December 31, 2002 and an additional
$184,000,000 has been committed to. Pursuant to this Construction Loan, Vornado
has agreed to guarantee, among other things, the lien free, timely, completion
of the construction of the project and funding of project costs in excess of a
stated loan budget, if not funded by the Company.
-4-
The lease with Bloomberg L.P. has an initial term of 25 years, with a
ten-year renewal option. Base annual net rent is $34,529,000 in each of the
first four years and $38,533,000 in the fifth year with a similar percentage
increase each four years thereafter.
There can be no assurance that the Lexington Avenue project ultimately
will be completed, completed on time or completed for the budgeted amount.
Further, the Company may need additional financing for the project, which may
involve equity, debt, joint ventures and asset sales, and which may involve
arrangements with Vornado Realty Trust. If the project is not completed on a
timely basis, the Bloomberg L.P. lease may be cancelled and significant
penalties may apply.
Significant Tenants
Sears accounted for 19%, 21% and 21% of the Company's consolidated
revenues for the years ended December 31, 2002, 2001 and 2000, respectively. No
other tenant accounted for more than 10% of revenues.
Dispositions
On August 30, 2002 the Company closed on the sale of its Third Avenue
property, located in the Bronx, New York. The 173,000 square feet property was
sold for $15,000,000, resulting in a gain of $10,366,000. Included in the
expenses relating to the sale, the Company paid a commission of $600,000, of
which $350,000 was paid to Vornado pursuant to the 1992 Leasing Agreement
between the companies.
On May 30, 2002 the Company entered into an agreement to sell its
subsidiary which owns the building and has the ground lease for its property in
Flushing, New York for $18,800,000 which would result in a gain of approximately
$15,800,000. The Company has received a non-refundable deposit of $1,875,000
from the purchaser. By Notice of Default dated August 16, 2002, the Landlord of
the premises notified the Company of certain alleged defaults under the lease,
including, but not limited to the fact that the purchaser performed unauthorized
construction at the premises. The Company commenced an action for injunctive
relief and a declaration of the rights and obligations of the parties under the
lease. The Company has obtained an injunction which temporarily restrains the
Landlord from terminating the lease. On September 6, 2002, the scheduled closing
date, the Company notified the purchaser that the purchaser failed to close and
is in default of its obligations under the purchase contract. While negotiations
are in process with the parties to attempt to settle the disputes, there can be
no assurance that the sale will be consummated, or that the dispute with the
landlord will be resolved favorably, or that the deposit will not be required to
be returned. The Company continues to explore all of its options, including
subleasing the property.
Liquidity
In the aggregate, Alexander's operating properties do not generate
sufficient cash flow to pay all of its expenses. After the completion of the
Lexington Avenue property, which is not expected until 2005, the Company expects
that cash flow will become positive. The Company continues to evaluate its needs
for capital, which may be raised through (a) additional debt, including funds
available under its line of credit with Vornado (see description below) or
mezzanine borrowings, (deeply subordinated debt which is not secured by a senior
interest in assets), (b) the sale of securities and (c) asset sales (the Company
estimates that the fair market value of its assets are substantially in excess
of their historical cost). Although there can be no assurance, the Company
believes that these cash sources will be adequate to fund cash requirements
until its operations generate adequate cash flow. (See the Liquidity Section of
Management's Discussion and Analysis of Financial Condition and Operations for
further details).
Relationship with Vornado Realty Trust ("Vornado")
Vornado owns 33.1% of the Company's Common Stock at December 31, 2002.
Steven Roth is Chief Executive Officer and a director of the Company, the
Managing General Partner of Interstate Properties ("Interstate") and Chairman of
the Board and Chief Executive Officer of Vornado. At December 31, 2001, Mr.
Roth, Interstate and the other two general partners of Interstate, David
Mandelbaum and Russell B. Wight, Jr. (who are also directors of the Company and
trustees of Vornado) own, in the aggregate, 27.5% of the outstanding common
stock of the Company, and 12.9% of the outstanding common shares of beneficial
interest of Vornado.
-5-
The Company is managed by and its properties are leased by Vornado
pursuant to management, leasing and development agreements. Vornado is a fully
integrated REIT with significant experience in the ownership, development,
leasing, operation and management of retail and office properties. Further, in
conjunction with the Company's Lexington Avenue development project, Vornado has
agreed to guarantee, among other things, the lien free, timely completion of the
construction and funding of project costs in excess of a stated budget, if not
funded by the Company. Those agreements are described in Note 8 to the Company's
consolidated financial statements.
At December 31, 2002, the Company was indebted to Vornado in the amount of
$119,000,000 comprised of (i) $95,000,000 financing, and (ii) $24,000,000 under
a $50,000,000 line of credit (which carries a 1% unused commitment fee). The
interest rate on the loan and the line of credit which is currently 12.48%, will
reset quarterly using a Treasury index (with a 3% floor) plus the same spread to
treasuries as previously existed. On July 3, 2002, in conjunction with the
closing of the Lexington Avenue construction loan, the maturity of the Vornado
debt was extended to the earlier of January 3, 2006 or the date the Lexington
Avenue construction loan is repaid in full. The Lexington Avenue construction
loan matures on January 3, 2006, subject to two one-year extensions. In addition
amounts which may be due under the Completion Guarantee would be due at the same
time.
ENVIRONMENTAL MATTERS
In June 1997, the Kings Plaza Regional Shopping Center (the "Center"),
commissioned an Environmental Study and Contamination Assessment Site
Investigation (the Phase II "Study") to evaluate and delineate environmental
conditions disclosed in a Phase I study. The results of the Study indicated the
presence of petroleum and bis (2-ethylhexyl) phthalate contamination in the soil
and groundwater. The Company has delineated the contamination and has developed
a remediation approach, which is ongoing. The New York State Department of
Environmental Conservation ("NYDEC") has approved a portion of the remediation
approach. The Company accrued $2,675,000 in previous years ($2,087,000 has been
paid as of December 31, 2002) for its estimated obligation with respect to the
clean up of the site, which includes costs of (i) remedial investigation, (ii)
feasibility study, (iii) remedial design, (iv) remedial action and (v)
professional fees. If the NYDEC insists on a more extensive remediation
approach, the Company could incur additional obligations.
The Company believes the majority of the contamination may have resulted
from activities of third parties; however, the sources of the contamination have
not been fully identified. Although the Company is pursuing claims against
potentially responsible third parties, there can be no assurance that such
parties will be identified, or if identified, whether these third parties will
be solvent. In addition, the costs associated with pursuing responsible parties
may be cost prohibitive. The Company has not recorded an asset as of December
31, 2002 for possible recoveries of environmental remediation costs from
potentially responsible third parties.
COMPETITION
The Company conducts its real estate operations in the New York
metropolitan area, a highly competitive market. The Company's success depends
upon, among other factors, trends of national and local economies, financial
condition and operating results of current and prospective tenants, availability
and cost of capital, interest rates, construction and renovation costs, income
tax laws, governmental regulations and legislation, population trends, the
market for real estate properties in the New York metropolitan area, zoning laws
and the ability of the Company to lease, sublease or sell its properties at
profitable levels. The Company competes with a large number of real estate
property owners. In addition, although the Company believes that it will realize
significant value from its properties over time, the Company anticipates that it
may take a number of years before all of its properties generate cash flow at or
near anticipated levels. The Company's success is also subject to its ability to
finance its development and to refinance its debts as they come due.
EMPLOYEES
The Company currently has one corporate level employee and 59 property
level employees.
The Company is a Delaware corporation with its principal executive office
located at 888 Seventh Avenue, New York, New York, 10019, telephone (212)
894-7000.
AVAILABLE INFORMATION
The Company does not maintain its own internet web site and so its
annual, quarterly and current reports are not available in this fashion.
However, you may request a copy of these filings, at no cost, by writing or
calling the Company.
-6-
Item 2. Properties
The following table shows the location, approximate size and leasing status as
of December 31, 2002 of each of the Company's properties.
Approximate
Approximate Building
Land Area in Leaseable Average
Square Feet Square Feet/ Annualized
("SF") Number of Base Rent Percent
Property Ownership or Acreage Floors Per Sq. Foot Leased
-------- --------- ---------- ------ ------------ ------
OPERATING PROPERTIES
Kings Plaza Regional Owned 24.3 acres 759,000/2and4 $ 31.76 98%
Shopping Center (1)(2)
Flatbush Avenue
Brooklyn, New York
Rego Park I Owned 4.8 acres 351,000/3 31.29 100%
Queens Blvd. & (1)
63rd Road
Rego Park, New York
Routes 4 & 17 Owned 30.3 acres N/A N/A 100%
Paramus, New Jersey Ground Ground
Lease Lease
Roosevelt Avenue & Leased (3) 44,975 SF 177,000/4 -- 0%
Main Street (1)
Flushing, New York
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1,287,000
=========
PROPERTY UNDER
DEVELOPMENT
Square block at East Owned 84,420 SF 1,297,000/55
59th Street &
Lexington Avenue
New York, New York
NON-OPERATING PROPERTY TO
BE DEVELOPED
Rego Park II Owned 6.6 acres --
Queens, New York
Significant Lease
Tenants Square Expiration/
(30,000 square Footage Option
Property feet or more) Leased Expiration
-------- ------------- ------ ----------
OPERATING PROPERTIES
Kings Plaza Regional Sears 289,000 2023/2033
Shopping Center 119 Mall tenants 455,000 Various
Flatbush Avenue
Brooklyn, New York
Rego Park I Sears 195,000 2021/2031
Queens Blvd. & Circuit City 50,000 2021
63rd Road Bed Bath &
Rego Park, New York Beyond 46,000 2013/2021
Marshalls 39,000 2008/2021
Routes 4 & 17 IKEA Property, N/A 2041
Paramus, New Jersey Inc. Ground
Lease
Roosevelt Avenue & -- --
Main Street
Flushing, New York
PROPERTY UNDER
DEVELOPMENT
Square block at East Bloomberg L.P. 695,000 2030/2040
59th Street & Hennes & Mauritz 45,000 2020
Lexington Avenue
New York, New York
NON-OPERATING PROPERTY TO
BE DEVELOPED
Rego Park II
Queens, New York
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(1) Excludes parking garages.
(2) Excludes the 339,000 square foot Macy's store, owned and operated by
Federated Department Stores, Inc.
(3) Leased to the Company through January 2027. The Company is obligated to
pay rent to the landlord as follows: $331,000 per year from February 1997
through January 2007, $220,000 per year from February 2007 through January
2017, and $147,000 per year from February 2017 through January 2027.
Classified as "an asset held for sale" at December 31, 2002.
-7-
Operating Properties:
Kings Plaza Regional Shopping Center
The Kings Plaza Regional Shopping Center (the "Center") contains
approximately 1.1 million square feet and is comprised of a two-level mall (the
"Mall") containing 470,000 square feet and two four-level anchor stores. One of
the anchor stores is owned by the Company and leased to Sears, while the other
anchor store is owned and operated as a Macy's store by Federated. The Center
occupies a 24.3-acre site at the intersection of Flatbush Avenue and Avenue U
located in Brooklyn, New York. Among the Center's features are a marina, a
five-level parking structure and an energy plant that generates all of the
Center's electrical power. The Company completed a renovation of the interior of
the Mall in 2001 and the exterior of the Mall in 2002.
The following table shows lease expirations for the Mall tenants in the
Center for the next ten years, assuming none of the tenants exercise renewal
options:
Percent of Percent of
Approximate Total Leased 2002 Gross
Leased Area in Annualized Annualized Square Annual Base
Square Feet Fixed Rent Fixed Rent Footage Rentals
Number of Under Under Under Expiring Represented Represented
Leases Expiring Expiring Leases per by Expiring by Expiring
Year Expiring Leases Leases Square Foot Leases Leases
---- -------- ------ ------ ----------- ------ ------
2003 10 30,919 $1,200,155 $38.82 6.8% 5.8%
2004 4 20,995 894,391 42.60 4.6% 4.3%
2005 8 1,733 471,500 272.07 .4% 2.3%
2006 14 79,943 2,392,844 29.93 17.6% 11.5%
2007 16 51,155 2,447,805 47.85 11.2% 11.8%
2008 4 5,341 295,055 55.24 1.2% 1.4%
2009 15 74,371 3,703,167 49.79 16.3% 17.8%
2010 12 26,459 1,737,756 65.68 5.8% 8.4%
2011 14 39,023 1,971,003 50.51 8.6% 9.5%
2012 17 82,696 2,865,967 34.66 18.2% 13.8%
The following table shows the occupancy rate and the average annual rent
per square foot for the Mall stores as of:
Average
Annual Base Rent
Occupancy Rate Per Square Foot
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December 31, 2002 97% $ 45.59
December 31, 2001 96% 45.97
December 31, 2000 91% 44.66
December 31, 1999 86% 43.12
December 31, 1998 90% 40.63
The Center is encumbered by a first mortgage loan with a balance of
$219,307,000 at December 31,2002. The loan matures in June 2011 and bears
interest at 7.46%.
-8-
Rego Park I
The Rego Park I property encompasses the entire block fronting on Queens
Boulevard and bounded by 63rd Road, 62nd Drive, 97th Street and Junction
Boulevard.
The existing 351,000 square foot building was redeveloped in 1996 and is
fully leased to Sears, Circuit City, Bed Bath & Beyond, Marshalls and Old Navy.
In addition, in conjunction with the redevelopment, a multi-level parking
structure was constructed that provides paid parking spaces for approximately
1,200 vehicles.
The property is encumbered by a first mortgage loan with a balance of
$82,000,000 at December 31,2002. The loan matures in May 2009 and bears interest
at 7.25%
Paramus
The Company owns 30.3 acres of land located at the intersection of Routes
4 and 17 in Paramus, New Jersey. The Company's property is located directly
across from the Garden State Plaza regional shopping mall, within two miles of
three other regional shopping malls and within 10 miles of New York City. This
land is leased to IKEA Property, Inc.
On October 5, 2001, the Company entered into a ground lease for its
Paramus, N.J. property with IKEA Property, Inc. The lease has a 40-year term
with an option to purchase at the end of the 20th year for $75,000,000. Further,
the Company has obtained a $68,000,000 interest only, non-recourse mortgage loan
on the property from a third party lender. The fixed interest rate on the debt
is 5.92% with interest payable monthly until maturity in October, 2011. The
triple net rent each year is the sum of $700,000 plus the amount of debt service
on the mortgage loan. If the purchase option is not exercised at the end of the
20th year, the triple net rent for the last 20 years must include debt service
sufficient to fully amortize the $68,000,000 over the remaining 20-year lease
period.
Asset held for Sale:
Flushing
The Flushing property is located on Roosevelt Avenue and Main Street in
the downtown, commercial section of Flushing, Queens. Roosevelt Avenue and Main
Street are active shopping districts with many national retailers located in the
area. A subway entrance is located directly in front of the property with bus
service across the street. It comprises a four-floor building containing 177,000
square feet and a parking garage.
On May 30, 2002 the Company entered into an agreement to sell its
subsidiary which owns the building and has the ground lease for its property in
Flushing, New York for $18,800,000 which would result in a gain of approximately
$15,800,000. The Company has received a non-refundable deposit of $1,875,000
from the purchaser. By Notice of Default dated August 16, 2002, the Landlord of
the premises notified the Company of certain alleged defaults under the lease,
including, but not limited to the fact that the purchaser performed unauthorized
construction at the premises. The Company commenced an action for injunctive
relief and a declaration of the rights and obligations of the parties under the
lease. The Company has obtained an injunction which temporarily restrains the
Landlord from terminating the lease. On September 6, 2002, the scheduled closing
date, the Company notified the purchaser that the purchaser failed to close and
is in default of its obligations under the purchase contract. While negotiations
are in process with the parties to attempt to settle the disputes, there can be
no assurance that the sale will be consummated, or that the dispute with the
Landlord will be resolved favorably, or that the deposit will not be required to
be returned. The Company continues to explore all of its options, including
subleasing the property.
Property Under Development:
Lexington Avenue
The Company owns the Lexington Avenue property which comprises the entire
square block bounded by Lexington Avenue, East 59th Street, Third Avenue and
East 58th Street and is situated in the heart of one of Manhattan's busiest
business and shopping districts with convenient access to several subway and bus
lines. The property is located directly across the street from Bloomingdale's
flagship store and only a few blocks away from both Fifth Avenue and 57th
Street.
-9-
The development plans at Lexington Avenue consist of approximately 1.3
million square foot multi-use building. The building will contain approximately
154,000 net rentable square feet of retail (45,000 square feet of which has been
leased to Hennes & Mauritz), approximately 878,000 net rentable square feet of
office (695,000 square feet of which has been leased to Bloomberg L.P.) and
approximately 248,000 net saleable square feet of residential consisting of
condominium units (through a taxable REIT subsidiary). Construction is expected
to be completed in 2004. On July 3, 2002 the Company finalized a $490,000,000
loan with HVB Real Estate Capital (Hypo Vereinsbank) to finance the construction
of the Lexington Avenue property (the "Construction Loan"). The estimated
construction costs in excess of the construction loan of approximately
$140,000,000 will be provided by the Company of which $107,000,000 has been
expended through December 31, 2002. The Construction Loan has an interest rate
of LIBOR plus 2.5% (currently 3.94%) and a term of forty-two months subject to
two one-year extensions. The Company received an initial funding of $55,500,000
under the Construction Loan of which $25,000,000 was used to repay the Company's
term loan to a bank in the amount of $10,000,000 and a secured note in the
amount of $15,000,000. Of the total construction budget of $630,000,000,
$162,000,000 has been expended through December 31, 2002 and an additional
$184,000,000 has been committed to. Pursuant to this Construction Loan, Vornado
has agreed to guarantee, among other things, the lien free, timely, completion
of the construction of the project and funding of project costs in excess of a
stated loan budget, if not funded by the Company.
There can be no assurance that the Lexington Avenue project ultimately
will be completed, completed on time or completed for the budgeted amount.
Further, the Company may need additional financing for the project, which may
involve equity, debt, joint ventures and asset sales, and which may involve
arrangements with Vornado Realty Trust. If the project is not completed on a
timely basis, the Bloomberg L.P. lease may be cancelled and significant
penalties may apply.
Property to be Developed:
Rego Park II
The Company owns two land parcels adjacent to the Rego Park I property.
They are the entire square block bounded by the Long Island Expressway, 97th
Street, 62nd Drive and Junction Boulevard and a smaller parcel of approximately
one-half square block at the intersection of 97th Street and the Long Island
Expressway. Both parcels are currently zoned for residential use. Both parcels
are being used for public paid parking. The Company intends to continue to use
these properties for paid parking while it evaluates its development options.
Insurance
The Company carries comprehensive liability and all risk property
insurance (fire, flood, extended coverage and rental loss insurance) with
respect to its assets. The Company's all risk insurance policies in effect
before September 11, 2001 included coverage for terrorist acts, except for acts
of war. Since September 11, 2001, insurance companies have for the most part
excluded terrorists acts from coverage in all risk policies. The Company has
obtained $200 million of separate aggregate coverage for terrorists acts. In
addition, the Company's builder's risk policy for the Lexington Avenue
Development, which expires on December 1, 2003, includes coverage for terrorist
acts up to $428 million. Therefore, the risk of financial loss in excess of
these limits in the case of terrorist acts (as defined) is the Company's, which
loss could be material.
The Company's debt instruments, consisting of mortgage loans secured by
its properties (which are generally non-recourse to the Company), contain
customary covenants requiring the Company to maintain insurance. There can be no
assurance that the lenders under these instruments will not take the position
that an exclusion from all risk insurance coverage for losses due to terrorist
acts is a breach of these debt instruments that allows the lenders to declare an
event of default and accelerate repayment of debt. In addition, if lenders
insist on coverage for these risks, it could adversely affect the Company's
ability to finance and/or refinance its properties, including the construction
of its Lexington Avenue development property.
On November 26, 2002, the Terrorism Risk Insurance Act of 2002 was signed
into law. Under this new legislation, through 2004 (with a possible extension
through 2005), regulated insurers must offer coverage in their commercial
property and casualty policies (including existing policies) for losses
resulting from defined "acts of terrorism". The Company's current property
insurance carrier has advised us that there will be no additional premium for
this coverage through the end of the policy term, June 30, 2003. The carrier has
further advised us that the situation may change at renewal.
-10-
Item 3. Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to, nor is
their property the subject of, any material pending legal proceeding other than
routine litigation incidental to their businesses. The Company believes that
these legal actions will not be material to the Company's financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2002.
-11-
Executive Officers of the Company
The following is a list of the names, ages, principal occupations and
positions with the Company of the executive officers of the Company and the
positions held by such officers during the past five years.
Principal Occupations, Position and Office (current and during the past
Name Age five years with the Company unless otherwise stated)
---- --- ----------------------------------------------------
Stephen Mann 65 Chairman of the Board of Directors since March 2, 1995; Interim Chairman
of the Board of Directors from August, 1994 to March 1, 1995; Chairman of
Coast to Coast Financial Corp since 2001; Chairman of the Clifford
Companies since 1990; and, prior thereto, counsel to Mudge Rose Guthrie
Alexander & Ferdon, attorneys.
Steven Roth 61 Chief Executive Officer of the Company since March 2, 1995; Chairman of
the Board and Chief Executive Officer of Vornado since May 1989; Chairman
of Vornado's Executive Committee of the Board since April 1988; and the
Managing General Partner of Interstate, an owner of shopping centers and
an investor in securities and partnerships.
Michael D. Fascitelli 46 President of the Company since August 1, 2000; Director of the Company
and President and Trustee of Vornado Realty Trust since December 2, 1996;
President and Director of Vornado Operating Company since 1998; Partner
at Goldman, Sachs & Co. in charge of its real estate practice from
December 1992 to December 1996; and Vice President at Goldman, Sachs &
Co., prior to December 1992.
Joseph Macnow 57 Executive Vice President and Chief Financial Officer of the Company since
June 6, 2002; Executive Vice President - Finance and Administration from
March 1, 2001 to June 6, 2002; Vice President and Chief Financial Officer
of the Company from August 1995 to February 2001; Executive Vice
President - Finance and Administration of Vornado since January 1998, and
Chief Financial Officer of Vornado since March 2001 and Vice President
and Chief Financial Officer of Vornado from 1985 to January 1998.
Patrick T. Hogan 35 Vice President - Chief Financial Officer from March 1, 2001 to June 6,
2002; Vice President of Vornado since March 2001; Vice President - Chief
Financial Officer of Vornado Operating Company since March 2001; Chief
Financial Officer and Treasurer for Correctional Properties Trust, a
Maryland UPREIT, from February 1998 to February 2001; from June 1996 to
February 1998, worked for the Wackenhut Corporation and Subsidiaries
managing treasury and financial reporting functions while forming
Correctional Properties Trust.
-12-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Equity and Related Stockholder Matters
The common stock, par value $1.00 per share, of the Company is traded on
the New York Stock Exchange under the symbol "ALX". Set forth below are the high
and low sales prices for the Company's common stock for each full quarterly
period within the two most recent years:
High Low
------- -------
1st Quarter 2002 $ 64.80 $ 55.75
2nd Quarter 2002 77.00 60.00
3rd Quarter 2002 77.76 59.49
4th Quarter 2002 65.54 61.45
High Low
------- -------
1st Quarter 2001 $ 74.63 $ 60.93
2nd Quarter 2001 67.60 58.38
3rd Quarter 2001 65.40 59.09
4th Quarter 2001 61.60 56.40
As of December 31, 2002, there were approximately 800 holders of record of
the Company's common stock. The Company pays dividends only if, as and when
declared by its Board of Directors. No dividends were paid in 2002 and 2001. In
order to qualify as a REIT, the Company generally is required to distribute as a
dividend 90% of its taxable income. At December 31, 2002, the Company had net
operating loss carryovers ("NOL's") of approximately $94,000,000. Under the
Internal Revenue Code of 1986, as amended, the Company's NOL's generally would
be available to offset the amount of the Company's REIT taxable income that
otherwise would be required to be distributed as a dividend to stockholders.
-13-
Item 6. Selected Financial Data
Summary of Selected Financial Data
(Amounts in thousands, except per share data)
Year Ended December 31,
---------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Operating data:
Total revenues $ 76,193 $ 67,242 $ 62,155 $ 61,682 $ 46,733(4)
========= ========= ========= ========= =========
Income (loss) from continuing
operations $ 13,316 $ 27,306 $ 5,385 $ 5,100 $ (9,268)
Income (loss) from discontinued
operations 10,268 80 (188) 424 3,213
--------- --------- --------- --------- ---------
Net income (loss) $ 23,584(1) $ 27,386(2) $ 5,197 $ 5,524(3) $ (6,055)(5)
========= ========= ========= ========= =========
Income (Loss) per share (basic and
diluted):
Continuing operations $ 2.66 $ 5.46 $ 1.08 $ 1.02 $ (1.85)
Discontinued operations 2.06 .02 (.04) .08 .64
--------- --------- --------- --------- ---------
Net income (loss) (6) $ 4.72 $ 5.48 $ 1.04 $ 1.10 $ (1.21)
========= ========= ========= ========= =========
Balance sheet data:
Total assets $ 664,770 $ 583,339 $ 403,305 $ 366,496 $ 317,043
Real estate, net 541,346 376,429 341,492 267,203 239,157
Debt 543,807 515,831 367,788 329,161 277,113
Stockholders' equity 68,665 45,081 17,695 12,498 6,974
- ----------
Notes:
(1) Net income includes income from discontinued operations comprised of a
gain on the sale of the Third Avenue property of $10,366.
(2) Net income includes the following, (i) a gain on sale of the Fordham Road
Property of $19,026 (ii) a gain from early extinguishment of debt of
$3,534, offset by (iii) $3,058 resulting from the write-off of
architectural and engineering costs associated with development plans at
Paramus prior to IKEA, and (iv) $2,030 from the write-off of professional
fees resulting from the termination of the spin-off of Alexander's Tower
LLC.
(3) Net of $4,877 resulting from the write-off of the asset arising from the
straight-lining of rents primarily due to Caldor's rejection of its
Flushing lease in 1999.
(4) In June 1998, the Company increased its interest in the Kings Plaza Mall
to 100% by acquiring Federated's 50% interest.
(5) Net loss includes the write-off of $15,096 resulting from the razing of
the building formerly located at the Company's Lexington Avenue site.
(6) Income (loss) per share is the same for all years presented with and
without dilution. For further discussion of income (loss) per share see
notes to the consolidated financial statements.
-14-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The Company had net income of $23,584,000 for the year ended December 31,
2002, compared to net income of $27,386,000 in the prior year. Net income for
2002 includes income from discontinued operations comprised of a gain on the
sale of the Third Avenue property of $10,366,000. Net income for 2001 includes
(i) a gain the sale of the Fordham Road property of $19,026,000, (ii) a gain
from the early extinguishment of debt of $3,534,000, partially offset by (iii) a
charge of $3,058,000 resulting from the write-off of architectural and
engineering costs associated with the development plans prior to the IKEA
Property Inc. (IKEA) ground lease at Paramus, and (iv) a charge of $2,030,000
resulting from the write-off of professional fees resulting from the termination
of the proposed spin-off of Alexander's Tower LLC discussed below. Excluding
these items, net income for the year ended December 31, 2002, would have been
higher than net income in the corresponding year by $3,304,000.
Effective January 1, 2002, the Company changed its method of accounting
for long-lived assets held for sale, in accordance with Statement of Financial
Accounting Standards No.144, Accounting for the Impairment and Disposal of
Long-Lived Assets. This Statement requires that the results of operations, gains
and losses, and cash flows attributed to properties held for sale or sold during
2002 and thereafter, such as Third Avenue and Flushing, be classified as
discontinued operations for all periods presented, and that any assets and
liabilities of properties held for sale be presented separately in the
consolidated balance sheet. Properties held for sale or sold as a result of
sales activities that were initiated prior to 2002, such as Fordham Road,
continue to be accounted for under the applicable prior accounting guidance.
CRITICAL ACCOUNTING POLICIES
In preparing the consolidated financial statements management has made
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Set forth below is a summary of the accounting policies
that management believes are critical to the preparation of the consolidated
financial statements. The summary should be read in conjunction with the more
complete discussion of the Company's accounting policies included in Note 2 to
the consolidated financial statements in this annual Report on Form 10-K.
Real Estate
Real estate is carried at cost, net of accumulated depreciation and
amortization. Maintenance and repairs are charged to operations as incurred.
Depreciation requires an estimate by management of the useful life of each
property as well as an allocation of the costs associated with a property to its
various components. If the Company does not allocate these costs appropriately
or incorrectly estimates the useful lives of its real estate, depreciation
expense may be misstated. When real estate and other property is undergoing
development activities, all property operating expenses, including interest
expense, are capitalized to the cost of the real property to the extent that
management believes such costs are recoverable through the value of the
property. The Company's properties are reviewed for impairment if events or
circumstances indicate that the carrying amount of the asset may not be
recoverable. In such event, a comparison is made of the current and projected
operating cash flows of each property on an undiscounted basis, to the carrying
amount of such property. If the Company incorrectly estimates the value of the
asset or the undiscounted cash flows, the impairment charges may be different.
Revenue Recognition
The Company has the following revenue sources and revenue recognition
policies:
- Base Rents -- income arising from tenant leases. These rents are
recognized over the non-cancellable term of the related leases on a
straight-line basis which includes the rent steps and free rent
abatements under the leases.
- Percentage Rents -- income arising from retail tenant leases which
are contingent upon the sales of the tenant exceeding a defined
threshold. These rents are recognized in accordance with SAB 101,
which states that this income is to be recognized only after the
contingency has been removed (i.e. sales thresholds have been
achieved).
-15-
- Expense Reimbursement Income -- income arising from tenant leases
which provide for the recovery of all or a portion of the operating
expenses and real estate taxes of the respective property. This
income is accrued in the same periods as the expenses are incurred.
Before the Company can recognize revenue, it is required to assess, among
other things, its collectibility. If the Company incorrectly determines the
collectibility of its revenue, its net income and assets could be overstated.
Income Taxes
The Company operates in a manner intended to enable it to continue to
qualify as a REIT under sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"). Under those sections, a REIT which distributes at
least 90% of its REIT taxable income as a dividend to its stockholders each year
and which meets certain other conditions will not be taxed on that portion of
its taxable income. The Company's net operating loss ("NOL") carryovers
generally would be available to offset the amount of the Company's REIT taxable
income.
RESULTS OF OPERATIONS
Years Ended December 31, 2002 and December 31, 2001
The Company's revenues were $76,193,000 in 2002, compared to $67,242,000
in 2001, an increase of $8,951,000.
Property rentals were $50,040,000 in 2002, compared to $44,022,000 in
2001, an increase of $6,018,000. This increase results primarily from (i)
commencement, on October 5, 2001, of the ground lease with IKEA at the Paramus
property, and (ii) an increase in occupancy at the Kings Plaza Regional Shopping
Center.
Tenant expense reimbursements were $26,153,000 in 2002, compared to
$23,220,000 in 2001, an increase of $2,933,000. This increase resulted primarily
from higher reimbursements for real estate taxes, insurance and repairs and
maintenance.
Operating expenses were $31,569,000 in 2002, compared to $27,870,000 in
2001, an increase of $3,699,000. This resulted primarily from an increase in
real estate taxes, insurance and repairs and maintenance.
Depreciation and amortization expense was $6,638,000 in 2002, compared to
$6,423,000 in 2001, an increase of $215,000.
Interest and debt expense was $22,888,000 in 2002, compared to $22,408,000
in 2001, an increase of $480,000. This increase resulted from (i) interest of
$8,272,000 due to higher average debt in 2002, offset by (ii) a $4,116,000
reduction in interest due to a decrease in average interest rates from 9.20% to
8.23% and (iii) $4,529,000 of additional capitalized interest relating to the
Company's development property (interest expense of $23,788,000 was capitalized
in 2002, as compared to $19,259,000 in 2001).
Interest and other income was $2,178,000 in 2002, compared to $3,227,000
in 2001. This decrease of $1,049,000 resulted primarily from lower average cash
invested due to the funding of the Company's development project and lower
yields on investments, offset by a gain of $169,000 resulting from the sale of
air rights (see "Liquidity and Capital Resources - Development Plans" on page 18
for further details).
Discontinued operations includes the Company's Third Avenue and Flushing
Properties as shown below:
Year Ended December 31,
------------------------------
2002 2001
------------- -------------
Total revenues $ 1,805,000 $ 2,101,000
Total expenses 1,903,000 2,021,000
------------- -------------
Operating (loss) income (98,000) 80,000
Gain on sale of Third Avenue 10,366,000 --
------------- -------------
Income from discontinued operations $ 10,268,000 $ 80,000
============= =============
-16-
The Flushing property is shown on the Balance Sheet as an "Asset held for
sale" at December 31, 2002.
Years Ended December 31, 2001 and December 31, 2000
The Company had net income of $27,386,000 for the year ended December 31,
2001, compared to net income of $5,197,000 in the prior year. Net income for
2001 includes (i) a gain the sale of the Fordham Road property of $19,026,000,
(ii) a gain from the early extinguishment of debt of $3,534,000, partially
offset by (iii) a charge of $3,058,000 resulting from the write-off of
architectural and engineering costs associated with the development plans prior
to the IKEA Property Inc. (IKEA) ground lease at Paramus, and (iv) a charge of
$2,030,000 resulting from the write-off of professional fees resulting from the
termination of the proposed spin-off of Alexander's Tower LLC.
Details of the additional changes in the components of net income for the
year ended December 31, 2001 as compared to 2000 are discussed below.
The Company's revenues were $67,242,000 in 2001, compared to $62,155,000
in 2000, an increase of $5,087,000.
Property rentals were $44,022,000 in 2001, compared to $41,777,000 in
2000, an increase of $2,245,000. This increase results primarily from (i)
commencement, on October 5, 2001, of the ground lease with IKEA at the Paramus
property, and (ii) an increase in occupancy at the Kings Plaza Regional Shopping
Center.
Tenant expense reimbursements were $23,220,000 in 2001, compared to
$20,378,000 in 2000, an increase of $2,842,000. This increase resulted primarily
from (i) higher reimbursements for real estate taxes and repairs and
maintenance, and (ii) a $531,000 adjustment, made in the first quarter of 2000,
in the method of allocating an anchor tenant's share of parking lot expenses at
the Rego Park I property (which covered a number of years).
Operating expenses were $27,870,000 in 2001, compared to $27,153,000 in
2000, an increase of $717,000. This resulted primarily from an increase in real
estate taxes and repairs and maintenance of $1,405,000, partially offset by the
following relating to the Kings Plaza Regional Shopping Center, decreases in (i)
operating expenses of $866,000 primarily from fuel costs at the utility plant
and (ii) marketing expenses of $492,000, partially offset by an accrual of
$675,000 for environmental remediation.
Depreciation and amortization expense was $6,423,000 in 2001, compared to
$5,479,000 in 2000. This increase of $944,000 is a result of the interior
refurbishment of the Company's Kings Plaza Regional Shopping Center completed in
the beginning of 2001.
Interest and debt expense was $22,469,000 in 2001, compared to $21,424,000
in 2000, an increase of $1,045,000. This increase resulted from (i) interest of
$7,404,000 due to higher average debt in 2001, offset by (ii) a $3,032,000
reduction in interest due to a decrease in average interest rates from 10.07% to
9.20% and (iii) $2,528,000 of additional capitalized interest relating to the
Company's development property (interest expense of $19,259,000 was capitalized
in 2001, as compared to $16,731,000 in 2000).
Interest and other income was $3,227,000 in 2001, compared to $1,124,000
in 2000. This increase of $2,103,000 results primarily from increased invested
cash balances attributable to additional borrowings on the Company's Kings Plaza
Regional Shopping Center on June 1, 2001, and Paramus property on October 5,
2001.
Minority interest of $49,000 in 2001 relates to $1,200,000 of
non-convertible preferred stock that was sold to Vornado Realty Trust by 59th
Street Corporation (a wholly-owned subsidiary of the Company) on August 1, 2001.
This issue was redeemed by 59th Street Corporation, and a $49,000 dividend was
paid, on December 28, 2001.
Discontinued operations includes the Company's Third Avenue and Flushing
Properties as shown below:
Year Ended December 31,
--------------------------------
2001 2000
------------- -------------
Total revenues $ 2,101,000 $ 1,810,000
Total expenses 2,021,000 1,998,000
------------- -------------
Income (loss) from discontinued operations $ 80,000 $ (188,000)
============= =============
The Flushing property is shown on the Balance Sheet as an "Asset held for
sale" at December 31, 2002.
-17-
LIQUIDITY AND CAPITAL RESOURCES
Alexander's operating properties do not generate sufficient cash flow to
pay all of its expenses. After the completion of the Lexington Avenue property,
which is not expected until 2005, the Company expects that cash flow will become
positive.
Development Plans
The development plans at Lexington Avenue consist of approximately 1.3
million square foot multi-use building. The building will contain approximately
154,000 net rentable square feet of retail (45,000 square feet of which has been
leased to Hennes & Mauritz), approximately 878,000 net rentable square feet of
office (695,000 square feet of which has been leased to Bloomberg L.P.) and
approximately 248,000 net saleable square feet of residential consisting of
condominium units (through a taxable REIT subsidiary). Construction is expected
to be completed in 2004. On July 3, 2002 the Company finalized a $490,000,000
loan with HVB Real Estate Capital (Hypo Vereinsbank) to finance the construction
of the Lexington Avenue property (the "Construction Loan"). The estimated
construction costs in excess of the construction loan of approximately
$140,000,000 will be provided by the Company of which $107,000,000 has been
expended through December 31, 2002. The Construction Loan has an interest rate
of LIBOR plus 2.5% (currently 3.94%) and a term of forty-two months subject to
two one-year extensions. The Company received an initial funding of $55,500,000
under the Construction Loan, of which $25,000,000 was used to repay the
Company's term loan to a bank in the amount of $10,000,000 and a secured note in
the amount of $15,000,000. Of the total construction budget of $630,000,000,
$162,000,000 has been expended through December 31, 2002 and an additional
$184,000,000 has been committed to.
The Company lease with Bloomberg L.P. has an initial term of 25 years,
with a ten-year renewal option. Base annual net rent is $34,529,000 in each of
the first four years and $38,533,000 in the fifth year with a similar percentage
increase each four years thereafter.
For the development of the residential portion of the Lexington Avenue
project, the Company will utilize 241,125 square feet of air rights, of which
72,525 square feet were generated "as of right" in accordance with the zoning
code and 196,711 square feet were acquired in a number of separate transactions
for an aggregate cost of $20,708,000 (including 56,932 square feet which were
acquired from Vornado at a cost of $6,517,000). Of the acquired air rights,
28,111 square feet were sold to a third party for $3,339,000 resulting in a gain
of $169,000 which is reflected as part of interest and other income in the
Company's statement of income.
There can be no assurance that the Lexington Avenue project ultimately
will be completed, completed on time or completed for the budgeted amount.
Further, the Company may need additional financing for the project, which may
involve equity, debt, joint ventures and asset sales, and which may involve
arrangements with Vornado Realty Trust. If the project is not completed on a
timely basis, the Bloomberg L.P. lease may be cancelled and significant
penalties may apply. See Vornado "Completion Guarantee" described below.
In conjunction with the closing of the Lexington Avenue construction loan
on July 3, 2002, the Company's management and development agreements with
Vornado were amended to provide for a term lasting until substantial completion
of the property, with automatic renewals, and for the payment of the estimated
development fee of $26,300,000 upon the earlier of January 3, 2006 or the
payment in full of the construction loan encumbering the property. Vornado has
also agreed to guarantee among other things, the lien free, timely completion of
the construction of the project, and funding of project costs in excess of a
stated loan budget, if not funded by the Company (the "Completion Guarantee").
The $6,300,000 estimated fee payable by the Company to Vornado is 1% of
construction costs (as defined) and is due at the same time that the development
fee is due. In addition, if Vornado should advance any funds under the
Completion Guarantee in excess of the $26,000,000 currently available under the
secured line of credit, interest on those advance would be at 15% per annum.
Insurance
The Company's debt instruments, consisting of mortgage loans secured by
its properties (which are generally non-recourse to the Company), contain
customary covenants requiring the Company to maintain insurance. There can be no
assurance that the lenders under these instruments will not take the position
that an exclusion from all risk insurance coverage for losses due to terrorist
acts is a breach of these debt instruments that allows the lenders to declare an
event of default and accelerate repayment of debt. In addition, if lenders
insist on
-18-
coverage for these risks, it could adversely affect the Company's ability to
finance and/or refinance its properties, including the construction of its
Lexington Avenue development property.
On November 26, 2002, the Terrorism Risk Insurance Act of 2002 was signed
into law. Under this new legislation, through 2004 (with a possible extension
through 2005), regulated insurers must offer coverage in their commercial
property and casualty policies (including existing policies) for losses
resulting from defined "acts of terrorism". The Company's current property
insurance carrier has advised us that there will be no additional premium for
this coverage through the end of the policy term, June 30, 2003. The carrier has
further advised us that the situation may change at renewal.
Disposition of Properties
On August 30, 2002 the Company closed on the sale of its Third Avenue
property, located in the Bronx, New York. The 173,000 square feet property was
sold for $15,000,000, resulting in a gain of $10,366,000. Included in the
expenses relating to the sale, the Company paid a commission of $600,000, of
which $350,000 was paid to Vornado pursuant to the 1992 Leasing Agreement
between the companies.
On May 30, 2002 the Company entered into an agreement to sell its
subsidiary which owns the building and has the ground lease for its property in
Flushing, New York for $18,800,000 which would result in a gain of approximately
$15,800,000. The Company has received a non-refundable deposit of $1,875,000
from the purchaser. By Notice of Default dated August 16, 2002, the Landlord of
the premises notified the Company of certain alleged defaults under the lease,
including, but not limited to the fact that the purchaser performed unauthorized
construction at the premises. The Company commenced an action for injunctive
relief and a declaration of the rights and obligations of the parties under the
lease. The Company has obtained an injunction which temporarily restrains the
Landlord from terminating the lease. On September 6, 2002, the scheduled closing
date, the Company notified the purchaser that the purchaser failed to close and
is in default of its obligations under the purchase contract. While negotiations
are in process with the parties to attempt to settle the disputes, there can be
no assurance that the sale will be consummated, or that the dispute with the
Landlord will be resolved favorably, or that the deposit will not be required to
be returned. The Company continues to explore all of its options, including
subleasing the property.
Debt
Below is a summary of the Company's properties and their encumbrances at
December 31, 2002:
Debt
Outstanding Interest Maturity
Property (in 000's) Rate Dates
--------------- --------------- --------------- ---------------
Kings Plaza Shopping Center $ 219,307,000 7.46% 6/10/11
Rego Park 82,000,000 7.25% 6/10/09
Paramus 68,000,000 5.92% 10/5/11
Lexington Avenue 55,500,000 3.94% 1/3/06
Rego Park II (raw land) -- -- --
Flushing (lease interest) -- -- --
Vornado loan 119,000,000 12.48% 1/3/06
---------------
Total $ 543,807,000
===============
*Represents initial funding on a $490 million construction loan.
At December 31, 2002, the principal repayments for the next five years and
thereafter are as follows:
Year Ending December 31,
------------------------
2003 $ 2,721,000
2004 3,226,000
2005 3,895,000
2006 178,699,000
2007 4,526,000
Thereafter 350,740,000
-19-
At December 31, 2002, the Company was indebted to Vornado in the amount of
$119,000,000 comprised of (i) $95,000,000 financing, and (ii) $24,000,000 under
a $50,000,000 line of credit (which carries a 1% unused commitment fee). The
interest rate on the loan and the line of credit which is currently 12.48%, will
reset quarterly using a Treasury index (with a 3% floor) plus the same spread to
treasuries as previously existed.
The Company has additional borrowing capacity of $26,000,000 under its
line of credit with Vornado. The Company can also raise additional capital
through mezzanine level borrowing (deeply subordinated debt which is not secured
by a senior interest in assets) and through the sale of securities and assets
(the Company estimates that the fair market value of its assets are
substantially in excess of their historical cost). The Company continues to
evaluate its financing alternatives. Based on discussions with third party
lenders, the Company believes it could borrow an additional $60 to $70 million
through the refinancing of its Kings Plaza and Rego Park I properties at the
mezzanine level and repay a portion of the Vornado loan; however the interest
rate on this incremental debt would be substantially in excess of the interest
rate under the Vornado line of credit which is 12.48% at December 31, 2002,
therefore the Company does not intend to pursue such refinancings at this time.
Although there can be no assurance, the Company believes that its cash
sources as outlined above will be adequate to fund its cash requirements until
its operations generate adequate cash flow.
CASH FLOWS
Year Ended December 31, 2002
Net cash provided by operating activities of $7,643,000 was comprised of
(i) net income of $23,584,000 (ii) non-cash items of $5,935,000, offset by and
(iii) the net change in operating assets and liabilities of $11,341,000 and
(iii) gain on sale of Third Avenue property of $10,366,000 (iv) gain on sale of
air rights of $169,000. The adjustments for non-cash items are primarily
comprised of (i) depreciation and amortization of $9,034,000, offset by (ii) the
effect of straight-lining of rental income of $3,099,000.
Net cash used in investing activities of $114,028,000 (includes cash
provided by discontinued operations of $15,051,000) was comprised of capital
expenditures of $133,250,000, partially offset by proceeds from the sale of
Third Avenue property of $13,176,000. The capital expenditures were primarily
related to Lexington Avenue development.
Net cash provided by financing activities of $16,366,000 resulted
primarily from an increase in debt of $55,500,000, partially offset by debt
repayments of $27,524,000 and debt issuance costs of $11,110,000.
Year Ended December 31, 2001
Net cash provided by operating activities of $9,839,000 was comprised of
(i) net income of $27,386,000, (ii) non-cash items of $4,824,000, (iii)
write-off of architectural and engineering costs of $3,058,000 associated with
the development plans prior to the IKEA Property, Inc. ground lease, (iv)
write-off of professional fees of $2,030,000 resulting from the termination of
the spin-off of Alexander's Tower LLC, offset by (v) gain on sale of Fordham
Road property of $19,026,000, (vi) a gain from early extinguishment of debt of
$3,534,000, and (vii) the net change in operating assets and liabilities of
$4,899,000. The adjustments for non-cash items are primarily comprised of (i)
depreciation and amortization of $7,973,000, offset by (ii) the effect of
straight-lining of rental income of $3,149,000.
Net cash used in investing activities of $22,995,000 was comprised of (i)
proceeds from the sale of Fordham Road property of $23,701,000, (ii) the release
of restricted cash of $21,670,000, offset by (iii) capital expenditures of
$48,490,000 and (iv) an increase in restricted cash of $19,876,000. The capital
expenditures were primarily comprised of (i) capitalized interest and other
carrying costs of $21,378,000, (ii) renovations to the Kings Plaza Regional
Shopping Center of $3,651,000 and (iii) excavation, foundation and
predevelopment costs at Lexington Avenue of $21,599,000.
Net cash provided by financing activities of $146,142,000 was comprised of
(i) proceeds from the issuance of debt of $300,685,000 offset by, (ii) repayment
of debt of $149,337,000, and (iii) debt issuance costs of $5,206,000.
-20-
Year Ended December 31, 2000
Cash provided by operating activities of $10,741,000 was comprised of
net income of $5,197,000, non-cash items of $4,540,000 and the net change in
operating assets and liabilities of $1,004,000. The adjustments for non-cash
items are comprised of depreciation and amortization of $8,049,000 and the
effect of straight-lining of rental income of $3,509,000.
Net cash used in investing activities of $65,636,000 was comprised of
capital expenditures of $77,931,000, offset by the release of restricted cash of
$12,295,000. The capital expenditures were primarily comprised of: (i)
excavation, foundation and predevelopment costs at Lexington Avenue of
$35,300,000, (ii) renovations to the Kings Plaza Regional Shopping Center of
$22,700,000, and (iii) capitalized interest and other carrying costs of
$18,800,000.
Net cash provided by financing activities of $31,114,000 was comprised
of (i) proceeds from the issuance of debt of $38,849,000, offset by (ii) payment
of acquisition obligation of $6,936,000, (iii) repayments of debt of $222,000
and (iv) debt issuance costs of $577,000.
Funds from Operations for the Years Ended December 31, 2002 and 2001
Funds from operations were $14,633,000 in the year ended December 31,
2002, an increase of $8,848,000 from the prior year. The following table
reconciles funds from operations and net income:
2002 2001
---- ----
Net income $ 23,584,000 $ 27,386,000
Depreciation and amortization of
real property 6,703,000 6,508,000
Straight-lining of property rentals
for rent escalations (3,099,000) (3,149,000)
Gain on sale of Third Avenue property (10,366,000) --
Gain on sale of Fordham Road property -- (19,026,000)
Gain from early extinguishment of debt -- (3,534,000)
Leasing fees paid in excess
of expense recognized (2,189,000) (2,400,000)
------------- -------------
$ 14,633,000 $ 5,785,000
============= =============
Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs, which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use of
funds from operations. Funds from operations should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or as an alternative to cash flows as a measure of liquidity. Management
considers funds from operations a relevant supplemental measure of operating
performance because it provides a basis for comparison among REITs; however,
funds from operations may not be comparable to similarly titled measures
reported by other REITs since the Company's method of calculating funds from
operations is different from that used by NAREIT. Funds from operations, as
defined by NAREIT, represents net income before depreciation and amortization,
extraordinary items and gains or losses on sales of real estate. Funds from
operations as disclosed above has been modified to adjust for the effect of
straight-lining of property rentals for rent escalations and leasing fee
expenses paid directly to Vornado Realty Trust. Below are the cash flows
provided by (used in) operating, investing and financing activities:
2002 2001
---- ----
Operating activities $ 7,643,000 $ 9,839,000
=============== ==============
Investing activities $ (114,028,000) $ (22,995,000)
=============== ==============
Financing activities $ 16,366,000 $ 146,142,000
=============== ==============
-21-
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 142- Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets (effective January 1, 2002). The adoption of SFAS No. 142 did
not have a material effect on the Company's Financial Statements.
SFAS No. 143- Accounting for Asset Retirement Obligations and SFAS No.
144- Accounting for the Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (effective January 1, 2003). SFAS No. 144, Accounting for
the Impairment of Disposal of Long-Lived Assets (effective January 1, 2002).
SFAS No. 143 requires the recording of the fair value of a liability for an
asset retirement obligation in the period which it is incurred. SFAS No. 144
supersedes current accounting literature and now provides for a single
accounting model for long-lived assets to be disposed of by sale and requires
discontinued operations presentations for disposals of a "component" of an
entity. The adoption of these statements did not have a material effect on the
Company's financial statements; however under SFAS No. 144, the Company has
reclassified its statement of operations to reflect income and expenses for the
properties which are held for sale or sold during 2002 as discontinued
operations.
SFAS No. 145- Rescission of No. 4, 44 and 64, Amendment of SFAS No. 13,
and Technical Corrections
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction.
SFAS No. 145 requires, among other things, (i) that the modification of a lease
that results in a change of the classification of the lease from capital to
operating under the provisions of SFAS No. 13 be accounted for as a
sale-leaseback transaction and (ii) the reporting of gains or losses from the
early extinguishment of debt as extraordinary items only if they met the
criteria of Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations. The Company reclassified the $3,534,000 gain from extraordinary
items to a gain from early extinguishment of debt in 2001. As permitted by this
statement, the Company elected to apply the provision applying to early
extinguishment of debt for the Company's 2002 and all prior Financial Statements
accordingly.
SFAS No. 146- Accounting for Costs Associated with Exit or Disposal
Activities
In July 2002, FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (effective January 1, 2003). SFAS No. 146
replaces current accounting literature and requires the recognition of costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. The Company does not
believe the adoption of SFAS No. 146 will have a material effect on the
Company's financial statements.
SFAS No. 148- Accounting For Stock-Based Compensation- Transition and
Disclosure- An Amendment of FASB Statement No. 123
On August 7, 2002, the FASB issued Statement No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB
Statement No. 123 to amend the transition and disclosure provisions of SFAS No.
123. Specifically, SFAS No. 123, as amended, would permit two additional
transition methods for entities that adopt the fair value method of accounting
for stock based employee compensation. The Company does not believe the adoption
of SFAS No. 148 will have a material effect on the Company's financial
statements.
-22-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to a change in interest rates is as follows:
2002 2001
--------------------------------------------- -----------------------------
Weighted Effect of 1% Weighted
December 31, Average Change In December 31, Average
Balance Interest Rate Base Rates Balance Interest Rate
------- ------------- ---------- ------- -------------
Variable rate 174,500,000 $9.76% $1,745,000 $ 25,000,000 4.95%
Fixed rate 369,307,000 7.13% -- 490,831,000 8.73%
----------- ---- --------- ------------
$543,807,000 1,745,000 $515,831,000
=========== ========= ============
Total decrease in the
Company's annual net income $1,745,000
=========
Per share-diluted $ .35
=========
The Company is further subject to interest rate risk with respect to its
fixed rate financing in that changes in interest rates will impact the fair
value of the Company's fixed rate financing.
-23-
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
Number
------
Independent Auditors' Report 25
Consolidated Balance Sheets at December 31, 2002 and 2001 26
Consolidated Statements of Income for the
Years Ended December 31, 2002, 2001 and 2000 28
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2002, 2001 and 2000 29
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2002, 2001 and 2000 30
Notes to Consolidated Financial Statements 31
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
-24-
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
of Alexander's, Inc.
Paramus, New Jersey
We have audited the accompanying consolidated balance sheets of Alexander's,
Inc. and Subsidiaries (the "Company") as of December 31, 2002 and 2001 and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2002. Our audits
also included the financial statement schedules listed in the index at Item
15(a)(2). These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2002, and 2001, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
As discussed in Note 12 to the consolidated financial statements, the Company
has changed its presentation of the consolidated financial statements to conform
to Statement of Financial Accounting Standards No. 144.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 5, 2003
-25-
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share amounts)
- --------------------------------------------------------------------------------
December 31,
------------
2002 2001
---- ----
ASSETS:
Real estate, at cost:
Land $ 90,768 $ 90,768
Buildings, leaseholds and leasehold improvements 173,368 168,388
Construction in progress (including Vornado fees of $13,325 and $3,367) 315,781 154,545
Air rights acquired for Lexington Avenue development 17,531 14,191
--------- ---------
Total 597,448 427,892
Less accumulated depreciation and amortization (55,975) (51,463)
--------- ---------
Real estate, net 541,473 376,429
Assets held for sale 1,502 3,930
Cash and cash equivalents 45,239 135,258
Restricted cash 2,425 6,596
Accounts receivable, net of allowance for doubtful accounts
of $96 and $929 in 2002 and 2001 2,508 1,534
Receivable arising from the straight-lining of rents, net 20,670 18,233
Deferred lease and other property costs
(including unamortized Vornado leasing fees of $14,837 and $15,154) 27,765 29,371
Deferred debt expense, net 14,619 5,840
Other assets 8,711 6,148
--------- ---------
TOTAL ASSETS $ 664,912 $ 583,339
========= =========
See notes to consolidated financial statements
-26-
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(amounts in thousands except share amounts)
- --------------------------------------------------------------------------------
December 31,
------------
2002 2001
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY:
Debt (including $119,000 due to
Vornado in 2002 and 2001) $ 543,807 $ 515,831
Amounts due to Vornado 11,294 4,822
Accounts payable and accrued expenses 36,895 13,940
Other liabilities 4,251 3,665
--------- ---------
TOTAL LIABILITIES 596,247 538,258
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock: no par value; authorized, 3,000,000 shares;
issued, none
Common stock: $1.00 par value per share; authorized, 10,000,000 shares;
issued, 5,173,450 shares 5,174 5,174
Additional capital 24,843 24,843
Retained earnings 39,608 16,024
--------- ---------
69,625 46,041
Less treasury shares, 172,600 shares at cost (960) (960)
--------- ---------
Total stockholders' equity 68,665 45,081
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 664,912 $ 583,339
========= =========
See notes to consolidated financial statements
-27-
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except share amounts)
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
REVENUES:
Property rentals $ 50,040 $ 44,022 $ 41,777
Expense reimbursements 26,153 23,220 20,378
-------- -------- --------
Total revenues 76,193 67,242 62,155
-------- -------- --------
EXPENSES:
Operating (including management fees of $1,442, $1,362 and $1,337
to Vornado) 31,569 27,870 27,153
Write-off of architectural and engineering costs associated with
development plans of Paramus prior to IKEA -- 3,058 --
General and administrative (including management
fees of $2,160 to Vornado in each year) 3,960 3,824 3,838
Depreciation and amortization 6,638 6,423 5,479
-------- -------- --------
Total expenses 42,167 41,175 36,470
-------- -------- --------
OPERATING INCOME 34,026 26,067 25,685
Interest and debt expense
(including interest on loans from Vornado) (22,888) (24,469) (21,424)
Interest and other income, net 2,178 3,227 1,124
Gain on sale of Fordham Road property -- 19,026 --
Gain on early extinguishment of debt -- 3,534 --
Write-off professional fees resulting from the termination of
the spin-off of Alexander's
Tower LLC -- (2,030) --
Minority Interest -- (49) --
-------- -------- --------
Income from continuing operations 13,316 27,306 5,385
Income (loss) from discontinued operations 10,268 80 (188)
-------- -------- --------
NET INCOME $ 23,584 $ 27,386 $ 5,197
======== ======== ========
Income (Loss) per share(basic and diluted):
Continuing operations $ 2.66 $ 5.46 $ 1.08
Discontinued operations 2.06 .02 (.04)
-------- -------- --------
Net income $ 4.72 $ 5.48 $ 1.04
======== ======== ========
See notes to consolidated financial statements.
-28-
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands)
- --------------------------------------------------------------------------------
Retained
Additional Earnings/ Treasury Stockholders'
Common Stock Capital (Deficit) Stock Equity
------------ ------- --------- ----- ------
Balance, January 1, 2000 $ 5,174 $ 24,843 $ (16,559) $ (960) $ 12,498
Net income -- -- 5,197 -- 5,197
-------- -------- ---------- -------- ---------
Balance, December 31, 2000 5,174 24,843 (11,362) (960) 17,695
Net income -- -- 27,386 -- 27,386
-------- -------- ---------- -------- ---------
Balance, December 31, 2001 5,174 24,843 16,024 (960) 45,081
Net income -- -- 23,584 -- 23,584
-------- -------- ---------- -------- ---------
Balance, December 31, 2002 $ 5,174 $ 24,843 $ 39,608 $ (960) $ 68,665
======== ======== ========== ======== =========
See notes to consolidated financial statements
-29-
ALEXANDER'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 13,316 $ 27,306 $ 5,385
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operating activities:
Depreciation and amortization (including debt issuance costs) 8,969 7,888 7,985
Straight-lining of rental income, net (3,099) (3,149) (3,509)
Gain on Sale of air rights (169) -- --
Gain on Sale of Fordham Road property -- (19,026) --
Gain from early extinguishment of debt -- (3,534) --
Write-off of architectural and engineering costs associated with
development plans prior to the IKEA Property Inc. ground lease -- 3,058 --
Write-off of professional fees resulting from the termination of the
spin-off of Alexander's Tower LLC -- 2,030 --
Change in assets and liabilities:
Accounts receivable (974) 189 1,630
Amounts due to Vornado and its affiliate (3,115) 3,555 (2,554)
Accounts payable and accrued expenses (2,845) 348 3,017
Other liabilities (789) 932 (546)
Other (3,618) (9,923) (543)
--------- --------- --------
Net cash provided by operating activities of continuing operations 7,676 9,674 10,865
--------- --------- --------
Income (loss) from discontinued operations 10,268 80 (188)
Depreciation and amortization 65 85 64
Gain on sale of Third Avenue property (10,366) --
--------- --------- --------
Net cash (used in) provided by discontinued operations (33) 165 (124)
--------- --------- --------
Net cash provided by operating activities 7,643 9,839 10,741
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash flow from continuing operations:
Additions to real estate (133,250) (48,490) (77,931)
Cash made available for construction financing -- 8,388 12,202
Cash made available for operating liabilities 13,574 13,282 93
Cash restricted for operating liability (9,403) (19,876) --
Proceeds from sale of Fordham Road property -- 23,701 --
--------- --------- --------
Net cash used in continuing operations (129,079) (22,995) (65,636)
--------- --------- --------
Cash flows from discontinued operations:
Proceeds from sale of Third Avenue property 13,176 -- --
Deposit on sale of Flushing 1,875 -- --
--------- --------- --------
Net cash provided by discontinued operations 15,051 -- --
--------- --------- --------
Net cash used in investing activities (114,028) (22,995) (65,636)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt 55,500 300,685 38,849
Debt repayments (27,524) (149,337) (222)
Deferred debt expense (11,110) (5,206) (577)
Payment of acquisition obligation (500) (--) (6,936)
--------- --------- --------
Net cash provided by financing activities 16,366 146,142 31,114
--------- --------- --------
Net (decrease) increase in cash and cash equivalents (90,019) 132,986 (23,781)
Cash and cash equivalents at the beginning of the year 135,258 2,272 26,053
--------- --------- --------
Cash and cash equivalents at the end of the year $ 45,239 $ 135,258 $ 2,272
========= ========= ========
SUPPLEMENTAL INFORMATION:
Cash payments for interest (of which $23,788, $19,259 and $16,731
have been capitalized) $ 45,818 $ 38,793 $ 33,979
========= ========= ========
See notes to consolidated financial statements.
-30-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS
Alexander's, Inc. (the "Company") is a real estate investment trust
("REIT") engaged in leasing, managing, developing and redeveloping properties.
Alexander's activities are conducted through its manager, Vornado Realty Trust
("Vornado").
Alexander's operating properties do not generate sufficient cash flow to
pay all of its expenses. After the completion of the Lexington Avenue property,
which is not expected until 2005, the Company expects that cash flow will become
positive.
The Company has additional borrowing capacity of $26,000,000 under its line
of credit with Vornado. The Company can also raise additional capital through
mezzanine level borrowing (deeply subordinated debt which is not secured by a
senior interest in assets) and through the sale of securities and assets (the
Company estimates that the fair market value of its assets are substantially in
excess of their historical cost). Although there can be no assurance, the
Company believes that these cash sources will be adequate to fund cash
requirements until its operations generate adequate cash flow.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated. Certain reclassifications to
prior year amounts have been made to conform with the current year's
presentation. The Company currently operates in one business segment.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Cash and Cash Equivalents -- The Company includes in cash and cash
equivalents both cash and short-term highly liquid investments purchased with
original maturities of three months or less. Cash and cash equivalents does not
include cash restricted for construction financing and operating liabilities
which is disclosed separately.
Fair Value of Financial Instruments - All financial instruments of the
Company are reflected in the accompanying Consolidated Balance Sheets at
historical cost which, in management's estimation, based upon an interpretation
of available market information and valuation methodologies (including
discounted cash flow analyses with regard to fixed rate debt), reasonably
approximates their fair values. Such fair value estimates are not necessarily
indicative of the amounts that would be realized upon disposition of the
Company's financial instruments.
Real Estate and Other Property - Real estate and other property is carried
at cost, net of accumulated depreciation. Depreciation is provided on buildings
and improvements on a straight-line basis over their estimated useful lives
ranging from four years to forty years. When real estate and other property is
undergoing development activities, all property operating expenses, including
interest expense, are capitalized to the cost of the real property to the extent
that management believes such costs are recoverable through the value of the
property.
The Company's properties are reviewed for impairment if events or changes
in circumstances indicate that the carrying amount of the property may not be
recoverable. In such an event, a comparison is made of the current and projected
operating cash flows of each such property into the foreseeable future on an
undiscounted basis, to the carrying amount of such property. Such carrying
amount would be adjusted, if necessary, to reflect an impairment in the value of
the asset.
-31-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred Charges - Direct financing costs are deferred and amortized over
the terms of the related agreements as a component of interest expense. Direct
costs related to leasing activities are capitalized and amortized on a
straight-line basis over the lives of the related leases. All other deferred
charges are amortized on a straight-line basis, which approximates the effective
interest rate method, in accordance with the terms of the agreements to which
they relate.
Revenue Recognition - The Company has the following revenue sources and
revenue recognition policies: Base rent - income arising from tenant leases.
These rents are recognized over the non-cancellable term of the related leases
on a straight-line basis which included the rent steps and free rent abatements
under the leases.
Percentage Rents - income arising from retail tenant leases which are contingent
upon the sales of the tenant exceeding a defined threshold. These rents are
recognized in accordance with SAB 101, which states that this income is to be
recognized only after the contingency has been removed (i.e. sales threshold
have been achieved).
Expenses Reimbursement Income - income arising from tenant leases which provide
for the recovery of all or a portion of the operating expenses and real estate
taxes of the respective property. This income is accrued in the same periods as
the expenses are incurred.
Income Taxes - The Company operates in a manner intended to enable it to
continue to qualify as a REIT under sections 856 through 860 of the Internal
Revenue Code of 1986, as amended (the "Code"). Under the Code, the Company's net
operating loss carryovers ("NOL") generally would be available to offset the
amount of the Company's REIT taxable income that otherwise would be required to
be distributed as a dividend to its stockholders.
The Company has reported NOL's for federal tax purposes of approximately
$94,000,000 at December 31, 2002, expiring from 2007 to 2015. The Company also
has investment tax and targeted jobs tax credits of approximately $2,800,000
expiring in 2008 through 2014.
The following table reconciles net income to taxable income for the year
ended December 31, 2002, 2001,and 2000.
Years Ended December 31,
------------------------
2002 2001 2000
---- ---- ----
Net income $ 23,584,000 $ 27,386,000 $ 5,197,000
Straight-line rent adjustments (2,953,000) (3,002,000) (3,632,000)
Depreciation and amortization timing differences 2,985,000 2,625,000 2,903,000
Book/tax difference on gain of sale of assets 1,345,000 16,026,000 --
Interest expense (2,972,000) (6,515,000) (6,132,000)
Other 988,000 (1,181,000) 277,000
------------- ------------- -------------
Taxable income (loss) 22,977,000 35,339,000 (1,387,000)
NOL Carry Forward opening balance (117,041,000) (152,380,000) (150,993,000
------------- ------------- -------------
NOL Available ending balance $ (94,064,000) $(117,041,000) $(152,380,000)
============= ============= =============
The net basis in the Company's assets and liabilities for tax purposes is
approximately $42,000,000 lower than the amount reported for financial statement
purposes.
Amounts Per Share - Basic income per share excludes any dilutive effects
of stock options. Stock options outstanding were not dilutive in any period.
Stock Options - The Company accounts for stock-based compensation using
the intrinsic value method. Under the intrinsic value method compensation cost
is measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the exercise price of the option granted.
Compensation cost for stock options, if any, is recognized ratably over the
vesting period. The Company's policy is to grant options with an exercise price
equal to the quoted market price of the Company's stock on the grant date.
Accordingly, no compensation cost has been recognized for the Company's stock
option plans.
-32-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stock Appreciation Rights - Stock Appreciation Rights (SARs) are granted
at 100% of the market price of the Common Stock on the date of grant. SARs vest
ratably, becoming fully vested 36 months after grant. Expense is recognized
ratably in the statement of income if the stock price exceeds the exercise price
at the balance sheet date. On subsequent balance sheet dates, if the stock price
falls, the previously recognized expense is reversed, but not below zero.
Recently Issued Accounting Standards
SFAS No. 142- Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets (effective January 1, 2002). The adoption of SFAS No. 142 did
not have a material effect on the Company's Financial statements.
SFAS No. 143- Accounting for Asset Retirement Obligations and SFAS No.
144- Accounting for the Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (effective January 1, 2003). SFAS No. 144, Accounting for
the Impairment of Disposal of Long-Lived Assets (effective January 1, 2002).
SFAS No. 143 requires the recording of the fair value of a liability for an
asset retirement obligation in the period which it is incurred. SFAS No. 144
supersedes current accounting literature and now provides for a single
accounting model for long-lived assets to be disposed of by sale and requires
discontinued operations presentations for disposals of a "component" of an
entity. The adoption of these statements did not have a material effect on the
Company's financial statements; however under SFAS No. 144 the company has
reclassified its statement of operations to reflect income and expenses for the
properties which are held for sale or sold during 2002 as discontinued
operations.
SFAS No. 145- Rescission of No. 4, 44 and 64, Amendment of SFAS No. 13,
and Technical Corrections
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction.
SFAS No. 145 requires, among other things, (i) that the modification of a lease
that results in a change of the classification of the lease from capital to
operating under the provisions of SFAS No. 13 be accounted for as a
sale-leaseback transaction and (ii) the reporting of gains or losses from the
early extinguishment of debt as extraordinary items only if they met the
criteria of Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations. The Company reclassified the $3,534,000 gain from extraordinary
items to a gain from early extinguishment of debt in 2001. As permitted by this
statement, the Company elected to apply the provision applying to early
extinguishment of debt for the Company's 2002 and all prior Financial Statements
accordingly.
SFAS No. 146- Accounting for Costs Associated with Exit or Disposal
Activities
In July 2002, FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (effective January 1, 2003). SFAS No. 146
replaces current accounting literature and requires the recognition of costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. The Company does not
believe the adoption of SFAS No. 146 will have a material effect on the
Company's financial statements.
SFAS No. 148- Accounting For Stock-Based Compensation- Transition and
Disclosure- An Amendment of FASB Statement No. 123
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ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On August 7, 2002, the FASB issued Statement No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB
Statement No. 123 to amend the transition and disclosure provisions of SFAS No.
123. Specifically, SFAS No. 123, as amended, would permit two additional
transition methods for entities that adopt the fair value method of accounting
for stock based employee compensation. The Company does not believe the adoption
of SFAS No. 148 will have a material effect on the Company's financial
statements.
3. DEBT
Below is a summary of the Company's outstanding debt.
Interest
Rate as of Balance as of December 31,
December 31, --------------------------
Maturity 2002 2002 2001
-------- ---- ---- ----
January
Term loan to Vornado (1) 2006 12.48% $ 119,000,000 $ 119,000,000
First mortgage loan, secured by
the Company's Kings Plaza June
Regional Shopping Center (2) 2001 7.46% 219,307,000 221,831,000
First mortgage loan, secured by the May
Company's Rego Park I Shopping Center (3) 2009 7.25% 82,000,000 82,000,000
First mortgage loan secured by the October
Company's Paramus Property (4) 2011 5.92% 68,000,000 68,000,000
Construction loan, secured by the
Company's Lexington Avenue Property January
(see Note 5) 2006 3.94% 55,500,000 --
Secured note (5) -- 15,000,000
Term loan to bank (6) -- 10,000,000
-------------- --------------
$ 543,807,000 $ 515,831,000
============== ==============
- ----------
(1) At December 31, 2002, the Company was indebted to Vornado in the amount
of $119,000,000 comprised of (i) $95,000,000 financing, and (ii)
$24,000,000 under a $50,000,000 line of credit (which carries a 1%
unused commitment fee). The interest rate on the loan and line of
credit is 12.48% and the maturity has been extended to the earlier of
January 3, 2006 or the date the Lexington Avenue construction loan is
repaid in full. The interest rate on the loan and line of credit will
reset quarterly, using the same spread to treasuries as presently
exists and a 3.00% floor for treasuries.
The Company's subsidiary, 59th Street Corporation is the borrower with
respect to $40 million of the Vornado loans, which is guaranteed by the
Company and the Company is the borrower for the remaining $79 million.
The existing collateral for each of the Vornado loans is as follows:
(i) back-up guaranties given by Alexander's of Rego Park II, Inc.
("Rego II"), Alexander's Rego Park III, Inc. ("Rego III") and
Alexander's of Flushing, Inc. ("Flushing"), (ii) a pledge given by the
Company of its interest in the entities holding the commercial and
residential parcels comprising the Lexington Avenue property, Flushing,
Rego II and Rego III and (iii) a lockbox agreement between the Company
-34-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
and Vornado, giving Vornado a security interest and springing control
of the Company's corporate bank account into which, among other things,
any distributions to the Company from its subsidiaries owning the Kings
Plaza shopping center, the Rego Park shopping center, and the Paramus
property are deposited and (iv) unrecorded mortgages on the Rego II and
Rego III properties given by such entities to secure their guaranties.
(2) On June 1, 2001, the Company, through a newly formed subsidiary,
completed a $223,000,000 refinancing of its subsidiary's Kings Plaza
Regional Shopping Center property and repaid the then existing balance
of $115,210,000 of debt collateralized by the property from the
proceeds of the new loan. The mortgage matures in June 2011 and bears
interest at a fixed rate of 7.46%. Monthly payments include principal
based on a 27-year amortization schedule.
(3) The mortgage loan, which is an obligation of a wholly-owned subsidiary,
matures in May, 2009 and is secured by a mortgage on the Rego Park I
property and guaranteed by the Company. The loan bears interest at a
fixed rate of 7.25%. Amortization of principal begins in July 2004 on a
30-year schedule.
(4) The $68,000,000 interest only, non-recourse mortgage loan on the
Paramus property is from a third party lender. The fixed interest rate
on the debt is 5.92% with interest payable monthly until maturity in
October, 2011.
(5) The note was secured by a third mortgage on the Lexington Avenue
property. This note has been satisfied in connection with the closing
of the construction loan for Lexington Avenue development.
(6) The loan has been satisfied in connection with the closing of the
construction loan for Lexington Avenue development.
At December 31, 2002, the principal repayments for the next five years and
thereafter are as follows:
Year Ending December 31,
------------------------
2003 $ 2,721,000
2004 3,226,000
2005 3,895,000
2006 178,699,000
2007 4,526,000
Thereafter 350,740,000
All of the Company's debt is secured by mortgages and/or pledges of the
stock of subsidiaries holding the properties. The net carrying value of real
estate collateralizing the debt amounted to $542,848,000 at December 31, 2002.
The Company's debt instruments, consisting of mortgage loans secured by
its properties (which are generally non-recourse to the Company), contain
customary covenants requiring the Company to maintain insurance. There can be no
assurance that the lenders under these instruments will not take the position
that an exclusion from all risk insurance coverage for losses due to terrorist
acts is a breach of these debt instruments that allows the lenders to declare an
event of default and accelerate repayment of debt. In addition, if lenders
insist on coverage for these risks, it could adversely affect the Company's
ability to finance and/or refinance its properties, including the construction
of its Lexington Avenue development property.
On November 26, 2002, the Terrorism Risk Insurance Act of 2002 was
signed into law. Under this new legislation, through 2004 (with a possible
extension through 2005), regulated insurers must offer coverage in their
commercial property and casualty policies (including existing policies) for
losses resulting from defined "acts of terrorism". The Company's current
property insurance carrier has advised us that there will be no additional
premium for this coverage through the end of the policy term, June 30, 2003. The
carrier has further advised us that the situation may change at renewal.
-35-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LEASES
As Lessor
The Company leases properties to tenants. The rental terms for the
properties leased range from 5 years to approximately 40 years. The leases
provide for the payment of fixed base rentals payable monthly in advance and for
the payment by the lessees of additional rents based on a percentage of the
tenants' sales as well as reimbursements of real estate taxes, insurance and
maintenance.
Future base rental revenue under these noncancellable operating leases
(other than leases which have not commenced, including Bloomberg) is as follows:
Year Ending Total
December 31, Amounts
------------ -------
2003 $ 39,175,000
2004 39,101,000
2005 38,981,000
2006 37,260,000
2007 34,201,000
Thereafter 445,734,000
Sears accounted for 19%, 21% and 21% of the Company's consolidated
revenues for the years ended December 31, 2002, 2001, and 2000, respectively. No
other tenant accounted for more than 10% of revenues.
As Lessee
The Company is a tenant under long-term leases. Future minimum lease
payments under the operating leases are as follows:
Year Ending Total
December 31, Amounts
------------ -------
2003 $ 416,000
2004 416,000
2005 416,000
2006 416,000
2007 315,000
Thereafter 4,532,000
Rent expense was $416,000 for each of the years ended December 31,
2002, 2001 and 2000.
5. LEXINGTON AVENUE
On May 1, 2001 the Company entered into a lease agreement with
Bloomberg L.P. to lease approximately 690,000 square feet. The initial term of
the lease is for 25 years, with a ten-year renewal option. Base annual net rent
is $34,529,000 in each of the first four years and $38,533,000 in the fifth year
with a similar percentage increase each four years thereafter. There can be no
assurance that the project ultimately will be completed, completed on time or
completed for the budgeted amount. If the project is not completed on a timely
basis, the lease may be cancelled and significant penalties may apply.
The development plans at Lexington Avenue consist of approximately 1.3
million square foot multi-use building. The building will contain approximately
154,000 net rentable square feet of retail (45,000 square feet of which has been
leased to Hennes & Mauritz), approximately 878,000 net rentable square feet of
office (695,000 square feet of which has been leased to Bloomberg L.P.) and
approximately 248,000 net saleable square feet of residential consisting of
condominium units (through a taxable REIT subsidiary). Construction is expected
to be completed in 2004. On July 3, 2002 the Company finalized a $490,000,000
loan with HVB Real Estate Capital
-36-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Hypo Vereinsbank) to finance the construction of the Lexington Avenue
property (the "Construction Loan"). The estimated construction costs in excess
of the construction loan of approximately $140,000,000 of which $107,000,000 has
been expended through December 31, 2002. The Construction Loan has an interest
rate of LIBOR plus 2.5% (currently 4.32%) and a term of forty-two months subject
to two one-year extensions. The Company received an initial funding of
$55,500,000 under the Construction Loan of which $25,000,000 was used to repay
the Company's term loan to a bank in the amount of $10,000,000 and a secured
note in the amount of $15,000,000. Of the total construction budget of
$630,000,000, $162,000,000 has been expended through December 31, 2002, and an
additional $184,000,000 has been committed to. Pursuant to this Construction
Loan, Vornado has agreed to guarantee, among other things, the lien free,
timely, completion of the construction of the project and funding of project
costs in excess of a stated loan budget, if not funded by the Company (the
"Completion Guarantee"). The $6,300,000 estimated fee payable by the Company to
Vornado for the Completion Guarantee is 1% of construction costs (as defined).
In addition, if Vornado should advance any funds under the Completion Guarantee
in excess of the $26,000,000 currently available under the secured line of
credit, interest on those advances is at 15% per annum.
There can be no assurance that the Lexington Avenue project ultimately
will be completed, completed on time or completed for the budgeted amount.
Further, the Company may need additional financing for the project, which may
involve equity, debt, joint ventures and asset sales, and which may involve
arrangements with Vornado Realty Trust. If the project is not completed on a
timely basis, the Bloomberg L.P. lease may be cancelled and significant
penalties may apply.
6. PARAMUS PROPERTY
On October 5, 2001, the Company entered into a ground lease for its
Paramus, N.J. property with IKEA Property, Inc. The lease has a 40-year term
with an option to purchase at the end of the 20th year for $75,000,000. Further,
the Company has obtained a $68,000,000 interest only, non-recourse mortgage loan
on the property from a third party lender. The fixed interest rate on the debt
is 5.92% with interest payable monthly until maturity in October, 2011. The
triple net rent each year is the sum of $700,000 plus the amount of debt service
on the mortgage loan. If the purchase option is not exercised at the end of the
20th year, the triple net rent for the last 20 years must include debt service
sufficient to fully amortize the $68,000,000 over the remaining 20-year lease
period.
7. SALE OF THIRD AVENUE PROPERTY
On August 30, 2002 the Company closed on the sale of its Third Avenue
property, located in the Bronx, New York. The 173,000 square feet property was
sold for $15,000,000, resulting in a gain of $10,366,000. Included in the
expenses relating to the sale, the Company paid a commission of $600,000, of
which $350,000 was paid to Vornado pursuant to the 1992 Leasing Agreement
between the companies.
8. RELATED PARTY TRANSACTIONS
Vornado owns 33.1% of the Company's Common Stock as of December 31,
2002. Steven Roth is Chief Executive Officer and a director of the Company, the
Managing General Partner of Interstate Properties ("Interstate") and Chairman of
the Board and Chief Executive Officer of Vornado. At December 31, 2002, Mr.
Roth, Interstate and the other two general partners of Interstate, David
Mandelbaum and Russell B. Wight, Jr. (who are also directors of the Company and
trustees of Vornado) own, in the aggregate, 27.5% of the outstanding common
stock of the Company, and 12.9% of the outstanding common shares of beneficial
interest of Vornado.
The Company is managed by and its properties are leased by Vornado
pursuant to management, leasing and development agreements with one-year terms
expiring in March of each year which are automatically renewable. In conjunction
with the closing of the Lexington Avenue construction loan on July 3, 2002 (Note
5), these agreements were bifurcated to cover the Company's Lexington Avenue
property separately. Further, the management and development agreements with
Vornado were amended to provide for a term lasting until substantial completion
of the property, with automatic renewals, and for the payment of the development
fee upon the earlier of January 3, 2006 or the payment in full of the
construction loan encumbering the property.
-37-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Pursuant to this construction loan, Vornado has agreed to guarantee
among other things, the lien free, timely completion of the construction of the
project and funding of project costs in excess of a stated loan budget, if not
funded by the Company (the "Completion Guarantee"). The $6,300,000 estimated fee
payable by the Company to Vornado for the Completion Guarantee is 1% of
construction costs (as defined) and is due at the same time that the development
fee is due. In addition, if Vornado should advance any funds under the
Completion Guarantee in excess of the $26,000,000 currently available under the
secured line of credit, discussed below, interest on those advances would be at
15% per annum.
Pursuant to both the pre and post July 3, 2002 management, leasing and
development agreements, Vornado is entitled to a development fee based on 6% of
construction costs as defined. The development fee for the Lexington Avenue
project is estimated to be approximately $26,300,000. At December 31, 2002 the
Company owes Vornado $7,721,000 under the development agreement.
The annual management fee payable by the Company to Vornado is equal to
the sum of (i) $3,000,000, (ii) 3% of the gross income from the Mall, (iii) 6%
of development costs with minimum guaranteed fees of $750,000 per annum, plus
(iv) 1% of construction costs for the Completion Guarantee. The leasing
agreement provides for the Company to pay a fee to Vornado equal to (i) 3% of
the gross proceeds, as defined, from the sale of an asset and (ii) in the event
of a lease or sublease of an asset, 3% of lease rent for the first ten years of
a lease term, 2% of lease rent for the eleventh through the twentieth years of a
lease term and 1% of lease rent for the twenty-first through thirtieth year of a
lease term, subject to the payment of rents by tenants. Such amount is payable
annually in an amount not to exceed $2,500,000, until the present value of such
installments (calculated at a discount rate of 9% per annum) equals the amount
that would have been paid had it been paid at the time the transactions which
gave rise to the commissions occurred. Pursuant to the leasing agreement, in the
event third party real estate brokers are used, the fees to Vornado increase by
1% and Vornado is responsible for the fees to the third party real estate
brokers. At December 31, 2002 the Company owes Vornado $410,000 for leasing
fees. The following table shows the amounts incurred under these agreements:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Management fee $ 3,602,000 $3,522,000 $3,497,000
Development fee, guarantee fee and rent for
development office 10,769,000 1,855,000 750,000
Leasing and other fees $ 3,056,000 3,984,000 2,474,000
----------- ---------- ----------
17,427,000 $9,361,000 $6,721,000
=========== ========== ==========
The Company has $119,000,000 of outstanding loans with Vornado. The
Company incurred interest (includes 1% unused commitment fee) on these loans of
$15,547,000, $17,455,000 and $15,934,000 for the years ended December 31, 2002,
2001 and 2000.
In July 2002, Alexander's Tower LLC, a wholly-owned subsidiary of the
Company purchased 28,821 square feet of air rights from the Lexington Avenue and
30th Street Venture owned by Vornado and an unrelated third party ("the 30th
Street Venture") for a purchase price of $3,458,520 ($120 per square foot) which
is included on the Company's balance sheet in "Construction in Progress". The
Company purchased these air rights in order to increase the amount of square
feet that it could develop for the residential portion of its 59th Street
Project to the maximum amount of air rights permitted for residential use by the
New York City Zoning Code. The 30th Street Venture also identified third party
buyers for 28,111 square feet of air rights which it owned. These third party
buyers desired to use the air rights for the development of two projects located
in upper Manhattan in the general area of 86th Street. However, the air rights
held by the 30th Street Venture could not be transferred to the applicable sites
because the sites were not within the required geographical limited radius nor
were they in the same Community Board District as the 30th Street Venture. The
30th Street Venture asked the Company to sell 28,111 square feet of the
Company's already owned air rights to these third party buyers (which could use
them) and the 30th Street Venture would replace
-38-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
them with 28,111 square feet of the 30th Street Venture's air rights. In October
2002, the Company purchased these air rights from the 30th Street Venture in two
transactions for an aggregate purchased price of $3,058,020 (an average of $109
per square foot). The Company then sold an equal amount of air rights it already
owned at the 59th Street Project, to the third party buyers for an aggregate
sales price of $3,339,000 resulting in a gain of $169,000 which is included as
part of interest and other income in the Company's statement of income.
In connection with tax planning for the development of the Company's
Lexington Avenue property, 100 shares of $.01 par value preferred stock was sold
by 59th Street Corporation (a wholly-owned subsidiary of the Company) to Vornado
on August 1, 2001 for $1,200,000. The non-convertible preferred stock entitles
the holder to cumulative 10% dividends payable semi-annually and is redeemable
at any time at the option of 59th Street Corporation. On December 28, 2001, 59th
Street Corporation redeemed this issue and paid a $49,000 dividend.
As of December 31, 2002, Winston & Strawn, a law firm in which Neil
Underberg, a director of the Company, is a partner, performed legal services for
the Company for which it was paid $480,000, $648,000 and $396,000 for the years
ended December 31, 2002, 2001 and 2000.
9. COMMITMENTS AND CONTINGENCIES
The Company carries comprehensive liability and all risk property
insurance (fire, flood, extended coverage and rental loss insurance) with
respect to its assets. The Company's all risk insurance policies in effect
before September 11, 2001 included coverage for terrorist acts, except for acts
of war. Since September 11, 2001, insurance companies have for the most part
excluded terrorists acts from coverage in all risk policies. The Company has
obtained $200 million of separate aggregate coverage for terrorists acts. In
addition, the Company's builder's risk policy for the Lexington Avenue
Development, which expires on December 1, 2003, includes coverage for terrorist
acts up to $428 million. Therefore, the risk of financial loss in excess of
these limits in the case of terrorist acts (as defined) is the Company's, which
loss could be material.
The Company's debt instruments, consisting of mortgage loans secured by
its properties (which are generally non-recourse to the Company), contain
customary covenants requiring the Company to maintain insurance. There can be no
assurance that the lenders under these instruments will not take the position
that an exclusion from all risk insurance coverage for losses due to terrorist
acts is a breach of these debt instruments that allows the lenders to declare an
event of default and accelerate repayment of debt. In addition, if lenders
insist on coverage for these risks, it could adversely affect the Company's
ability to finance and/or refinance its properties, including the construction
of its Lexington Avenue development property.
On November 26, 2002, the Terrorism Risk Insurance Act of 2002 was
signed into law. Under this new legislation, through 2004 (with a possible
extension through 2005), regulated insurers must offer coverage in their
commercial property and casualty policies (including existing policies) for
losses resulting from defined "acts of terrorism". The Company's current
property insurance carrier has advised us that there will be no additional
premium for this coverage through the end of the policy term, June 30, 2003. The
carrier has further advised us that the situation may change at renewal.
In June 1997, the Kings Plaza Regional Shopping Center (the
"Center"), commissioned an Environmental Study and Contamination Assessment Site
Investigation (the Phase II "Study") to evaluate and delineate environmental
conditions disclosed in a Phase I study. The results of the Study indicate the
presence of petroleum and bis (2-ethylhexyl) phthalate contamination in the soil
and groundwater. The Company has delineated the contamination and has developed
a remediation approach, which is ongoing. The New York State Department of
Environmental Conservation ("NYDEC") has approved a portion of the remediation
approach. The Company accrued $2,675,000 in previous years ($2,087,000 has been
paid as of December 31, 2002) for its estimated obligation with respect to the
clean up of the site, which includes costs of (i) remedial investigation, (ii)
feasibility study, (iii) remedial design, (iv) remedial action and (v)
professional fees. If the NYDEC insists on a more extensive remediation
approach, the Company could incur additional obligations.
-39-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company believes the majority of the contamination may have
resulted from activities of third parties; however, the sources of the
contamination have not been fully identified. Although the Company is pursuing
claims against potentially responsible third parties, there can be no assurance
that such parties will be identified, or if identified, whether these third
parties will be solvent. In addition, the costs associated with pursuing
responsible parties may be cost prohibitive. The Company has not recorded an
asset as of December 31, 2002 for possible recoveries of environmental
remediation costs from potentially responsible third parties.
Neither the Company nor any of its subsidiaries is a party to, nor is
their property the subject of, any material pending legal proceeding other than
routine litigation incidental to their businesses. The Company believes that
these legal actions will not be material to the Company's financial condition or
results of operations.
Letters of Credit
Approximately $8,100,000 in standby letters of credit were issued at
December 31, 2002.
10. STOCK OPTION PLAN
Under the Omnibus Stock Plan (the "Plan"), approved by the Company's
stockholders on May 22, 1996, directors, officers, key employees, employees of
Vornado Realty Trust and any other person or entity as designated by the Omnibus
Stock Plan Committee are eligible to be granted incentive share options and
non-qualified options to purchase common shares. Options granted are at prices
equal to 100% of the market price of the Company's shares at the date of grant,
vest on a graduated basis, becoming fully vested 36 months after grant and
expire ten years after grant. The Plan also provides for the award of Stock
Appreciation Rights, Performance Shares and Restricted Stock, as defined.
If compensation cost for Plan awards had been determined based on fair
value at the grant dates, net income and income per share would have been
reduced to the pro forma amounts below, for the years ended December 31, 2002,
2001 and 2000:
2002 2001 2000
---- ---- ----
Net income:
As reported $23,584,000 $27,386,000 $5,197,000
Pro forma $23,200,000 $25,851,000 $3,662,000
Net income per share
applicable to common
shareholders:
As reported $ 4.72 $ 5.48 $ 1.04
Pro forma $ 4.64 $ 5.17 $ .73
-40-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Plan's status, and changes during the years ended
December 31, 2002, 2001 and 2000 are presented below:
December 31, 2002 December 31, 2001 December 31, 2000
--------------------- ------------------------- --------------------------
Weighted-
Average Weighted- Weighted-
Exercise Average Average
Shares Price Shares Exercise Price Shares Exercise Price
------ ----- ------ -------------- ------ --------------
Outstanding at January 1 105,000 $ 70.38 105,000 $ 70.38 955,000 $ 71.66
Converted to Stock
Appreciation Rights -- -- -- -- (850,000) 71.82
-------- -------- ------- ---------- ---------- -------------
Outstanding at December 31 105,000 $ 70.38 105,000 $ 70.38 105,000 $ 70.38
========== ========== =============
The following table summarizes information about options outstanding
under the Plan at December 31, 2002:
Options outstanding:
Number outstanding at December 31, 2002 105,000
Weighted-average remaining contractual life 6.2 years
Weighted-average exercise price $ 70.375
Options exercisable:
Number exercisable at December 31, 2002 105,000
Weighted-average exercise price $ 70.375
Shares available for future grant at December 31, 2002 were 895,000.
On June 5, 2000, the Board of Directors approved the conversion of
850,000 stock options of two officers/directors into equivalent stock
appreciation rights (SARs). The SARs have the same vesting terms and strike
prices as the options. Since the stock price at December 31, 2002 is less than
the strike price of $71.82, no expense is included in the statement of income
for the year ended December 31, 2002. Similarly, there was no SAR's expense in
the statement of income for the year ended December 31, 2001 and 2000. SARs,
unlike options, are not aggregated under the REIT rules.
-41-
11. INCOME PER SHARE
The following table sets forth the computation of basic and diluted
income per share:
December 31,
-----------------------------------------
2002 2001 2000
---- ---- ----
Numerator:
Income from continuing operations $13,316,000 $27,306,000 $ 5,385,000
Income (loss) from discontinued operations 10,268,000 80,000 (188,000)
----------- ----------- -----------
Net income $23,584,000 $27,386,000 $ 5,197,000
=========== =========== ===========
Denominator
Denominator for basic income per share -
weighted average shares 5,000,850 5,000,850 5,000,850
Effect of dilutive securities:
Employee stock options -- -- 4,927
----------- ----------- -----------
Denominator for diluted income per share-
adjusted weighted average shares and
assumed conversions 5,000,850 5,000,850 5,005,777
=========== =========== ===========
INCOME PER COMMON SHARE -
BASIC AND DILUTED:
Income from continuing operations $ 2.66 $ 5.46 $ 1.08
Income (loss) from discontinued operations 2.06 .02 (.04)
----------- ----------- -----------
Net income per common share $ 4.72 $ 5.48 $ 1.04
=========== =========== ===========
12. DISCONTINUED OPERATIONS
Effective January 1, 2002, the Company changed its method of accounting
for long-lived assets held for sale, in accordance with Statement of Financial
Accounting Standards No.144, Accounting for the Impairment and Disposal of
Long-Lived Assets. This Statement requires that the results of operations, gains
and losses, and cash flows attributed to properties held for sale or sold during
2002 and thereafter, such as Third Avenue and Flushing, be classified as
discontinued operations for all periods presented, and that any assets and
liabilities of properties held for sale be presented separately in the
consolidated balance sheet. Properties held for sale or sold as a result of
sales activities that were initiated prior to 2002, such as Fordham Road,
continue to be accounted for under the applicable prior accounting guidance.
Discontinued operations includes the Company's Third Avenue and
Flushing properties:
December 31,
---------------------------------------------
2002 2001 2000
---- ---- ----
Total revenues $ 1,805,000 $ 2,101,000 $ 1,810,000
Total expenses 1,903,000 2,021,000 1,998,000
------------ ------------ ------------
Net (loss) income (98,000) 80,000 (188,000)
Gain on sale of Third Avenue property 10,366,000 -- --
------------ ------------ ------------
Income (loss) from discontinued operations $ 10,268,000 $ 80,000 $ (188,000)
============ ============ ============
-42-
ALEXANDER'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 30, 2002 the Company entered into an agreement to sell its
subsidiary which owns the building and has the ground lease for its property in
Flushing, New York for $18,800,000 which would result in a gain of approximately
$15,800,000. The Company has received a non-refundable deposit of $1,875,000
from the purchaser. By Notice of Default dated August 16, 2002, the Landlord of
the premises notified the Company of certain alleged defaults under the lease,
including, but not limited to the fact that the purchaser performed unauthorized
construction at the premises. The Company commenced an action for injunctive
relief and a declaration of the rights and obligations of the parties under the
lease. The Company has obtained an injunction which temporarily restrains the
Landlord from terminating the lease. On September 6, 2002, the scheduled closing
date, the Company notified the purchaser that the purchaser failed to close and
is in default of its obligations under the purchase contract. While negotiations
are in process with the parties to attempt to settle the disputes, there can be
no assurance that the sale will be consummated, or that the dispute with the
Landlord will be resolved favorably, or that the deposit will not be required to
be returned. The Company continues to explore all of its options, including
subleasing the property.
13. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
(amounts in thousands except per share amounts)
Net Income (Loss) Net Income (loss) per Common Share (1)
Basic and Diluted
------------------------------------------------ --------------------------------------
Continuing Discontinued Continuing Discontinued
Revenue Operations Operations Total Operations Operations Total
------- ---------- ---------- ----- ---------- ---------- -----
2002
March 31 $ 18,722 $ 3,464 $ 67 $ 3,531 $ .69 $ .02 $ .71
June 30 18,603 (1,243) 110 (1,133)(2) (.25) .02 (.23)
September 30 19,249 7,028 10,352 17,380(2) 1.41 2.07 3.48
December 31 19,619 4,067 (261) 3,806 .81 (.05) .76
2001
March 31 $ 16,450 $ 25,624(5) $ (17)(5) $ 25,607(3) $ 5.12 $ -- $ 5.12
June 30 16,551 2,112 (42) 2,070 .42 (.01) .41
September 30 15,855 2,192 50 2,242 .44 .01 .45
December 31 18,386 (2,622) 89 (2,533)(4) (.52) .01 (.51)
(1) The total for the year may differ from the sum of the quarters as a result
of weighting.
(2) Net of Stock Appreciation Rights (SAR's) expense of $4,236 in the second
quarter of 2002. The third quarter of 2002 includes $4,236 representing the
reversal of the SAR's expense previously recognized during 2002 and a gain
on the sale of the Third Avenue property of $10,366.
(3) Includes a gain on the sale of the Fordham Road property of $19,026 and a
gain from the early extinguishment of debt of $3,534.
(4) Includes of a charge of (i) $3,058 resulting from the write off of
architectural and engineering costs associated with the development plans at
Paramus prior to the IKEA ground lease, and (ii) a charge of $2,030 from the
write-off of professional fees resulting from the termination of the
spin-off of Alexander's Tower LLC.
(5) Adjusted to present the gain on sale of Fordham Road Property and gain on
early extinguishment of debt.
-43-
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and executive officers of the Company will be
contained in a definitive Proxy Statement involving the election of directors
which the Company will file with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended, not
later than 120 days after December 31, 2002, and such information is
incorporated herein by reference. Information concerning Executive Officers of
the Registrant appears on page 12 of this Annual Report on Form 10-K.
Item 11. Executive Compensation
Information concerning executive compensation will be contained in the Proxy
Statement referred to above in Item 10, "Directors and Executive Officers of the
Registrant", and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management will be contained in the Proxy Statement referred to in Item 10,
"Directors and Executive Officers of the Registrant", and such information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions will be
contained in the Proxy Statement referred to in Item 10, "Directors and
Executive Officers of the Registrant", and such information is incorporated
herein by reference.
Item 14. Controls and Procedures
Within the 90-day period prior to the filing of this Annual Report on Form 10-K,
an evaluation was carried out under the supervision and with the participation
of Alexander's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934). Based upon the evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the design and operation of
these disclosure controls and procedures were effective. No significant changes
were made in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
-44-
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Report
1. The consolidated financial statements are set forth
in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules:
The following financial statement schedules should be read in
conjunction with the financial statements included in Item 8 of this Annual
Report on Form 10-K.
Pages in this
Annual Report
on Form 10-K
------------
Schedule II - Valuation and Qualifying Accounts - years ended
December 31, 2002, 2001 and 2000 49
Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 2002 50
All other consolidated financial schedules are omitted because they are
inapplicable, not required, or the information is included elsewhere in the
consolidated financial statements or the notes thereto.
3. Exhibits
See Exhibit Index on page 52
(b) Reports on Form 8-K
During the last quarter of the period covered by this Annual Report on
Form 10-K, no reports on Form 8-K were filed.
-45-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALEXANDER'S, INC.
By: /s/ Joseph Macnow
-----------------------------------
Joseph Macnow
Executive Vice-President and Chief
Financial Officer
Date: March 5, 2003
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Steven Roth Chief Executive Officer and Director March 5, 2003
- --------------------------- (Principal Executive Officer)
Steven Roth
/s/ Michael D. Fascitelli President and Director March 5, 2003
- ---------------------------
Michael D. Fascitelli
/s/ Joseph Macnow Executive Vice-President and March 5, 2003
- --------------------------- Chief Financial Officer
Joseph Macnow
/s/ Thomas R. DiBenedetto Director March 5, 2003
- ---------------------------
Thomas R. DiBenedetto
/s/ David Mandelbaum Director March 5, 2003
- ---------------------------
David Mandelbaum
/s/ Stephen Mann Director March 5, 2003
- ---------------------------
Stephen Mann
/s/ Arthur I. Sonnenblick Director March 5, 2003
- ---------------------------
Arthur I. Sonnenblick
/s/ Neil Underberg Director March 5, 2003
- ---------------------------
Neil Underberg
/s/ Richard West Director March 5, 2003
- ---------------------------
Richard West
/s/ Russell B. Wight, Jr. Director March 5, 2003
- ---------------------------
Russell B. Wight, Jr.
-46-
CERTIFICATION
I, Steven Roth, certify that:
1. I have reviewed this annual report on Form 10-K of
Alexander's, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
March 5, 2003
/s/ Steven Roth
- -----------------------------
Steven Roth
Chief Executive Officer
-47-
CERTIFICATION
I, Joseph Macnow, certify that:
1. I have reviewed this annual report on Form 10-K of
Alexander's, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this annual report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
March 5, 2003
/s/ Joseph Macnow
- -----------------------------
Joseph Macnow
Executive Vice President and Chief Financial Officer
-48-
ALEXANDER'S INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------- -------- -------- -------------------------------- --------
Balance Additions Balance
(amounts in thousands) at Beginning Charged Against Deductions at end
Description of Year Operations Description Amount of Year
------- ---------- ----------- ------ -------
Year Ended December 31, 2002:
Deducted from accounts receivable, Uncollectible accounts
allowance for doubtful accounts.... $ 929 $ (191) written-off $ 642 $ 96
====== ======= ====== ========
Year Ended December 31, 2001:
Deducted from accounts receivable Uncollectible accounts
allowance for doubtful accounts.... $ 722 $ 365 written-off $ 158 $ 929
====== ====== ====== ========
Year Ended December 31, 2000:
Deducted from accounts receivable, Uncollectible accounts
allowance for doubtful accounts.... $ 314 $ 413 written-off $ 5 $ 722
====== ====== ====== ========
-49-
ALEXANDER'S, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2002
(amounts in thousands)
Column A Column B Column C Column D
- -------- -------- -------------------------- --------
Initial Cost to Company (2)
---------------------------
Building, Cost
Leaseholds Capitalized
and Leasehold Subsequent to
Description Encumbrances Land Improvements Acquisition(3)
----------- ------------ ---- ------------ --------------
Commercial Property:
New York City,
New York:
Rego Park I $ 82,000 $ 1,647 $ 8,953 $ 57,641
Rego Park II -- 3,906 1,467 657
Flushing (5) -- -- 1,660 1,553
Lexington Ave 55,500 14,432 12,355 354,154
Kings Plaza
Regional Shopping
Center 219,307 497 9,542 118,040
------- ------- ------- -------
Total New York 356,807 20,482 33,977 532,045
New Jersey - Paramus 68,000 1,441 -- 10,313
Other Properties -- 599 1,804 --
------- ------- -------
Other debt (1) 119,000
-------
TOTAL $543,807 $ 22,522 $ 35,781 $542,358
======= ======= ======= =======
Column E Column F Column G Column H Column I
------------------------------------------------ -------- -------- -------- --------
Gross Amount at which Carried at Close of Period
------------------------------------------------
Life on Which
Buildings, Accumulated Depreciation in
Leasehold Depreciation Latest Income
and Leaseholds Construction and Date of Date Statement is
Land Improvements In Progress Total(3) Amortization Construction Acquired(2) Computed
---- ------------ ----------- -------- ------------ ------------ ----------- --------
Commercial Property:
New York City,
New York:
Rego Park I $ 1,647 $ 66,594 $ -- $ 68,241 $ 19,203 1959 1992 15-39 years
Rego Park II 3,906 1,565 559 6,030 1,474 1965 1992 38-39 years
Flushing (5) -- 3,213 -- 3,213 1,711 1975(4) 1992 26 years
Lexington Ave 48,380 -- 332,561 380,941 -- -- 1992 --
Kings Plaza
Regional Shopping
Center 24,482 103,405 192 128,079 33,492 1970 1992 7-50 years
------- ------- -------- -------- --------
Total New York 78,415 174,777 333,312 586,504 55,880
New Jersey - Paramus 11,754 -- -- 11,754 -- -- 1992 --
Other Properties 599 1,804 -- 2,403 1,806 Various 1992 7-25 years
------- ------- -------- -------- --------
Other debt (1)
TOTAL $ 90,768 $176,581 $333,312 $600,661 $ 57,686
======= ======= ======== ======== ========
(1) Vornado loan (see Note 3).
(2) Initial cost is as of May 15, 1992 (the date on which the Company
commenced real estate operations) unless acquired subsequent to that
date. See Column H.
(3) The net basis in the Company's assets and liabilities for tax purposes
is approximately $42,000 lower than the amount reported for financial
statement purposes.
(4) Date represents lease acquisition date.
(5) At December 31, 2002 the Flushing property was classified as "asset held
for sale."
-50-
ALEXANDER'S, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(amounts in thousands)
December 31,
-----------------------------------------
2002 2001 2000
---- ---- ----
REAL ESTATE:
Balance at beginning of period $ 436,742 $ 404,935 $ 327,004
Additions during the period:
Buildings, leaseholds and
leasehold improvements 4,608 3,118 1,541
Construction in progress 164,948 45,372 76,390
--------- --------- ---------
606,298 453,425 404,935
Less: asset sold, held for sale and written-off (8,850) (16,683) --
--------- --------- ---------
Balance at end of period $ 597,448 $ 436,742 $ 404,935
========= ========= =========
ACCUMULATED DEPRECIATION:
Balance at beginning of period $ 56,383 $ 58,884 $ 55,199
Additions charged to operating
expenses 4,563 4,535 3,685
--------- --------- ---------
60,946 63,419 58,884
Less: asset sold and held for sale (4,971) (7,036) --
--------- --------- ---------
Balance at end of period $ 55,975 $ 56,383 $ 58,884
========= ========= =========
-51-
Index to Exhibits
The following is a list of all exhibits filed as part of the
Report:
EXHIBIT
NO. PAGE
- -------- ----
3(i) -- Certificate of Incorporation, as amended. Incorporated herein by reference from
Exhibit 3.0 to the Registrant's Current Report on Form 8-K dated September 21, 1993 *
3(ii) -- By-laws, as amended. Incorporated herein by reference from Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2000............................................................................... *
10(i)(A)(1) -- Limited Liability Company Operating Agreement of 731 Residential LLC, dated as of
July 3, 2002, among 731 Residential Holding LLC. as the sole member Domenic A.
Borriello, as an Independent Manager and Kim Lutthang, as an Independent Manager.
Incorporated herein by reference from Exhibit 10(i)(A)(1) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002........... *
10(i)(A)(2) -- Limited Liability Company Operating Agreement of 731 Commercial LLC, dated as of
July 3, 2002, among 731 Commercial Holding LLC, as the sole member, Domenic A.
Borriello, as an Independent Manager and Kim Lutthang, as an Independent Manager.
Incorporated herein by reference from Exhibit 10(i)(A)(2) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002........... *
10(i)(B)(1) -- Amended and Restated Credit Agreement dated July 3, 2002 between 59th Street
Corporation and Vornado Lending, LLC (evidencing $40,000,000 of debt on which 59th
Street Corporation became the direct borrower). Incorporated herein by reference
from Exhibit 10(i)(B)(1) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2002................................................. *
10(i)(B)(2) -- Credit Agreement, dated July 3, 2002, between Alexander's Inc. and Vornado Lending
L.L.C. evidencing a $20,000,000 loan. Incorporated herein by reference from
Exhibit 10(i)(B)(2) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2002................................................. *
10(i)(B)(3) -- Amended and Restated Credit Agreement, dated July 3, 2002, between Alexander's Inc.
and Vornado Lending L.L.C. evidencing a $50,000,000 line of credit facility (of
which $24,000,000 has been advanced). Incorporated herein by reference from
Exhibit 10(i)(B)(3) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2002................................................. *
10(i)(B)(4) -- Credit Agreement, dated July 3, 2002, between Alexander's Inc. and Vornado Lending
L.L.C. evidencing a $35,000,000 loan. Incorporated herein by reference from
Exhibit 10(i)(B)(4) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2002................................................. *
10(i)(C) -- Building Loan Agreement, dated as of July 3, 2002, by and between 731 Commercial
LLC and 731 Residential LLC, collectively as Borrower, and Bayerische Hypo-und
Vereinsbank AG, New York Branch, as Agent for the Lenders. Incorporated herein by
reference from Exhibit 10(i)(C) to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2002......................................... *
- ----------
Incorporated by reference
-52-
EXHIBIT
NO. PAGE
- -------- ----
10(i)(C)(1) -- Project Loan Agreement, dated as of July 3, 2002, by and between 731 Commercial LLC
and 731 Residential LLC, collectively as Borrower, and Bayerische Hypo-und
Vereinsbank AG, New York Branch, as Agent for the Lenders. Incorporated herein by
reference from Exhibit 10(i)(C)(1) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2002.................................... *
10(i)(C)(2) -- Supplemental Loan Agreement, dated as of July 3, 2002, by and between 731
Commercial LLC and 731 Residential LLC, collectively as Borrower, and Bayerische
Hypo-und Vereinsbank AG, New York Branch, as Agent for the Lenders. Incorporated
herein by reference from Exhibit 10(i)(C)(2) to the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 2002............................ *
(10)(i)(C)(3) -- Consolidated, Amended and Restated Building Loan Mortgage, dated as of July 3,
2002, by and between 731 Commercial LLC and 731 Residential LLC, collectively as
Borrower, and Bayerische Hypo-und Vereinsbank AG, New York Branch, as Agent for
the Lenders. Incorporated herein by reference from Exhibit 10(i)(C)(3) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2002............................................................................... *
10(i)(C)(4) -- Consolidated, Amended and Restated Building Loan Note, dated as of July 3, 2002 by
and between 731 Commercial LLC and 731 Residential LLC, collectively as Borrower,
and Bayerische Hypo-und Vereinsbank AG, New York Branch, as Agent for the Lenders.
Incorporated herein by reference from Exhibit 10(i)(C)(4) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002........... *
10(i)(C)(5) -- Guaranty of Completion, dated as of July 3, 2002, executed by Vornado Realty L.P.
for the benefit of Bayerische Hypo-und Vereinsbank AG, New York Branch, as Agent
for the Lenders. Incorporated herein by reference from Exhibit 10(i)(C)(5) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2002............................................................................... *
10(i)(C)(6) -- Guaranty of Carry Obligations, dated as of July 3, 2002, executed by Alexander's,
Inc. for the benefit of Bayerische Hypo-und Vereinsbank AG, New York Branch, as
Agent for the Lenders. Incorporated herein by reference from Exhibit 10(i)(C)(6)
to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2002...................................................................... *
10(i)(C)(7) -- Environmental Indemnity Agreement, dated as of July 3, 2002, executed by
Alexander's, Inc., 731 Residential LLC and 731 Commercial LLC in favor of
Bayerische Hypo-und Vereinsbank AG, New York Branch, as Agent for the Lenders.
Incorporated herein by reference from Exhibit 10(i)(C)(7) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002........... *
10(i)(C)(8) -- Reimbursement Agreement, dated as of July 3, 2002, by and between Alexander's,
Inc., 731 Commercial LLC, 731 Residential LLC and Vornado Realty, L.P.
Incorporated herein by reference from Exhibit 10(i)(C)(8) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002........... *
10(i)(D) -- Amended, Restated and Consolidated Mortgage and Security Agreement, dated May 12,
1999, between The Chase Manhattan Bank, as mortgagee, and Alexander's Rego
Shopping Center Inc., as mortgagor. Incorporated herein by reference from Exhibit
10(i)(E) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2000................................................................ *
- ----------
Incorporated by reference
-53-
EXHIBIT
NO. PAGE
- -------- ----
10(i)(E)(1) -- Real Estate Retention Agreement dated as of July 20, 1992, between Vornado Realty
Trust and Keen Realty Consultants, Inc., each as special real estate consultants,
and the Company. Incorporated herein by reference from Exhibit 10(i)(O) to the
Registrant's Form 10-K for the fiscal year ended July 25, 1992..................... *
10(i)(E)(2) -- Extension Agreement to the Real Estate Retention Agreement, dated as of February 6,
1995, between the Company and Vornado Realty Trust. Incorporated herein by
reference from Exhibit 10(i)(G)(2) to the Registrant's Form 10-K for the fiscal
year ended December 31, 1994....................................................... *
10(i)(E)(3) -- Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and
between Alexander's, Inc. and Vornado Realty, L.P. Incorporated herein by
reference from Exhibit 10(i)(E)(3) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2002.................................... *
10(i)(E)(4) -- 59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and
between Vornado Realty, L.P., 731 Residential LLC and 731 Commercial LLC.
Incorporated herein by reference from Exhibit 10(i)(E)(4) to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002........... *
10(i)(F)(1) -- Amended and Restated Management and Development Agreement, dated as of July 3,
2002, by and between Alexander's, Inc., the subsidiaries party thereto and Vornado
Management Corp. Incorporated herein by reference from Exhibit 10(i)(F)(1) to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2002............................................................................... *
10(i)(F)(2) -- 59th Street Management and Development Agreement, dated as of July 3, 2002, by and
between 731 Commercial LLC and Vornado Management Corp. Incorporated herein by
reference from Exhibit 10(i)(F)(2) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2002.................................... *
10(i)(F)(3) -- Kings Plaza Management Agreement, dated as of May 31, 2001, by and between
Alexander's Kings Plaza LLC and Vornado Management Corp. Incorporated herein by
reference from Exhibit 10(i)(F)(3) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2002.................................... *
10(ii)(A)(3) -- Agreement of Lease for Rego Park, Queens, New York, between Alexander's, Inc. and
Sears Roebuck & Co. Incorporated herein by reference from Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1994............................................................................... *
10(ii)(A)(4) -- Lease for Roosevelt Avenue, Flushing, New York, dated as of December 1, 1992,
between the Company, as landlord, and Caldor, as tenant. Incorporated herein by
reference from Exhibit (ii)(E)(7) to the Registrant's Form 10-K for the fiscal
year ended July 25, 1992........................................................... *
10(ii)(A)(4) -- First Amendment to Sublease for Roosevelt Avenue, Flushing, New York, dated as of
February 22, 1995 between the Company, as sublandlord, and Caldor, as tenant.
Incorporated herein by reference from Exhibit 10(ii)(A)(8)(b) to the Registrant's
Form 10-K for the fiscal year ended December 31, 1994.............................. *
10(ii)(A)(5) -- Lease Agreement, dated March 1, 1993 by and between the Company and Alex Third
Avenue Acquisition Associates. Incorporated by reference from Exhibit 10(ii)(F)
to the Registrant's Form 10-K for the fiscal year ended July 31, 1993.............. *
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10(ii)(A)(6) -- Agreement of Lease for Rego Park, Queens, New York, between the Company and
Marshalls of Richfield, MN., Inc., dated as of March 1, 1995. Incorporated herein
by reference from Exhibit 10(ii)(A)(12)(a) to the Registrant's Form 10-K for the
fiscal year ended December 31, 1994................................................ *
10(ii)(A)(7) -- Guaranty, dated March 1, 1995, of the Lease described in Exhibit 10(ii)(A)(6)(a)
above by the Company. Incorporated herein by reference from Exhibit
10(ii)(A)(12)(b) to the Registrant's Form 10-K for the fiscal year ended December
31, 1994........................................................................... *
10(iii)(B) -- Employment Agreement, dated February 9, 1995, between the Company and Stephen
Mann. Incorporated herein by reference from Exhibit 10(iii)(B) to the
Registrant's Form 10-K for the fiscal year ended December 31, 1994................. *
10(iv)(A) -- Registrant's Omnibus Stock Plan, as amended, dated May 28, 1997. Incorporated
herein by reference from Exhibit 10 to the Registrant's Form 10-Q for the fiscal
quarter ended June 30, 1997........................................................ *
10(v)(A)(1) -- Amended and Restated Consolidated Mortgage and Security Agreement dated as of May
31, 2001 among Alexander's Kings Plaza L.L.C. as mortgagor, Alexander's of King
L.L.C., as mortgagor and Kings Parking L.L.C., as mortgagor, collectively
borrower, to Morgan Guaranty Trust Company of New York, as mortgagee. Incorporated
herein by reference from Exhibit 10(v) A1 to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 2001............................... *
10(v)(A)(2) -- Amended, Restated and Consolidated Promissory Note, dated as of May 31, 2001 by and
between Alexander's Kings Plaza L.L.C., Alexander's of Kings L.L.C. and Kings
Parking L.L.C., collectively borrower, and Morgan Guaranty Trust Company of New
York, lender. Incorporated herein by reference from Exhibit 10(v) A2 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2001............................................................................... *
10(v)(A)(3) -- Cash Management Agreement dated as of May 31, 2001 by and between Alexander's Kings
Plaza L.L.C., Alexander's of Kings L.L.C. and Kings Parking L.L.C., collectively
borrower, and Morgan Guaranty Trust Company of New York, lender. Incorporated
herein by reference from Exhibit 10(v) A3 to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 2001............................... *
10(v)(A)(4) -- Note modification and Severance Agreement dated as of November 26, 2001, between
Alexander's Kings Plaza L.L.C., Alexander's of Kings L.L.C. and Kings Parking
L.L.C., collectively borrower and JP Morgan Chase Bank of New York, lender.
Incorporated herein by reference from Exhibit 10(v)(A)(4) to the Registrant's Form
10-K for the fiscal year ended December 31, 2001................................... *
10(v)(B)(1) -- Agreement of Lease dated as of April 30, 2001 between Seven Thirty One Limited
Partnership, landlord, and Bloomberg L.P., tenant. Incorporated herein by
reference from Exhibit 10(v) B to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2001......................................... *
10(v)(B)(2) First Amendment of Lease, dated as of April 19, 2002, between Seven Thirty One
Limited Partnership, landlord and Bloomberg L.P., tenant. Incorporated herein by
reference from Exhibit 10(v)(B)(2) to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2002.................................... *
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10(v)(C)(1) -- Loan Agreement dated as of October 2, 2001 by and between ALX of Paramus LLC, as
borrower, and SVENSKA HANDELSBANKEN AB (publ), as lender. Incorporated herein by
reference from Exhibit 10(v)(C)(1) to the Registrant's Form 10-K for the fiscal
year ended December 31, 2001....................................................... *
10(v)(C)(2) -- Mortgage, Security Agreement and Fixture Financing Statement dated as of October 2,
2001 by and between ALX of Paramus LLC, as borrower, and SVENSKA HANDELSBANKEN AB
(publ), as lender. Incorporated herein by reference from Exhibit 10(v)(C)(2) to
the Registrant's Form 10-K for the fiscal year ended December 31, 2001............. *
10(v)(C)(3) -- Environmental undertaking letter dated as of October 2, 2001 by and between ALX of
Paramus LLC, as borrower, and SVENSKA HANDELSBANKEN AB (publ), as lender.
Incorporated herein by reference from Exhibit 10(v)(C)(3) to the Registrant's Form
10-K for the fiscal year ended December 31, 2001................................... *
10(v)(C)(4) -- Lease dated as of October 2, 2001 by and between ALX of Paramus LLC, as Landlord,
and IKEA Property, Inc. as Tenant. Incorporated herein by reference from Exhibit
10(v)(C)(4) to the Registrant's Form 10-K for the fiscal year ended December 31,
2001............................................................................... *
12 Consolidated Ratios of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Stock Dividend Requirements.
13 Not applicable.
16 Not applicable.
18 Not applicable.
19 Not applicable.
21 Subsidiaries of Registrant.
22 Not applicable.
23 Consent of Deloitte & Touche LLP.
25 Not applicable.
29 Not applicable.
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