Attached files

file filename
EX-32 - EXHIBIT 32.2 - ALEXANDERS INCexhibit322.htm
EX-32 - EXHIBIT 32.1 - ALEXANDERS INCexhibit321.htm
EX-31 - EXHIBIT 31.2 - ALEXANDERS INCexhibit312.htm
EX-31 - EXHIBIT 31.1 - ALEXANDERS INCexhibit311.htm
EX-15 - EXHIBIT 15.1 - ALEXANDERS INCexhibit151.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended:  

March 31, 2017

 

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from:

 

to

 

 

Commission File Number:

001-06064

 

 

ALEXANDER’S, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

51-0100517

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

210 Route 4 East, Paramus, New Jersey

 

07652

(Address of principal executive offices)

 

(Zip Code)

 

(201) 587-8541

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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  No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section  232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ☑  Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

    -Non-Accelerated Filer (Do not check if smaller reporting company)

 

Smaller Reporting Company

Emerging Growth Company

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☑  No

 

 

As of April 30, 2017, there were 5,107,290 shares of common stock, par value $1 per share, outstanding.

  

 


 

 

ALEXANDER’S, INC.

 

 

 

 

 

 

 

 

INDEX

 

 

 

 

 

 

 

 

 

 

 

 

Page Number

 

PART I.

Financial Information

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of

 

 

 

 

 

 

March 31, 2017 and December 31, 2016

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the

 

 

 

 

 

 

Three Months Ended March 31, 2017 and 2016

4

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the

 

 

 

 

 

 

Three Months Ended March 31, 2017 and 2016

5

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the

 

 

 

 

 

 

Three Months Ended March 31, 2017 and 2016

6

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the

 

 

 

 

 

 

Three Months Ended March 31, 2017 and 2016

7

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8

 

 

 

 

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

16

 

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of

 

 

 

 

 

 

Financial Condition and Results of Operations

17

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

24

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

24

 

 

 

 

 

 

 

 

PART II.

Other Information

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

25

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

25

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

25

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

25

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

25

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

25

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signatures

 

 

 

26

 

 

 

 

 

 

 

 

Exhibit Index

 

 

 

27

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.      Financial Statements

 

ALEXANDER’S, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(Amounts in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

ASSETS

 

2017

 

 

2016

Real estate, at cost:

  

 

 

 

  

 

  

 

Land

 

$

44,971

 

 

$

44,971

  

Buildings and leasehold improvements

 

 

987,165

 

  

 

985,800

  

Development and construction in progress

 

 

2,913

 

  

 

2,780

  

  

Total

  

 

1,035,049

 

  

 

1,033,551

Accumulated depreciation and amortization

  

 

(259,655)

 

 

 

(252,737)

Real estate, net

  

 

775,394

 

 

 

780,814

Cash and cash equivalents

  

 

306,530

 

 

 

288,926

Restricted cash

 

 

85,496

 

 

 

85,752

Marketable securities

  

 

34,471

 

 

 

37,918

Tenant and other receivables, net of allowance for doubtful accounts of $1,778 and $1,473, respectively

 

 

2,549

 

 

 

3,056

Receivable arising from the straight-lining of rents

  

 

177,940

 

 

 

179,010

Deferred leasing costs, net, including unamortized leasing fees to Vornado

  

 

 

 

 

 

 

     of $36,087 and $36,960, respectively

  

 

47,271

 

  

 

48,387

Other assets

 

14,281

 

 

 

27,367

 

  

 

 

$

1,443,932

 

 

$

1,451,230

  

  

  

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  

  

LIABILITIES AND EQUITY

  

 

  

 

  

 

  

Mortgages payable, net of deferred debt issuance costs

 

$

1,051,973

 

 

$

1,052,359

Amounts due to Vornado

  

 

542

 

 

 

897

Accounts payable and accrued expenses

  

 

39,111

 

 

 

42,200

Other liabilities

  

 

2,922

 

 

 

2,929

 

  

Total liabilities

  

 

1,094,548

 

  

 

1,098,385

  

  

  

  

 

  

 

  

 

  

Commitments and contingencies

  

 

-

 

  

 

-

  

  

  

  

 

  

 

  

 

  

Preferred stock: $1.00 par value per share; authorized, 3,000,000 shares;

  

 

  

 

  

 

  

 

 issued and outstanding, none

 

 

-

 

 

 

-

Common stock: $1.00 par value per share; authorized, 10,000,000 shares; issued, 5,173,450 shares;

  

 

  

 

  

 

  

  

outstanding, 5,107,290 shares and 5,106,196 shares, respectively

 

 

5,173

 

  

 

5,173

Additional capital

  

 

31,183

 

 

 

31,189

Retained earnings

  

 

308,925

 

 

 

308,995

Accumulated other comprehensive income

 

 

4,471

 

 

 

7,862

  

  

  

  

 

349,752

 

 

 

353,219

Treasury stock: 66,160 shares and 67,254 shares, respectively, at cost

  

 

(368)

 

 

 

(374)

  

  

Total equity

  

 

349,384

 

  

 

352,845

 

  

  

 

$

1,443,932

 

 

$

1,451,230

  

  

  

  

 

  

 

  

 

  

See notes to consolidated financial statements (unaudited).

3


 

ALEXANDER’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(Amounts in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2017

  

2016

REVENUES

 

 

 

 

 

 

 

Property rentals

 

$

38,273

 

$

36,653

 

Expense reimbursements

 

 

18,956

 

 

18,905

Total revenues

 

 

57,229

 

 

55,558

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

Operating, including fees to Vornado of

 

 

 

 

 

 

 

 

$1,128 and $1,255, respectively

 

 

20,921

 

 

19,654

 

Depreciation and amortization

 

 

8,045

 

 

8,333

 

General and administrative, including management fees

 

 

 

 

 

 

 

 

to Vornado of $595 in each period

 

 

1,156

 

 

1,235

Total expenses

 

 

30,122

 

 

29,222

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

27,107

 

 

26,336

 

 

 

 

 

 

 

 

 

 

Interest and other income, net

 

 

727

 

 

1,091

 

Interest and debt expense

 

 

(6,160)

 

 

(5,406)

 

Income before income taxes

 

 

21,674

 

 

22,021

 

Income tax expense

 

 

(7)

 

 

(2)

Net income

 

$

21,667

 

$

22,019

 

 

 

 

 

 

 

 

 

Net income per common share – basic and diluted

 

$

4.24

 

$

4.31

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic and diluted

 

 

5,114,701

 

 

5,113,077

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$

4.25

 

$

4.00

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

4


 

ALEXANDER’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2017

  

2016

 

 

 

 

 

 

 

Net income

 

$

21,667

 

$

22,019

Other comprehensive (loss) income:

 

 

 

 

 

 

 

Change in unrealized net gain on available-for-sale securities

 

 

(3,447)

 

 

(777)

 

Change in value of interest rate cap

 

 

56

 

 

16

Comprehensive income

 

$

18,276

 

$

21,258

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

5


 

ALEXANDER’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

Common Stock

 

Additional

 

Retained

 

Comprehensive

 

Treasury

 

 

Total

 

 

Shares

 

 

Amount

 

 

 Capital 

 

 

Earnings

 

Income

 

Stock

 

 

Equity

Balance, December 31, 2015

5,173

 

$

5,173

 

$

30,739

 

$

304,340

 

$

13,002

 

$

(374)

 

$

352,880

Net income

-

 

 

-

 

 

-

 

 

22,019

 

 

-

 

 

-

 

 

22,019

Dividends paid

-

 

 

-

 

 

-

 

 

(20,452)

 

 

-

 

 

-

 

 

(20,452)

Change in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

-

 

 

-

 

 

-

 

 

-

 

 

(777)

 

 

-

 

 

(777)

Change in value of interest rate cap

-

 

 

-

 

 

-

 

 

-

 

 

16

 

 

-

 

 

16

Balance, March 31, 2016

5,173

 

$

5,173

 

$

30,739

 

$

305,907

 

$

12,241

 

$

(374)

 

$

353,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

5,173

 

$

5,173

 

$

31,189

 

$

308,995

 

$

7,862

 

$

(374)

 

$

352,845

Net income

-

 

 

-

 

 

-

 

 

21,667

 

 

-

 

 

-

 

 

21,667

Dividends paid

-

 

 

-

 

 

-

 

 

(21,737)

 

 

-

 

 

-

 

 

(21,737)

Change in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

-

 

 

-

 

 

-

 

 

-

 

 

(3,447)

 

 

-

 

 

(3,447)

Change in value of interest rate cap

-

 

 

-

 

 

-

 

 

-

 

 

56

 

 

-

 

 

56

Other

-

 

 

-

 

 

(6)

 

 

-

 

 

-

 

 

6

 

 

-

Balance, March 31, 2017

5,173

 

$

5,173

 

$

31,183

 

$

308,925

 

$

4,471

 

$

(368)

 

$

349,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

6


 

ALEXANDER’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

 

2017

 

2016

Net income

  

$

21,667

 

$

22,019

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization, including amortization of debt issuance costs

 

 

8,569

 

 

8,974

 

Straight-lining of rents

 

 

1,070

 

 

(44)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Tenant and other receivables, net

 

 

507

 

 

705

 

Other assets

 

 

13,131

 

 

5,548

 

Amounts due to Vornado

 

 

(353)

 

 

(2,318)

 

Accounts payable and accrued expenses

 

 

(2,961)

 

 

10,499

 

Other liabilities

 

 

(7)

 

 

(7)

Net cash provided by operating activities

 

 

41,623

 

 

45,376

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Construction in progress and real estate additions

 

 

(1,628)

 

 

(8,853)

Net cash used in investing activities

 

 

(1,628)

 

 

(8,853)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Debt repayments

 

 

(901)

 

 

(836)

 

Dividends paid

 

 

(21,737)

 

 

(20,452)

 

Debt issuance costs

 

 

(9)

 

 

(16)

Net cash used in financing activities

 

 

(22,647)

 

 

(21,304)

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents and restricted cash

 

 

17,348

 

 

15,219

Cash and cash equivalents and restricted cash at beginning of period

 

 

374,678

 

 

344,656

Cash and cash equivalents and restricted cash at end of period

 

$

392,026

 

$

359,875

 

 

 

 

 

 

 

 

 

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

$

288,926

 

$

259,349

 

Restricted cash at beginning of period

 

 

85,752

 

 

85,307

 

Cash and cash equivalents and restricted cash at beginning of period

$

374,678

 

$

344,656

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

306,530

 

$

276,234

 

Restricted cash at end of period

 

 

85,496

 

 

83,641

 

Cash and cash equivalents and restricted cash at end of period

 

$

392,026

 

$

359,875

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

Cash payments for interest

 

$

5,386

 

$

4,676

 

 

 

 

 

 

 

 

 

NON-CASH TRANSACTIONS

 

 

 

 

 

 

 

Liability for real estate additions, including $52 and $36 for development fees due to Vornado

 

 

 

 

 

 

 

 

in 2017 and 2016, respectively

 

$

192

 

$

1,931

 

Write-off of fully amortized and/or depreciated assets

 

 

-

 

 

12

 

Change in unrealized net gain on available-for-sale securities

 

 

(3,447)

 

 

(777)

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

7


ALEXANDER’S, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(UNAUDITED) 

 

 

1.             Organization

Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping its properties. All references to “we,” “us,” “our,” “Company” and “Alexander’s” refer to Alexander’s, Inc. and its consolidated subsidiaries. We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE: VNO). We have seven properties in the greater New York City metropolitan area.

 

2.             Basis of Presentation

The accompanying consolidated financial statements are unaudited and include the accounts of Alexander’s and its consolidated subsidiaries.  All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted.  These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC. 

 

We have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.  The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the operating results for the full year.

 

We currently operate in one business segment.

3.             Recently Issued Accounting Literature

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update ("ASU 2014-09") establishing Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).  ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. When adopting this standard, we are permitted to use either the full retrospective method or the modified retrospective method. We will adopt this standard effective as of January 1, 2018 and currently expect to utilize the modified retrospective method of adoption. We have commenced the execution of our project plan for adopting this standard, which consists of gathering and evaluating the inventory of our revenue streams.  We expect this standard will have an impact on the presentation of certain lease and non-lease components of revenue from leases upon the adoption of (“ASU 2016-02”) Leases with no impact on “total revenues.” We also expect this standard will have an impact on the timing of gains on certain sales of real estate. We are continuing to evaluate the impact of this standard on our consolidated financial statements.  

 

In January 2016, the FASB issued an update (“ASU 2016-01”) Recognition and Measurement of Financial Assets and Financial Liabilities to ASC Topic 825, Financial Instruments.  ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. While the adoption of this standard requires us to continue to measure “marketable securities” at fair value at each reporting date, the changes in fair value will be recognized in current period earnings as opposed to “other comprehensive income.”

  

 

8


ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

3.             Recently Issued Accounting Literature – continued

 

In February 2016, the FASB issued an update ASU 2016-02 establishing ASC Topic 842, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.  ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase.  Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.  Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases.  ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the overall impact of the adoption of ASU 2016-02 on our consolidated financial statements, including the timing of adopting this standard. ASU 2016-02 will more significantly impact the accounting for leases in which we are a lessee. Upon adoption of this standard, we will be required to record a right-of-use asset and lease liability for our Flushing property ground lease, equal to the present value of the remaining minimum lease payments.  We also expect that this standard will have an impact on the presentation of certain lease and non-lease components of revenue from leases with no impact on “total revenues.” In particular, lease components, such as reimbursable real estate taxes and insurance expenses, will be presented in “property rentals” and non-lease components, such as reimbursable operating expenses, will be presented in “expense reimbursements” on our consolidated statements of income.

 

In March 2016, the FASB issued an update (“ASU 2016-09”) Improvements to Employee Share-Based Payment Accounting to ASC Topic 718, Compensation – Stock Compensation.  ASU 2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016.  The adoption of this update as of January 1, 2017, did not have any impact on our consolidated financial statements.

 

In August 2016, the FASB issued an update (“ASU 2016-15”) Classification of Certain Cash Receipts and Cash Payments to ASC Topic 230, Statement of Cash Flows. ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle.  ASU 2016-15 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted.  We elected to early adopt ASU 2016-15 effective January 1, 2017. The adoption of this update did not have a material impact on our consolidated financial statements.  

 

In November 2016, the FASB issued an update (“ASU 2016-18”) Restricted Cash to ASC Topic 230, Statement of Cash Flows. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents.  Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the statement of cash flows upon adoption of this standard. ASU 2016-18 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. We elected to early adopt ASU 2016-18 effective January 1, 2017, with retrospective application to our consolidated statements of cash flows. Accordingly, the consolidated statements of cash flows present a reconciliation of the changes in cash and cash equivalents and restricted cash. Restricted cash primarily consists of cash held in a non-interest bearing escrow account in connection with our Rego Park I 100% cash collateralized mortgage, as well as security deposits and other cash escrowed under loan agreements for debt service, real estate taxes, property insurance and capital improvements.

9


ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

3.             Recently Issued Accounting Literature – continued

In February 2017, the FASB issued an update (“ASU 2017-05”) Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets to ASC Subtopic 610-20, Other Income–Gains and Losses from the Derecognition of Nonfinancial Assets. ASU 2017-05 clarifies the scope of recently established guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. This update conforms the derecognition guidance on nonfinancial assets with the model for transactions in ASC 606. ASU 2017-05 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The adoption of this standard is not expected to have an impact on our consolidated financial statements.

 

 

4.             Related Party Transactions

Vornado

 

As of March 31, 2017, Vornado owned 32.4% of our outstanding common stock.  We are managed by, and our properties are leased and developed by, Vornado, pursuant to the agreements described below, which expire in March of each year and are automatically renewable.

 

Management and Development Agreements

We pay Vornado an annual management fee equal to the sum of (i) $2,800,000, (ii) 2% of gross revenue from the Rego Park II shopping center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue and (iv) $297,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue.  Vornado is also entitled to a development fee equal to 6% of development costs, as defined. 

 

Leasing Agreements  

Vornado also provides us with leasing services for a fee of 3% of rent for the first ten years of a lease term, 2% of rent for the eleventh through the twentieth year of a lease term, and 1% of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by tenants.  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.  Vornado is also entitled to a commission upon the sale of any of our assets equal to 3% of gross proceeds, as defined, for asset sales less than $50,000,000 and 1% of gross proceeds, as defined, for asset sales of $50,000,000 or more.

 

 

Other Agreements

We also have agreements with Building Maintenance Services, a wholly owned subsidiary of Vornado, to supervise (i) cleaning, engineering and security services at our 731 Lexington Avenue property and (ii) security services at our Rego Park I and Rego Park II properties. 

 

The following is a summary of fees to Vornado under the various agreements discussed above.    

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

(Amounts in thousands)

 

2017

 

2016

 

Company management fees

 

$

700

 

$

700

 

Development fees

 

 

28

 

 

44

 

Leasing fees

 

 

11

 

 

6,458

 

Property management fees and payments for cleaning, engineering

 

 

 

 

 

 

 

 

and security services

 

 

988

 

 

1,115

 

 

 

 

$

1,727

 

$

8,317

10


ALEXANDER’S, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

(UNAUDITED) 

 

4.             Related Party Transactions – continued

As of March 31, 2017, the amounts due to Vornado were $52,000 for development fees; $489,000 for management, property management, cleaning and security fees; and $1,000 for leasing fees. As of December 31, 2016, the amounts due to Vornado were $54,000 for development fees; $428,000 for management, property management, cleaning and security fees; and $415,000 for leasing fees. In January 2016, we paid an $8,916,000 leasing commission related to the Bloomberg lease amendment, of which $7,200,000 was to a third party broker and $1,716,000 was to Vornado. In March 2016, we paid Vornado a development fee of $5,784,000 related to The Alexander apartment tower.

  

Toys “R” Us (“Toys”)

 

As of March 31, 2017, our affiliate, Vornado owned 32.5% of Toys.  Toys leases approximately 47,000 square feet of retail space at our Rego Park II shopping center.  Joseph Macnow, our Executive Vice President and Chief Financial Officer, and Vornado’s Executive Vice President and Chief Financial Officer and Wendy A. Silverstein, a member of our Board of Directors, represent Vornado as members of Toys’ Board of Directors. We recognized $884,000 and $713,000 of revenue related to the space leased by Toys for the three months ended March 31, 2017 and 2016, respectively.       

  

5.             Marketable Securities

As of March 31, 2017 and December 31, 2016, we owned 535,265 common shares of The Macerich Company (“Macerich”) (NYSE: MAC). These shares have an economic cost of $56.05 per share, or $30,000,000 in the aggregate.  As of March 31, 2017 and December 31, 2016, the fair value of these shares was $34,471,000 and $37,918,000, respectively, based on Macerich’s closing share price of $64.40 per share and $70.84 per share, respectively.  These shares are included in “marketable securities” on our consolidated balance sheets and are classified as available-for-sale.  Available-for-sale securities are presented at fair value and unrealized gains and losses resulting from the mark-to-market of these securities are included in “other comprehensive income.”

 

6.             Significant Tenants

 

Bloomberg L.P. (“Bloomberg”) accounted for revenue of $26,010,000 and $26,506,000, representing approximately 45% and 48% of our total revenues for the three months ended March 31, 2017 and 2016, respectively.  No other tenant accounted for more than 10% of our total revenues.  If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition.  In order to assist us in our continuing assessment of Bloomberg’s creditworthiness, we receive certain confidential financial information and metrics from Bloomberg.  In addition, we access and evaluate financial information regarding Bloomberg from other private sources, as well as publicly available data.

  

11


ALEXANDER’S, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

(UNAUDITED) 

 

7.             Mortgages Payable

 

The following is a summary of our outstanding mortgages payable as of March 31, 2017 and December 31, 2016.

 

 

 

 

  

   

  

 

 

 

  

Balance as of

 

 

 

 

 

 

 

Interest Rate as of

 

 

March 31,

 

December 31,

 

(Amounts in thousands)

Maturity(1)

  

March 31, 2017

 

   

2017

  

2016

 

First mortgages secured by:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rego Park I shopping center (100% cash

 

 

 

 

 

 

 

 

 

 

 

 

 

     collateralized)(2)

Mar. 2018

 

0.35

%

 

 

$

78,246

 

$

78,246

 

 

Paramus

Oct. 2018

  

2.90

%

 

  

 

68,000

  

 

68,000

 

 

Rego Park II shopping center(3)

Nov. 2018

 

2.83

%

 

 

 

259,000

 

 

259,901

 

 

731 Lexington Avenue, office space(4)

Mar. 2021

 

1.86

%

 

 

 

300,000

 

 

300,000

  

 

731 Lexington Avenue, retail space(5)

Aug. 2022

 

2.23

%

 

 

 

350,000

 

 

350,000

 

 

Total

   

  

  

  

 

  

 

1,055,246

 

 

1,056,147

 

 

Deferred debt issuance costs, net of accumulated

  

  

  

  

 

  

  

   

  

  

  

  

             amortization of $7,348 and $6,824 respectively

 

 

 

 

 

 

 

(3,273)

 

 

(3,788)

 

 

 

 

 

 

 

 

 

 

 

$

1,051,973

 

$

1,052,359

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Represents the extended maturity where we have the unilateral right to extend.

  

(2)

Extended in March 2016 for two years.

 

(3)

Interest at LIBOR plus 1.85%.

 

(4)

Interest at LIBOR plus 0.95%.

 

(5)

Interest at LIBOR plus 1.40%.

 

 

8.             Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures defines fair value and establishes a framework for measuring fair value.  ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value.  

 

Financial Assets and Liabilities Measured at Fair Value

 

Financial assets measured at fair value on our consolidated balance sheets as of March 31, 2017 and December 31, 2016, consist of marketable securities, which are presented in the table below based on their level in the fair value hierarchy, and an interest rate cap which fair value was insignificant, as of March 31, 2017 and December 31, 2016. There were no financial liabilities measured at fair value as of March 31, 2017 and December 31, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2017

 

 

 (Amounts in thousands)

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

Marketable securities

$

34,471

 

$

34,471

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 (Amounts in thousands)

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

Marketable securities

$

37,918

 

$

37,918

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12


ALEXANDER’S, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

(UNAUDITED) 

 

8.             Fair Value Measurements – continued

Financial Assets and Liabilities not Measured at Fair Value

 

Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents and mortgages payable.  Cash equivalents are carried at cost, which approximates fair value due to their short-term maturities.  The fair value of our mortgages payable is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings, which are provided by a third-party specialist.  The fair value of cash equivalents is classified as Level 1 and the fair values of mortgages payable are classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of March 31, 2017 and December 31, 2016.

 

 

 

As of March 31, 2017

 

As of December 31, 2016

 

 

Carrying

 

Fair

 

Carrying

 

Fair

(Amounts in thousands)

Amount

 

Value

 

Amount

 

Value

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

$

273,477

 

$

  273,477

 

$

256,730

 

$

256,730

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable (excluding deferred debt issuance costs)

$

1,055,246

 

$

  1,042,000

 

$

1,056,147

 

$

1,045,000

 

9.             Commitments and Contingencies

 

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties.

 

Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020.  Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence and in the aggregate.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to FNSIC.  For NBCR acts, FNSIC is responsible for a $293,000 deductible and 17% of the balance of a covered loss, and the Federal government is responsible for the remaining 83% of a covered loss. We are ultimately responsible for any loss incurred by FNSIC.

 

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future.  We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.

 

Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance.  Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future.  If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.

Tenant Matters

In April 2017, Sears closed its 195,000 square foot store it leases from us at our Rego Park I property. Annual revenue, including reimbursements, is approximately $10,337,000, under a lease which expires in March of 2021.  There is a straight-line rent receivable of approximately $4,757,000 and unamortized deferred leasing costs of approximately $499,000 on our consolidated balance sheet as of March 31, 2017. In its 2016 annual report on Form 10-K, Sears indicated that substantial doubt exists related to its ability to continue as a going concern.

13


ALEXANDER’S, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

(UNAUDITED) 

 

9.             Commitments and Contingencies – continued

Rego Park I Litigation

On June 24, 2014, Sears Roebuck and Co. (“Sears”) filed a lawsuit in the Supreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to space that Sears leases at our Rego Park I property alleging that the defendants are liable for harm that Sears has suffered as a result of (a) water intrusions into the premises, (b) two fires in February 2014 that caused damages to those premises, and (c) alleged violations of the Americans with Disabilities Act in the premises’ parking garage.  Sears asserted various causes of actions for damages and sought to compel compliance with landlord’s obligations to repair the premises and to provide security, and to compel us to abate a nuisance that Sears claims was a cause of the water intrusions into its premises.  In addition to injunctive relief, Sears sought, among other things, damages of not less than $4 million and future damages it estimated would not be less than $25 million. In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $650,000 based on information provided by Sears.  We intend to defend the remaining claim vigorously.  The amount or range of reasonably possible losses, if any, is not expected to be greater than $650,000.

Paramus

      In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 2.90%, which matures in October 2018.  The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.

 

Letters of Credit

Approximately $2,074,000 of standby letters of credit were outstanding as of March 31, 2017.

 

Other

On October 15, 2015, the New York City Department of Finance (“NYC DOF”) issued a Notice of Determination to us assessing an additional $21,700,000 of transfer taxes (including interest and penalties as of March 31, 2017) in connection with the sale of Kings Plaza Regional Shopping Center in 2012.  We believe that the NYC DOF’s claim is without merit and intend to vigorously contest this assessment.  We have determined that the likelihood of a loss related to this issue is not probable and, after consultation with legal counsel, that the outcome of this assessment is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

There are various other legal actions against us in the ordinary course of business.  In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial position, results of operations or cash flows.

14


ALEXANDER’S, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

(UNAUDITED) 

 

10.          Earnings Per Share

The following table sets forth the computation of basic and diluted income per share, including a reconciliation of net income and the number of shares used in computing basic and diluted income per share. Basic income per share is determined using the weighted average shares of common stock outstanding during the period. Diluted income per share is determined using the weighted average shares of common stock outstanding during the period, and assumes all potentially dilutive securities were converted into common shares at the earliest date possible.  There were no potentially dilutive securities outstanding during the three months ended March 31, 2017 and 2016.

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

(Amounts in thousands, except share and per share amounts)

 

2017

  

2016

 

Net income

 

$

21,667

 

$

22,019

 

 

 

 

 

 

  

 

 

 

 

Weighted average shares outstanding – basic and diluted

 

 

5,114,701

 

 

5,113,077

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic and diluted

 

$

4.24

 

$

4.31

 

15


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Alexander’s, Inc.

Paramus, New Jersey

 

We have reviewed the accompanying consolidated balance sheet of Alexander’s, Inc. and subsidiaries (the “Company”) as of March 31, 2017, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the three month periods ended March 31, 2017 and 2016. These interim financial statements are the responsibility of the Company’s management.

 

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Alexander’s, Inc. and subsidiaries as of December 31, 2016, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended (not presented herein); and in our report dated February 13, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

 

 

/s/ DELOITTE & TOUCHE LLP

 

Parsippany, New Jersey
May 1, 2017

 

16


 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain statements contained in this Quarterly Report constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties and assumptions.  Our future results, financial condition, results of operations and business may differ materially from those expressed in these forward-looking statements.  You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q.  These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties.  Many of the factors that will determine these items are beyond our ability to control or predict.  For a further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A - Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2016.  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 the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three months ended March 31, 2017 and 2016. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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.  The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the operating results for the full year.

 

Critical Accounting Policies  

 

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2016 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 2 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein.  There have been no significant changes to these policies during 2017.

  

 

17


 

Overview

 

Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping its properties.  All references to “we,” “us,” “our,” “Company,” and “Alexander’s”, refer to Alexander’s, Inc. and its consolidated subsidiaries.  We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE: VNO).  We have seven properties in the greater New York City metropolitan area.

 

We compete with a large number of property owners and developers.  Our success depends upon, among other factors, trends of the world, national and local economies, the financial condition and operating results of current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels.  Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.

 

Quarter Ended March 31, 2017 Financial Results Summary

 

Net income for the quarter ended March 31, 2017 was $21,667,000, or $4.24 per diluted share, compared to $22,019,000, or $4.31 per diluted share for the quarter ended March 31, 2016.  Funds from operations (“FFO”) for the quarter ended March 31, 2017 was $29,581,000, or $5.78 per diluted share, compared to $30,250,000, or $5.92 per diluted share for the quarter ended March 31, 2016.

 

Square Footage, Occupancy and Leasing Activity

As of March 31, 2017, our portfolio was comprised of seven properties aggregating 2,437,000 square feet and was 99.6% occupied.

 

Significant Tenants

Bloomberg L.P. (“Bloomberg”) accounted for revenue of $26,010,000 and $26,506,000, representing approximately 45% and 48% of our total revenues for the three months ended March 31, 2017 and 2016, respectively.  No other tenant accounted for more than 10% of our total revenues.  If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition.  In order to assist us in our continuing assessment of Bloomberg’s creditworthiness, we receive certain confidential financial information and metrics from Bloomberg.  In addition, we access and evaluate financial information regarding Bloomberg from other private sources, as well as publicly available data.

 

18


 

Results of Operations – Three Months Ended March 31, 2017, compared to March 31, 2016

 

Property Rentals

Property rentals were $38,273,000 in the quarter ended March 31, 2017, compared to $36,653,000 in the prior year’s quarter, an increase of $1,620,000. This increase is primarily due to higher rental income from The Alexander apartment tower, which was placed in service in phases beginning July 2015 and leased up to stabilization in September 2016.

 

Expense Reimbursements

Tenant expense reimbursements were $18,956,000 in the quarter ended March 31, 2017, compared to $18,905,000 in the prior year’s quarter, an increase of $51,000.

 

Operating Expenses

Operating expenses were $20,921,000 in the quarter ended March 31, 2017, compared to $19,654,000 in the prior year’s quarter, an increase of $1,267,000. This increase was primarily due to higher reimbursable real estate taxes.

 

Depreciation and Amortization

Depreciation and amortization was $8,045,000 in the quarter ended March 31, 2017, compared to $8,333,000 in the prior year’s quarter, a decrease of $288,000.

 

General and Administrative Expenses

General and administrative expenses were $1,156,000 in the quarter ended March 31, 2017, compared to $1,235,000 in the prior year’s quarter, a decrease of $79,000.

 

Interest and Other Income, net

Interest and other income, net was $727,000 in the quarter ended March 31, 2017, compared to $1,091,000 in the prior year’s quarter, a decrease of $364,000. This decrease was primarily due to income in the prior year of $367,000 resulting from a cost reimbursement settlement with a retail tenant at our 731 Lexington Avenue property.

 

Interest and Debt Expense

Interest and debt expense was $6,160,000 in the quarter ended March 31, 2017, compared to $5,406,000 in the prior year’s quarter, an increase of $754,000. This increase was primarily due to higher average LIBOR.

 

Income Taxes

Income tax expense was $7,000 in the quarter ended March 31, 2017, compared to $2,000 in the prior year’s quarter.  

 

19


 

Liquidity and Capital Resources

 

Cash Flows

 

Property rental income is our primary source of cash flow and is dependent on a number of factors, including the occupancy level and rental rates of our properties, as well as our tenants’ ability to pay their rents.  Our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses, interest expense, recurring capital expenditures and cash dividends to stockholders.  Other sources of liquidity to fund cash requirements include our existing cash, proceeds from financings, including mortgage or construction loans secured by our properties and proceeds from asset sales.  We anticipate that cash flows from continuing operations over the next twelve months, together with existing cash balances, will be adequate to fund our business operations, cash dividends to stockholders, debt amortization and capital expenditures.

 

Three Months Ended March 31, 2017

Cash and cash equivalents and restricted cash were $392,026,000 as of March 31, 2017, compared to $374,678,000 as of December 31, 2016, an increase of $17,348,000.  This increase resulted from (i) $41,623,000 of net cash provided by operating activities, partially offset by (ii) $22,647,000 of net cash used in financing activities and (iii) $1,628,000 of net cash used in investing activities.

 

Net cash provided by operating activities of $41,623,000 was comprised of net income of $21,667,000, adjustments for non-cash items of $9,639,000 and the net change in operating assets and liabilities of $10,317,000. The adjustments for non-cash items were comprised of depreciation and amortization (including amortization of debt issuance costs) of $8,569,000 and straight-lining of rental income of $1,070,000.

 

Net cash used in investing activities of $1,628,000 was comprised of construction in progress and real estate additions.

 

Net cash used in financing activities of $22,647,000 was primarily comprised of dividends paid of $21,737,000.

 

   

 

  

20


 

Liquidity and Capital Resources – continued

 

Three Months Ended March 31, 2016

        Cash and cash equivalents and restricted cash were $359,875,000 as of March 31, 2016, compared to $344,656,000 as of December 31, 2015, an increase of $15,219,000.  This increase resulted from (i) $45,376,000 of net cash provided by operating activities partially offset by (ii) $21,304,000 of net cash used in financing activities and (iii) $8,853,000 of net cash used in investing activities. 

 

        Net cash provided by operating activities of $45,376,000 was comprised of net income of $22,019,000, adjustments for non-cash items of $8,930,000 and the net change in operating assets and liabilities of $14,427,000.  The adjustments for non-cash items were comprised of depreciation and amortization (including amortization of debt issuance costs) of $8,974,000,  partially offset by straight-lining of rental income of $44,000.

  

        Net cash used in investing activities of $8,853,000 was comprised of construction in progress and real estate additions primarily related to The Alexander apartment tower, including the payment of a development fee to Vornado of $5,784,000.

 

        Net cash used in financing activities of $21,304,000 was primarily comprised of dividends paid of $20,452,000.

 

Commitments and Contingencies

 

Insurance

        We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties.

 

Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act, which expires in December 2020.  Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence and in the aggregate.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to FNSIC.  For NBCR acts, FNSIC is responsible for a $293,000 deductible and 17% of the balance of a covered loss, and the Federal government is responsible for the remaining 83% of a covered loss.  We are ultimately responsible for any loss incurred by FNSIC.

 

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future.  We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.

 

Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance.  Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future.  If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.

21


 

Liquidity and Capital Resources – continued

 

Tenant Matters

In April 2017, Sears closed its 195,000 square foot store it leases from us at our Rego Park I property. Annual revenue, including reimbursements, is approximately $10,337,000, under a lease which expires in March of 2021. There is a straight-line rent receivable of approximately $4,757,000 and unamortized deferred leasing costs of approximately $499,000 on our consolidated balance sheet as of March 31, 2017. In its 2016 annual report on Form 10-K, Sears indicated that substantial doubt exists related to its ability to continue as a going concern.  

Rego Park I Litigation

On June 24, 2014, Sears Roebuck and Co. (“Sears”) filed a lawsuit in the Supreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to space that Sears leases at our Rego Park I property alleging that the defendants are liable for harm that Sears has suffered as a result of (a) water intrusions into the premises, (b) two fires in February 2014 that caused damages to those premises, and (c) alleged violations of the Americans with Disabilities Act in the premises’ parking garage.  Sears asserted various causes of actions for damages and sought to compel compliance with landlord’s obligations to repair the premises and to provide security, and to compel us to abate a nuisance that Sears claims was a cause of the water intrusions into its premises.  In addition to injunctive relief, Sears sought, among other things, damages of not less than $4 million and future damages it estimated would not be less than $25 million. In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $650,000 based on information provided by Sears.  We intend to defend the remaining claim vigorously.  The amount or range of reasonably possible losses, if any, is not expected to be greater than $650,000.

Paramus

In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 2.90%, which matures in October 2018.  The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.

 

Letters of Credit

Approximately $2,074,000 of standby letters of credit were outstanding as of March 31, 2017. 

 

Other

     On October 15, 2015, the New York City Department of Finance (“NYC DOF”) issued a Notice of Determination to us  assessing an additional $21,700,000 of transfer taxes (including interest and penalties as of March 31, 2017) in connection with the sale of Kings Plaza Regional Shopping Center in 2012.  We believe that the NYC DOF’s claim is without merit and intend to vigorously contest this assessment.  We have determined that the likelihood of a loss related to this issue is not probable and, after consultation with legal counsel, that the outcome of this assessment is not expected to have a material adverse effect on our financial position, results of operations or cash flows.

 

      There are various other legal actions against us in the ordinary course of business.  In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial position, results of operations or cash flows.

 

22


 

Funds from Operations (“FFO”)

 

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries.  FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.  FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure.  FFO may not be comparable to similarly titled measures employed by other companies.  A reconciliation of our net income to FFO is provided below.

 

 

FFO for the Three Months Ended March 31, 2017 and 2016

 

FFO for the quarter ended March 31, 2017 was $29,581,000, or $5.78 per diluted share, compared to $30,250,000, or $5.92 per diluted share for the prior year’s quarter.

 

The following table reconciles our net income to FFO:

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

(Amounts in thousands, except share and per share amounts)

2017

 

2016

Net income

$

21,667

 

$

22,019

Depreciation and amortization of real property

 

7,914

 

 

8,231

FFO

$

29,581

 

$

30,250

 

 

 

 

 

 

 

 

 

FFO per diluted share

$

5.78

 

$

5.92

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing FFO per diluted share

 

5,114,701

 

 

5,113,077

 

23


 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

 

We have exposure to fluctuations in interest rates, which are sensitive to many factors that are beyond our control.  Our exposure to a change in interest rates is summarized in the table below.

 

  

 

2017

 

2016

 

 

 

 

 

Weighted

 

Effect of 1%

 

 

 

 

Weighted

 

 

March 31,

 

Average

 

Change in

 

December 31,

 

Average

(Amounts in thousands, except per share amounts)

Balance

 

Interest Rate

 

Base Rates

 

Balance

 

Interest Rate

Variable Rate

$

909,000

 

2.28%

 

 

$

9,090

 

$

909,901

 

2.08%

 

Fixed Rate

 

146,246

 

1.54%

 

 

 

-

 

 

146,246

 

1.54%

 

 

 

$

1,055,246

 

2.18%

 

 

$

9,090

 

$

1,056,147

 

2.01%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total effect on diluted earnings per share

 

 

 

 

 

 

$

1.78

 

 

 

 

 

 

 

As of March 31, 2017 we have an interest rate cap with a notional amount of $300,000,000 that caps LIBOR at a rate of 6.0%.

 

Fair Value of Debt

 

The fair value of our consolidated debt is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings, which are provided by a third-party specialist.  As of March 31, 2017 and December 31, 2016, the estimated fair value of our consolidated debt was $1,042,000,000 and $1,045,000,000, respectively.  Our fair value estimates, which are made at the end of the reporting period, may be different from the amounts that may ultimately be realized upon the disposition of our financial instruments.



Item 4.   Controls and Procedures

 

(a) Disclosure Controls and Procedures:  Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

 

(b) Internal Control Over Financial Reporting:  There have not been any changes in our internal control over financial reporting during the fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

24


 

PART II.   OTHER INFORMATION

  

  

Item 1.        Legal Proceedings

 

We are from time to time involved in legal actions arising in the ordinary course of business.  In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial condition, results of operations or cash flows.

 

For a discussion of the litigation concerning our Rego Park I property, see “Part I – Financial Information, Item 1 – Financial Statements, Note 9 – Commitments and Contingencies.”




Item 1A.       Risk Factors

 

There have been no material changes in our “Risk Factors” as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

  

 

Item 2.          Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

  

 

Item 3.         Defaults Upon Senior Securities

 

None.

  

 

 Item 4.         Mine Safety Disclosures

 

Not applicable.

  

 

 Item 5.         Other Information

 

On April 26, 2017, the Board of Directors of Alexander’s, Inc. elected Matthew Iocco as its Chief Financial Officer, succeeding Joseph Macnow, effective May 2, 2017.  Mr. Iocco is currently and will continue as Executive Vice President – Chief Accounting Officer of Vornado Realty Trust (“Vornado”), our affiliate, and its Principal Accounting Officer for SEC reporting purposes.  Prior to becoming Executive Vice President – Chief Accounting Officer, Mr. Iocco was Senior Vice President – Financial Reporting at Vornado, where he has been employed since 1999. 

 

  

 

 Item 6.        Exhibits

 

Exhibits required by Item 601 of Regulation S-K are filed herewith and are listed in the attached Exhibit Index.

  

25


 

SIGNATURES

Pursuant to the requirements 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.

 

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

 

 

Date:  May 1, 2017

By:

/s/ Joseph Macnow

 

 

Joseph Macnow, Executive Vice President and
Chief Financial Officer (duly authorized officer and
principal financial and accounting officer)

  

26


 

 

  

  

EXHIBIT INDEX

 

 

 

 

 

 

  

Exhibit

  

  

  

 

 

 

 

 

 

  

No.

  

  

  

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

15.1

 - 

 

Letter regarding unaudited interim financial information

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

31.1

 - 

 

Rule 13a-14 (a) Certification of the Chief Executive Officer

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

31.2

 - 

 

Rule 13a-14 (a) Certification of the Chief Financial Officer

 

 

 

 

 

 

 

  

  

  

 

 

 

 

 

 

 

 

32.1

 - 

 

Section 1350 Certification of the Chief Executive Officer

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

32.2

 - 

 

Section 1350 Certification of the Chief Financial Officer

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

101.INS

 - 

 

XBRL Instance Document

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

101.SCH

 - 

 

XBRL Taxonomy Extension Schema

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

101.CAL

 - 

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

101.DEF

 - 

 

XBRL Taxonomy Extension Definition Linkbase

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

101.LAB

 - 

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

 

 

 

 

  

  

  

  

 

 

 

 

 

 

 

101.PRE

 - 

 

XBRL Taxonomy Extension Presentation Linkbase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                 

 

27