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(Exact name of registrant as specified in its charter)
iDelaware
i51-0100517
(State or other jurisdiction of incorporation or organization)
(I.R.S.
Employer Identification Number)
i210 Route 4 East,
iParamus,
iNew
Jersey
i07652
(Address of principal executive offices)
(Zip Code)
i(201)
i587-8541
(Registrant’s
telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, $1 par value per share
iALX
iNew
York Stock Exchange
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. ☑iYes ☐ No
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☑iYes ☐ No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth 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
☑
iAccelerated
Filer
☐
Non-Accelerated Filer
i☐
Smaller Reporting Company
i☐
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). i☐
Yes ☑ No
As of October 29, 2021, there were i5,107,290 shares of common stock, par value $1 per share, outstanding.
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). As of September 30, 2021, we had iseven
properties in the greater New York City metropolitan area, including i30.3 acres of land located in Paramus, New Jersey (“Paramus Property”) which we sold in October 2021. See Note 5 - Real Estate Sales for further details.
2.iBasis
of Presentation
i
The accompanying consolidated financial statements are unaudited and include the accounts of Alexander’s and its consolidated subsidiaries. All intercompany amounts have been eliminated and 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 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, 2020, 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 and nine months ended September 30, 2021 are not necessarily indicative of the operating results for the full year.
We operate in ione reportable segment.
3.iRecently
Issued Accounting Literature
i
In March 2020, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2020-04”) establishing Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and
may be elected over time as reference rate reform activities occur. We have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
In July 2021, the FASB issued an update (“ASU 2021-05”) Lessors - Certain Leases with Variable Lease Payments to ASC Topic 842, Leases (“ASC 842”). ASU 2021-05 provides additional ASC 842 classification guidance as it relates to a
lessor’s accounting for certain leases with variable lease payments. ASU 2021-05 requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss. ASU 2021-05 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2021-05 on our consolidated financial statements, but do not believe the adoption of this standard will have a material impact on our consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4.iRevenue Recognition
i
Our
rental revenues include revenues from the leasing of space to tenants at our properties and revenues from parking and tenant services. We have the following revenue recognition policies:
•Lease revenues from the leasing of space to tenants at our properties. Revenues derived from base rent are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements. We commence rental revenue recognition when the underlying asset is available for use by the lessee. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease. Revenues derived from the reimbursement of real estate taxes, insurance expenses and common area maintenance expenses are generally
recognized in the same period as the related expenses are incurred. As lessor, we have elected to combine the lease components (base and variable rent), non-lease components (reimbursements of common area maintenance expenses) and reimbursement of real estate taxes and insurance expenses from our operating lease agreements and account for the components as a single lease component in accordance with ASC 842.
•Parking revenue arising from the rental of parking spaces at our properties. This income is recognized as the services are transferred in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).
•Tenant services is revenue arising from sub-metered electric, elevator
and other services provided to tenants at their request. This revenue is recognized as the services are transferred in accordance with ASC 606.
Under ASC 842, we must assess on an individual lease basis whether it is probable that we will collect substantially all of the future lease payments. We consider the tenant’s payment history, current credit status and other factors when assessing collectability. When collectability is not deemed probable, we write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received. We recognize changes in the collectability assessment of our operating leases as adjustments to rental revenues. During the quarter ended September 30, 2021, there were no changes to our lease collectability assessment.
i
The
following is a summary of revenue sources for the three and nine months ended September 30, 2021 and 2020.
Three Months Ended September 30,
Nine
Months Ended September 30,
(Amounts in thousands)
2021
2020
2021
2020
Lease revenues
$
i46,535
$
i41,394
$
i149,850
$
i137,479
Parking
revenue
i1,207
i1,106
i3,215
i3,046
Tenant
services
i1,208
i999
i3,426
i2,562
Rental
revenues
$
i48,950
$
i43,499
$
i156,491
$
i143,087
/
i
The
components of lease revenues for the three and nine months ended September 30, 2021 and 2020 are as follows:
Three Months Ended September 30,
Nine
Months Ended September 30,
(Amounts in thousands)
2021
2020
2021
2020
Fixed lease revenues
$
i31,072
$
i33,609
$
i97,115
$
i101,348
Variable
lease revenues
i15,463
i7,785
i52,735
i36,131
Lease
revenues
$
i46,535
$
i41,394
$
i149,850
$
i137,479
/
Bloomberg
L.P. (“Bloomberg”) accounted for revenue of $i85,057,000 and $i80,696,000 for the nine months ended September 30, 2021 and 2020, respectively,
representing approximately i54% and i56% of our total revenues in each period, 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5.iReal
Estate Sales
On June 4, 2021, we sold a parcel of land in the Bronx, New York (“Bronx Land Parcel”) for $i10,000,000. Net proceeds from the sale were $i9,291,000
after closing costs and the financial statement gain was $i9,124,000.
On October 4, 2021, we sold our Paramus Property to IKEA Property, Inc. (“IKEA”), the tenant at the property, for $i75,000,000,
pursuant to IKEA’s purchase option contained in the lease. Net proceeds from the sale were $i4,580,000 after closing costs and the repayment of the $i68,000,000
mortgage loan. The financial statement gain was $i60,826,000, which will be recognized in the fourth quarter of 2021.
We do not expect to pay a special dividend related to these transactions.
6.iRelated
Party Transactions
Vornado
As of September 30, 2021, Vornado owned i32.4% 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) $i2,800,000, (ii) i2% of gross revenue from the Rego Park II shopping center, (iii) $i0.50
per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue and (iv) $i344,000, escalating at i3% per annum, for
managing the common area of 731 Lexington Avenue. Vornado is also entitled to a development fee equal to i6% of development costs, as defined.
Leasing and Other Agreements
Vornado also provides us with leasing services for a fee of i3%
of rent for the first ten years of a lease term, i2% of rent for the eleventh through the twentieth year of a lease term, and i1% 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 i1% 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 i3%
of gross proceeds, as defined, for asset sales less than $i50,000,000 and i1% of gross proceeds, as defined, for asset sales of $i50,000,000
or more (the “Sales Agreement”).
Pursuant to the Sales Agreement, we paid a $i300,000 sales commission to Vornado in the second quarter of 2021 related to the sale of the Bronx Land Parcel. In addition, we will pay a $i750,000
sales commission to Vornado in the fourth quarter of 2021 related to the Paramus Property sale.
We also have agreements with Building Maintenance Services LLC, 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 and The Alexander apartment tower.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6.Related
Party Transactions - continued
i
The following is a summary of fees incurred to Vornado under the various agreements discussed above.
Three
Months Ended September 30,
Nine Months Ended September 30,
(Amounts in thousands)
2021
2020
2021
2020
Company management fees
$
i700
$
i700
$
i2,100
$
i2,100
Development
fees
i30
i188
i109
i456
Leasing
fees
i1,291
i113
i1,730
i172
Commission
on sale of real estate
i—
i—
i300
i—
Property
management, cleaning, engineering and security fees
i1,468
i1,074
i4,279
i3,519
$
i3,489
$
i2,075
$
i8,518
$
i6,247
/
As
of September 30, 2021, the amounts due to Vornado were $i1,291,000 for leasing fees; $i692,000
for management, property management, cleaning, engineering and security fees; and $i109,000 for development fees. As of December 31, 2020, the amounts due to Vornado were $i845,000
for management, property management, cleaning, engineering and security fees; $i557,000 for development fees; and $i114,000
for leasing fees.
7.iMarketable Securities
As of September 30, 2021 and December 31, 2020, we owned
ii564,612/ common shares of The Macerich
Company (“Macerich”) (NYSE: MAC). As of September 30, 2021 and December 31, 2020, the fair value of these shares was $i9,435,000 and $i6,024,000,
respectively, based on Macerich’s closing share price of $i16.71 per share and $i10.67 per share, respectively. iThese
shares are presented at fair value as “marketable securities” on our consolidated balance sheets and the gains and losses resulting from the mark-to-market of these securities are recognized in current period earnings.
8.iMortgages Payable
i
The
following is a summary of our outstanding mortgages payable as of September 30, 2021 and December 31, 2020. We may refinance our maturing debt as it comes due or choose to pay it down.
Deferred
debt issuance costs, net of accumulated amortization of $i14,172 and $i13,034, respectively
(i7,281)
(i8,374)
$
i1,157,263
$
i1,156,170
(1)On
October 4, 2021, the loan was repaid in connection with the sale of the property. See Note 5 - Real Estate Sales for further details.
(2)Interest at iLIBOR plus i0.90%.
Maturity represents the extended maturity based on our unilateral right to extend.
(3)Interest at iLIBOR plus i1.40% which was swapped to a fixed rate of
i1.72%.
(4)Interest at iLIBOR plus i1.35%.
The loan balance of $i252,544 as of December 31, 2020 is presented net of our participation of $i50,000.
On April 7, 2021, we used our participation in this loan to reduce the loan balance to $i202,544.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9.iStock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718, Compensation
– Stock Compensation (“ASC 718”). Our 2016 Omnibus Stock Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, deferred stock units (“DSUs”) and performance shares, as defined, to the directors, officers and employees of the Company and Vornado.
In May 2021, we granted each of the members of our Board of Directors i284
DSUs with a market value of $i75,000 per grant. The grant date fair value of these awards was $i56,250
per grant, or $i450,000 in the aggregate, in accordance with ASC 718. The DSUs entitle the holders to receive shares of the Company’s common stock without the payment of any consideration. The DSUs vested immediately and accordingly, were expensed on the date of grant, but the shares of common stock underlying the DSUs are
not deliverable to the grantee until the grantee is no longer serving on the Company’s Board of Directors. As of September 30, 2021, there were i17,188DSUs outstanding and i488,599shares were available for future grant under the Plan.
10.iFair Value Measurements
iASC
Topic 820, Fair Value Measurement (“ASC 820”) 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
i
Financial assets measured at fair value on our consolidated balance sheet as of September 30, 2021 consist of marketable securities and an interest rate swap, 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 September
30, 2021. There were no financial liabilities measured at fair value as of September 30, 2021.
Financial
assets measured at fair value on our consolidated balance sheet as of December 31, 2020 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 December 31, 2020. Financial liabilities measured at fair value as of December 31, 2020 consist of an interest rate swap, which is presented in the table below based on its level in the fair value hierarchy.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10.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 and are classified as Level 1. 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, and is classified as Level 2. iThe table below summarizes the carrying amounts and fair values of these financial instruments as of September 30, 2021 and December 31, 2020.
We maintain general liability insurance with limits of $ii300,000,000/
per occurrence and per property, of which the first $ii30,000,000/
includes communicable disease coverage, and all-risk property and rental value insurance coverage with limits of $i1.7 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 and excluding communicable disease coverage.
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 Act of 2002, as amended to date and which has been extended through December 2027. Coverage for acts of terrorism (including NBCR acts) is up to $ii1.7/
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 $i275,000 deductible and i20%
of the balance of a covered loss, and the Federal government is responsible for the remaining i80% 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 or other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and 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 or refinance our properties.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
11.Commitments
and Contingencies - continued
Rego Park I Litigation
In June 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 the i195,000 square foot store that Sears leased 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) itwo 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 $i4,000,000
and future damages it estimated would not be less than $i25,000,000. In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $i650,000
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 $i650,000. On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief resulting in an automatic stay of this case.
Letters of Credit
Approximately $i960,000
of standby letters of credit were issued and outstanding as of September 30, 2021.
Other
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.
12.iEarnings
Per Share
iThe following table sets forth the computation of 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 iiiino///
potentially dilutive securities outstanding during the three and nine months ended September 30, 2021 and 2020.
Three Months Ended September 30,
Nine
Months Ended September 30,
(Amounts in thousands, except share and per share amounts)
2021
2020
2021
2020
Net income
$
i11,401
$
i6,604
$
i55,181
$
i23,507
Weighted
average shares outstanding – basic and diluted
ii5,124,478/
ii5,122,206/
ii5,123,321/
ii5,120,490/
Net
income per common share – basic and diluted
$
ii2.22/
$
ii1.29/
$
ii10.77/
$
ii4.59/
/
15
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Alexander’s, Inc.
Results of Review of Interim Financial Information
We have reviewed the accompanying consolidated balance sheet of Alexander’s, Inc. and subsidiaries (the “Company”) as of September 30, 2021, the related consolidated statements of income, comprehensive income, and changes in equity, for the three-month and nine-month periods ended September 30, 2021 and 2020, and of cash flows for the nine-month periods ended
September 30, 2021 and 2020, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it 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) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, 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 16, 2021, 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, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with standards of the PCAOB. 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 the standards of the PCAOB, 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.
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.
Currently, one of the most significant factors is the ongoing adverse effect of the COVID-19 pandemic on our business, financial condition, results of operations, cash flows, operating performance and the effect
it has had and may continue to have on our tenants, the global, national, regional and local economies and financial markets and the real estate market in general. The extent of the impact of the COVID-19 pandemic will depend on future developments, including the duration of the pandemic, current and future variants, the efficacy and durability of vaccines against the variants and the potential for increased government restrictions, which continue to be uncertain at this time but that impact could be material. Moreover, you are cautioned that the COVID-19 pandemic will heighten many of the risks identified in “Item 1A. – Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.
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, 2020. 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 and nine months ended September 30, 2021 and 2020. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 and nine months ended September 30, 2021 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, 2020 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 3 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein. For the nine months ended September 30, 2021, there were no material changes to these policies.
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). As of September 30, 2021, we had seven properties in the greater New York City metropolitan area, including 30.3 acres of land located in Paramus, New Jersey (“Paramus Property”) which we sold in October 2021.
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.
Our business has been adversely affected by the ongoing COVID-19 pandemic. Although substantially all our retail tenants are currently open and operating and previous government restrictions have been lifted, there continue to be economic conditions and other factors that adversely affect the financial health of our retail tenants.
Net income for the quarter ended September 30, 2021 was $11,401,000, or $2.22 per diluted share, compared to $6,604,000, or $1.29 per diluted share in the prior year’s quarter.
Funds from operations (“FFO”) (non-GAAP) for the quarter ended September 30, 2021 was $21,181,000, or $4.13 per diluted share, compared to $15,363,000 or $3.00 per diluted share in the prior year’s quarter.
Net income for the nine months ended September 30, 2021 was $55,181,000, or $10.77 per diluted share, compared
to $23,507,000, or $4.59 per diluted share in the prior year’s nine months.
FFO (non-GAAP) for the nine months ended September 30, 2021 was $68,095,000, or $13.29 per diluted share, compared to $57,102,000 or $11.15 per diluted share in the prior year’s nine months.
Square Footage, Occupancy and Leasing Activity
As of September 30, 2021, our portfolio was comprised of seven properties aggregating 2,454,000 square feet, of which 2,218,000 square feet was in service and236,000 square feet (primarily the former Century 21 space at our Rego Park II property and a portion of the former Sears space at our Rego Park I property) was out of service for redevelopment. Excluding residential square feet,
the in service square feet was 96% occupied as of September 30, 2021. The in service residential square feet was 93% occupied as of September 30, 2021.
Real Estate Sales
On June 4, 2021, we sold a parcel of land in the Bronx, New York (“Bronx Land Parcel”) for $10,000,000. Net proceeds from the sale were $9,291,000 after closing costs, the financial statement gain was $9,124,000 and the tax gain was $9,123,000.
On October 4, 2021, we sold our Paramus Property to IKEA Property, Inc. (“IKEA”), the tenant at the property, for $75,000,000, pursuant to IKEA’s purchase option contained in the lease. Net proceeds from the sale were $4,580,000
after closing costs and the repayment of the $68,000,000 mortgage loan. The financial statement gain was $60,826,000, which will be recognized in the fourth quarter of 2021, and the tax gain was $63,898,000. Prior to the sale, the Paramus Property had annual rental revenues of $7,200,000, annual operating expenses of $3,200,000 and annual interest and debt expense of $3,300,000.
We do not expect to pay a special dividend related to these transactions.
18
Overview - continued
Significant Tenant
Bloomberg L.P. (“Bloomberg”) accounted for revenue of $85,057,000 and $80,696,000 for the nine months ended
September 30, 2021 and 2020, respectively, representing approximately 54% and 56% of our total revenues in each period, 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.
Rental revenues were $48,950,000 in the quarter ended September 30, 2021, compared to $43,499,000 in the prior year’s quarter, an increase of $5,451,000. This was primarily due to (i) $6,590,000 from write-offs in the prior year related to receivables arising from the straight-lining of rents from certain of our retail tenants who were put on a cash basis given the probability of collecting the rent due under the lease agreements and (ii) $2,130,000 of higher revenue from new tenants, partially offset by (iii) $3,707,000 from retail tenant vacancies at our 731 Lexington Avenue and Rego Park II properties.
Operating
Expenses
Operating expenses were $21,433,000 in the quarter ended September 30, 2021, compared to $22,448,000 in the prior year’s quarter, a decrease of $1,015,000. This was primarily due to lower operating expenses subject to recovery, including real estate taxes and common area maintenance.
Depreciation and Amortization
Depreciation and amortization was $9,008,000 in the quarter ended September 30, 2021, compared to $7,587,000 in the prior year’s quarter, an increase of $1,421,000. This was primarily due to the acceleration of amortization of the deferred leasing commission at our Paramus property.
General and Administrative Expenses
General and administrative
expenses were $1,272,000 in the quarter ended September 30, 2021, compared to $1,386,000 in the prior year’s quarter, a decrease of $114,000. This was primarily due to lower professional fees.
Interest and Other Income, net
Interest and other income, net was $157,000 in the quarter ended September 30, 2021, compared to $220,000 in the prior year’s quarter, a decrease of $63,000. This was primarily due to $81,000 of lower interest income due to a decrease in average interest rates.
Interest and Debt Expense
Interest and debt expense was $5,124,000 in the quarter ended September 30, 2021, compared to $4,463,000 in the prior year’s quarter, an increase
of $661,000. This was primarily due to $632,000 of higher interest expense due to the financing of The Alexander apartment tower in October 2020.
Change in Fair Value of Marketable Securities
Change in fair value of marketable securities was an expense of $869,000 in the quarter ended September 30, 2021, compared to an expense of $1,231,000 in the prior year’s quarter, a decrease of $362,000. This was due to the change in The Macerich Company’s (“Macerich”) share price during the periods.
Rental revenues were $156,491,000 in the nine months ended September 30, 2021, compared to $143,087,000 in the prior year’s nine months, an increase of $13,404,000. This was primarily due to (i) $10,837,000 from write-offs in the prior year related to receivables arising from the straight-lining of rents from certain of our retail tenants who were put on a cash basis, (ii) $6,436,000 of higher revenue from new tenants and (iii) $4,836,000 from write-offs in the prior year related to receivables from retail tenants who were put on a cash basis, partially offset by (iv) $9,604,000 from retail tenant vacancies at our 731 Lexington Avenue and Rego Park II properties.
Operating Expenses
Operating
expenses were $68,655,000 in the nine months ended September 30, 2021, compared to $63,979,000 in the prior year’s nine months, an increase of $4,676,000. This was primarily due to higher operating expenses subject to recovery, including real estate taxes and common area maintenance.
Depreciation and Amortization
Depreciation and amortization was $25,682,000 in the nine months ended September 30, 2021, compared to $23,129,000 in the prior year’s nine months, an increase of $2,553,000. This was primarily due to the acceleration of amortization of the deferred leasing commission at our Paramus property.
General and Administrative Expenses
General and administrative expenses were $4,638,000 in the
nine months ended September 30, 2021, compared to $4,948,000 in the prior year’s nine months, a decrease of $310,000. This was primarily due to lower stock-based compensation expense related to an initial award of deferred stock units with a fair value of $150,000 granted to a newly appointed member of our Board of Directors in the prior year and lower professional fees.
Interest and Other Income, net
Interest and other income, net was $480,000 in the nine months ended September 30, 2021, compared to $2,473,000 in the prior year’s nine months, a decrease of $1,993,000. This was primarily due to $1,514,000 of lower interest income due to a decrease in average interest rates and $499,000 of lower dividend income from Macerich.
Interest and
Debt Expense
Interest and debt expense was $15,350,000 in the nine months ended September 30, 2021, compared to $19,208,000 in the prior year’s nine months, a decrease of $3,858,000. This was primarily due to (i) $4,414,000 of lower interest expense due to a decrease in LIBOR and (ii) $1,276,000 of lower amortization of debt issuance costs, partially offset by (iii) $1,875,000 of higher interest expense due to the financing of The Alexander apartment tower in October 2020.
Change in Fair Value of Marketable Securities
Change in fair value of marketable securities was income of $3,411,000 in the nine months ended September 30, 2021, compared to an expense of $10,789,000 in the prior year’s nine months, an increase to income of $14,200,000.
This was due to the change in Macerich’s share price during the periods.
Net Gain on Sale of Real Estate
Net gain on sale of real estate was $9,124,000 in the nine months ended September 30, 2021, resulting from the sale of the Bronx Land Parcel.
21
Liquidity and Capital Resources
Cash Flows
Rental revenue 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.
As of September 30, 2021, we had $479,206,000 of liquidity comprised of $469,771,000 of cash and cash equivalents and restricted cash and $9,435,000 of marketable securities. 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. We may refinance our maturing debt as it comes due or choose to pay it down. However, there can be no assurance that additional financing or capital will be available to refinance our debt, or that the terms will be acceptable or advantageous to us. The challenges posed by the COVID-19 pandemic and the impact on our business and cash flows continue to evolve and cannot be predicted at this time but that impact could be material. Consequently, we will continue to evaluate our liquidity and financial position on an ongoing basis.
Cash and cash equivalents and restricted cash were $469,771,000 as of September 30, 2021, compared to $449,877,000 as of December 31, 2020, an increase
of $19,894,000. This increase resulted from (i) $90,919,000 of net cash provided by operating activities, partially offset by (ii) $69,205,000 of net cash used in financing activities and (iii) $1,820,000 of net cash used in investing activities.
Net cash provided by operating activities of $90,919,000 was comprised of (i) net income of $55,181,000, (ii) adjustments for non-cash items of $22,249,000 and (iii) the net change in operating assets and liabilities of $13,489,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $26,923,000, (ii) straight-lining of rental income of $7,411,000 and (iii) stock-based compensation of $450,000, partially offset by (iv) net gain on sale of real estate of $9,124,000 and (v) the change in fair value of marketable securities of $3,411,000.
Net cash used in financing
activities of $69,205,000 was primarily comprised of dividends paid of $69,160,000.
Net cash used in investing activities was comprised of (i) construction in progress and real estate additions of $14,711,000, partially offset by (ii) proceeds from the sale of real estate of $9,291,000 and (iii) the return of short-term investments of $3,600,000.
Cash and cash equivalents and restricted cash were $369,778,000 as of September 30, 2020, compared to $313,977,000 as of December 31, 2019, an increase of $55,801,000. This increase resulted from (i) $55,521,000 of net cash provided by operating activities and (ii) $23,910,000 of net cash provided by financing
activities, partially offset by (iii) $23,630,000 of net cash used in investing activities.
Net cash provided by operating activities of $55,521,000 was comprised of (i) net income of $23,507,000 and (ii) adjustments for non-cash items of $59,157,000, partially offset by (iii) the net change in operating assets and liabilities of $27,143,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $25,554,000, (ii) straight-lining of rental income of $18,306,000, (iii) the change in fair value of marketable securities of $10,789,000, (iv) write-off of tenant receivables of $4,122,000 and (v) stock-based compensation expense of $600,000, partially offset by (vi) $214,000 of dividends received in stock from Macerich.
Net cash provided by financing activities of $23,910,000 was primarily comprised of (i)
proceeds from the reduction of our participation in our Rego Park II mortgage loan of $145,708,000, partially offset by (ii) dividends paid of $69,118,000 and (iii) debt repayments of $50,000,000.
Net cash used in investing activities was comprised of construction in progress and real estate additions of $23,630,000.
22
Liquidity and Capital Resources - continued
Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, of which the first $30,000,000 includes communicable disease coverage, 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 and excluding communicable disease coverage.
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 Act of 2002, as amended to date and which has been extended through December 2027. 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 $275,000 deductible
and 20% of the balance of a covered loss, and the Federal government is responsible for the remaining 80% 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 or other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and 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 or refinance our properties.
Rego Park I Litigation
In June 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 the 195,000 square foot store that Sears leased 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 $4,000,000 and future damages it estimated would not be less than $25,000,000. 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. On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief resulting in an automatic stay of this case.
Letters of Credit
Approximately $960,000 of standby
letters of credit were issued and outstanding as of September 30, 2021.
Other
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.
23
Funds from Operations (“FFO”) (non-GAAP)
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 certain real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified 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 (non-GAAP) for the quarter ended September 30, 2021 was $21,181,000, or $4.13 per diluted share, compared to $15,363,000, or $3.00 per diluted share in the prior year’s quarter.
FFO (non-GAAP) for the nine months ended September
30, 2021 was $68,095,000, or $13.29 per diluted share, compared to $57,102,000, or $11.15 per diluted share in the prior year’s nine months.
The following table reconciles our net income to FFO (non-GAAP):
Three
Months Ended
Nine Months Ended
September 30,
September 30,
(Amounts in thousands, except share and per share amounts)
2021
2020
2021
2020
Net income
$
11,401
$
6,604
$
55,181
$
23,507
Depreciation
and amortization of real property
8,911
7,528
25,449
22,806
Net gain on sale of real estate
—
—
(9,124)
—
Change
in fair value of marketable securities
869
1,231
(3,411)
10,789
FFO (non-GAAP)
$
21,181
$
15,363
$
68,095
$
57,102
FFO
per diluted share (non-GAAP)
$
4.13
$
3.00
$
13.29
$
11.15
Weighted
average shares used in computing FFO per diluted share
5,124,478
5,122,206
5,123,321
5,120,490
24
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.
2021
2020
(Amounts
in thousands, except per share amounts)
September 30, Balance
Weighted Average Interest Rate
Effect of 1% Change in Base Rates
December 31, Balance
Weighted Average Interest Rate
Variable Rate
$
702,544
1.11%
$
7,025
$
702,544
1.19%
Fixed
Rate
462,000
2.35%
—
462,000
2.35%
$
1,164,544
1.60%
$
7,025
$
1,164,544
1.65%
Total
effect on diluted earnings per share
$
1.37
We have an interest rate cap relating to the mortgage loan on the office condominium of our 731 Lexington Avenue property with a notional amount of $500,000,000 that caps LIBOR at a rate of 3.0%.
We have an interest rate swap relating to the mortgage loan on the retail condominium of our 731 Lexington Avenue property with a notional amount of $300,000,000 that swaps LIBOR plus 1.40% for a fixed rate of 1.72%.
Fair
Value of Debt
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. As of September 30, 2021 and December 31, 2020, the estimated fair value of our mortgages payable was $1,130,000,000. 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.
25
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 11 – 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, 2020.
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
Effective November 2, 2021, Gary Hansen has been appointed as Chief Financial Officer of the Company. Mr. Hansen succeeds Matthew Iocco, who will be retiring after 22 years with the Company and its affiliates. Mr. Iocco will remain with the Company
through December 31, 2021 to assist with the transition. Mr. Hansen, age 43, was previously Controller of the Company since May 2015.
Item 6.Exhibits
Exhibits required by Item 601 of Regulation S-K are filed herewith and are listed in the attached Exhibit Index.
Section 1350 Certification of the Chief Financial Officer
101
-
The following financial information from the Alexander’s, Inc. Quarterly
Report on Form 10-Q for the quarter ended September 30, 2021 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of changes in equity, (v) consolidated statements of cash flows and (vi) the notes to the consolidated financial statements
104
-
The cover page from the Alexander’s, Inc. Quarterly Report on Form 10-Q for the quarter ended September
30, 2021 formatted as iXBRL and contained in Exhibit 101
27
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.
