alex2q2012.htm - Generated by SEC Publisher for SEC Filing  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

 

x

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

 

 

For the quarterly period ended:  

June 30, 2012

 

 

Or

 

o

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:

001-6064

 

 

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.  x Yes  o No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).  x Yes  o 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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

x Large Accelerated Filer

 

o Accelerated Filer

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

 

o Smaller Reporting Company

 

 

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

 

As of July 31, 2012, there were 5,105,936 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

June 30, 2012 and December 31, 2011

3

Consolidated Statements of Income (Unaudited) for the

Three and Six Months Ended June 30, 2012 and 2011

4

Consolidated Statements of Changes in Equity (Unaudited) for the

Six Months Ended June 30, 2012 and 2011

5

Consolidated Statements of Cash Flows (Unaudited) for the

Six Months Ended June 30, 2012 and 2011

6

Notes to Consolidated Financial Statements (Unaudited)

7

Report of Independent Registered Public Accounting Firm

13

Item 2.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

22

Item 4.

Controls and Procedures

22

PART II.

Other Information

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 3.

Defaults Upon Senior Securities

23

Item 4.

Mine Safety Disclosures

23

Item 5.

Other Information

23

Item 6.

Exhibits

23

Signatures

24

Exhibit Index

25

 

 


 

 

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)

June 30,

December 31,

ASSETS

2012 

2011 

Real estate, at cost:

Land

$

74,974 

$

74,974 

Buildings and leasehold improvements

988,486 

985,637 

Development and construction in progress

2,066 

1,597 

Total

1,065,526 

1,062,208 

Accumulated depreciation and amortization

(198,566)

(184,873)

Real estate, net

866,960 

877,335 

Cash and cash equivalents

488,779 

506,619 

Short-term investments

5,000 

Restricted cash

89,624 

88,769 

Accounts receivable, net of allowance for doubtful accounts of $1,670 and $1,039, respectively

1,836 

2,552 

Receivable arising from the straight-lining of rents

190,953 

188,289 

Deferred lease and other property costs, net (including unamortized leasing fees to Vornado of

$47,783 and $48,776, respectively)

64,258 

66,237 

Deferred debt issuance costs, net of accumulated amortization of $16,565 and $15,111, respectively

10,048 

11,254 

Other assets

48,967 

25,252 

$

1,761,425 

$

1,771,307 

LIABILITIES AND EQUITY

Notes and mortgages payable

$

1,323,532 

$

1,330,932 

Amounts due to Vornado

40,480 

41,340 

Accounts payable and accrued expenses

32,297 

34,577 

Other liabilities

1,212 

1,213 

Total liabilities

1,397,521 

1,408,062 

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, 5,105,936 shares

5,173 

5,173 

Additional capital

32,101 

31,801 

Retained earnings

322,272 

322,201 

359,546 

359,175 

Treasury stock: 67,514 shares, at cost

(375)

(375)

Total Alexander’s equity

359,171 

358,800 

Noncontrolling interest in consolidated subsidiary

4,733 

4,445 

Total equity

363,904 

363,245 

$

1,761,425 

$

1,771,307 

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

Six Months Ended

June 30,

June 30,

2012 

2011 

2012 

2011 

REVENUES

Property rentals

$

43,330 

$

43,424 

$

87,159 

$

86,889 

Expense reimbursements

20,272 

18,612 

40,103 

38,019 

Total revenues

63,602 

62,036 

127,262 

124,908 

EXPENSES

Operating (including fees to Vornado of $1,485, $1,217,

$2,962, and $2,553, respectively)

21,199 

19,951 

42,461 

41,138 

Depreciation and amortization

8,667 

8,577 

17,364 

16,811 

General and administrative (including

management fees to Vornado of $540 and

$1,080 in each three and six-month period)

1,800 

700 

2,924 

1,799 

Total expenses

31,666 

29,228 

62,749 

59,748 

OPERATING INCOME

31,936 

32,808 

64,513 

65,160 

Interest and other income, net

44 

1,715 

78 

1,820 

Interest and debt expense

(12,751)

(14,319)

(25,819)

(29,124)

Income before income taxes

19,229 

20,204 

38,772 

37,856 

Income tax benefit (expense)

(9)

(110)

151 

Net income

19,238 

20,195 

38,662 

38,007 

Net (income) loss attributable to the noncontrolling interest

(346)

(38)

(288)

357 

Net income attributable to Alexander’s

$

18,892 

$

20,157 

$

38,374 

$

38,364 

Net income per common share – basic and diluted

$

3.70 

$

3.95 

$

7.51 

$

7.51 

Weighted average shares outstanding – basic and diluted

5,107,415 

5,106,351 

5,107,199 

5,106,144 

Dividends per common share

$

3.75 

$

3.00 

$

7.50 

$

6.00 

See notes to consolidated financial statements (unaudited).

4

 


 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(Amounts in thousands)

Non-

Common Stock

Additional

Retained

Treasury

Alexander’s

controlling

Total

Shares

Amount

Capital

Earnings

Stock

Equity

Interest

Equity

Balance, December 31, 2010

5,173 

$

5,173 

$

31,501 

$

304,055 

$

(375)

$

340,354 

$

3,422 

$

343,776 

Net income (loss)

38,364 

38,364 

(357)

38,007 

Dividends paid

(30,636)

(30,636)

(30,636)

Distributions

(600)

(600)

Deferred stock unit grant

300 

300 

300 

Balance, June 30, 2011

5,173 

$

5,173 

$

31,801 

$

311,783 

$

(375)

$

348,382 

$

2,465 

$

350,847 

Balance, December 31, 2011

5,173 

$

5,173 

$

31,801 

$

322,201 

$

(375)

$

358,800 

$

4,445 

$

363,245 

Net income

38,374 

38,374 

288 

38,662 

Dividends paid

(38,303)

(38,303)

(38,303)

Deferred stock unit grant

300 

300 

300 

Balance, June 30, 2012

5,173 

$

5,173 

$

32,101 

$

322,272 

$

(375)

$

359,171 

$

4,733 

$

363,904 

See notes to consolidated financial statements (unaudited).

5

 


 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Amounts in thousands)

Six Months Ended

June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

2012 

2011 

Net income

$

38,662 

$

38,007 

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

Depreciation and amortization (including amortization of debt issuance costs)

18,970 

18,254 

Straight-lining of rental income

(2,664)

(7,082)

Stock-based compensation expense

300 

300 

Change in operating assets and liabilities:

Accounts receivable, net

351 

1,435 

Other assets

(24,935)

(22,642)

Amounts due to Vornado

(860)

(469)

Accounts payable and accrued expenses

(577)

(3,709)

Income tax liability of taxable REIT subsidiary

14 

34 

Other liabilities

(15)

(15)

Net cash provided by operating activities

29,246 

24,113 

CASH FLOWS FROM INVESTING ACTIVITIES

Construction in progress and real estate additions

(5,128)

(8,039)

Proceeds from maturing short-term investments

5,000 

23,000 

Restricted cash

(855)

(2,583)

Net cash (used in) provided by investing activities

(983)

12,378 

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid

(38,303)

(30,636)

Debt repayments

(7,400)

(157,090)

Debt issuance costs

(400)

(4,435)

Proceeds from borrowings

250,000 

Distributions to noncontrolling interests

(600)

Net cash (used in) provided by financing activities

(46,103)

57,239 

Net (decrease) increase in cash and cash equivalents

(17,840)

93,730 

Cash and cash equivalents at beginning of period

506,619 

397,220 

Cash and cash equivalents at end of period

$

488,779 

$

490,950 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash payments for interest

$

23,967 

$

28,516 

NON-CASH TRANSACTIONS

Non-cash additions to real estate included in accounts payable and accrued expenses

$

1,349 

$

2,391 

Write-off of fully amortized and depreciated assets

$

624 

$

6,510 

See notes to consolidated financial statements (unaudited).

6

 


 

 

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).

 

 

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, 2011, 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 six months ended June 30, 2012 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 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”).  ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between GAAP and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including:  (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy.  The adoption of this update on January 1, 2012, did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures (see Note 8 - Fair Value Measurements).

7

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

4.             Relationship with Vornado

At June 30, 2012, 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) $3,000,000, (ii) 3% of gross revenue  from the Kings Plaza Regional Shopping Center, (iii) 2% of gross revenue from the Rego Park II Shopping Center, (iv) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue and (v) $264,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue. 

 

In addition, Vornado is entitled to a development fee of 6% of development costs, as defined, with minimum guaranteed fees of $750,000 per annum.  

 

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.  The total of these amounts is payable in annual installments in an amount not to exceed $4,000,000, with interest on the unpaid balance at one-year LIBOR plus 1.0% (2.13% at June 30, 2012).

 

Other Agreements

We have also entered into agreements with Building Maintenance Services, a wholly owned subsidiary of Vornado, to (i) supervise cleaning, engineering and security services at our Lexington Avenue and Kings Plaza properties, and (ii) supervise security services at our Rego Park I and Rego Park II properties for an annual fee of the cost for such services plus 6%. 

 

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

 

Three Months Ended

Six Months Ended

June 30,

June 30,

(Amounts in thousands)

2012 

2011 

2012 

2011 

Company management fees

$

750 

$

750 

$

1,500 

$

1,500 

Development fees

187 

188 

375 

376 

Leasing fees

1,006 

1,765 

1,629 

3,280 

Property management fees and payments for cleaning, engineering

and security services

1,275 

1,007 

2,542 

2,133 

$

3,218 

$

3,710 

$

6,046 

$

7,289 

 

At June 30, 2012, we owed Vornado $39,838,000  for leasing fees and $642,000  for management, property management and cleaning fees.

8

 


 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

5.             Notes and Mortgages Payable

The following is a summary of our outstanding notes and mortgages payable.  We may refinance our maturing debt as it comes due or choose to repay it at maturity.

 

Balance at

Interest Rate at

June 30,

December 31,

(Amounts in thousands)

Maturity

June 30, 2012

2012 

2011 

First mortgage, secured by the Rego Park I

Shopping Center (100% cash collateralized)

Mar. 2013

0.50 

%

$

78,246 

$

78,246 

First mortgage, secured by the office space

at the Lexington Avenue property

Feb. 2014

5.33 

%

333,742 

339,890 

First mortgage, secured by the retail space

at the Lexington Avenue property(1)

Jul. 2015

4.93 

%

320,000 

320,000 

First mortgage, secured by the Kings Plaza

Regional Shopping Center(2)

Jun. 2016

1.94 

%

250,000 

250,000 

First mortgage, secured by the Paramus property

Oct. 2018

2.90 

%

68,000 

68,000 

First mortgage, secured by the

Rego Park II Shopping Center(3)

Nov. 2018

2.10 

%

273,544 

274,796 

$

1,323,532 

$

1,330,932 

___________________

(1)

In the event of a substantial casualty, as defined, up to $75,000 of this loan may become recourse to us.

(2)

This loan bears interest at LIBOR plus 1.70%.

(3)

This loan bears interest at LIBOR plus 1.85%.

 

 

6.             Interest and Other Income, net

In the second quarter of 2011, we recognized $1,657,000 of income from the collection of prior periods’ tenant utility costs.

 

 

7.             Significant Tenants

Bloomberg L.P. (“Bloomberg”) accounted for $42,395,000  and $41,504,000, representing 33% of our consolidated revenues in each of the six-month periods ended June 30, 2012 and 2011, respectively.  No other tenant accounted for more than 10% of our consolidated revenues.  If we were to lose Bloomberg as a tenant, or if Bloomberg were to fail or become unable to perform its obligations under its lease, it would adversely affect our results of operations and financial condition.  We receive and evaluate certain confidential financial information and metrics from Bloomberg on a semi-annual basis.  In addition, we access and evaluate financial information regarding Bloomberg from private sources, as well as publicly available data.

9

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

8.             Fair Value Measurements

Accounting Standards Codification Topic 820, Fair Value Measurement and Disclosures (“ASC 820”) defines fair value and establishes a framework for measuring fair value.  The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).  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 in our consolidated financial statements at December 31, 2011 consist of short-term investments (investments in Certificate of Deposit Account Registry Services "CDARS") classified as available-for-sale and are presented in the table below based on their level in the fair value hierarchy.  There were no financial assets measured at fair value at June 30, 2012 and there were no financial liabilities measured  at fair value at June 30, 2012 and December 31, 2011.

 

As of December 31, 2011

(Amounts in thousands)

Total

Level 1

Level 2

Level 3

Short-term investments

$

5,000 

$

5,000 

$

$

 

Financial Assets and Liabilities not Measured at Fair Value

 

Financial liabilities that are not measured at fair value in our consolidated financial statements consist of our notes and mortgages payable.  The fair value of our notes and 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 our notes and mortgages payable is classified as Level 2.  As of June 30, 2012 and December 31, 2011, the estimated fair value of our notes and mortgages payable was $1,386,000,000 and $1,374,000,000, 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.  All financial assets, if any, were measured at fair value at June 30, 2012 and December 31, 2011.

 

 

9.             Stock-Based Compensation

 

We account for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation.  Our 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 2012, the Company granted each of the members of its Board of Directors 129 DSUs with a grant date fair value of $37,500 per grant, or $300,000 in the aggregate.  The DSUs entitle the holder 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 units are not deliverable to the grantee until the grantee is no longer serving on the Company’s Board of Directors.

10

 


 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.          Commitments and Contingencies

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for terrorist acts, 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, act 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 of 2007.  Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies with no exposure to FNSIC.  For NBCR acts,  FNSIC is responsible for a $275,000 deductible and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss.  We are ultimately responsible for any loss borne by FNSIC.

 

There can be no assurance that we will be able to maintain similar levels of insurance coverage in the future in amounts and on terms that are commercially reasonable.  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, except for $75,000,000 of the $320,000,000 mortgage on our 731 Lexington Avenue property, in the event of a substantial casualty, as defined.  Our mortgage loans contain customary covenants requiring us to maintain insurance.  If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.

 

Flushing Property

In 2002 Flushing Expo, Inc. (“Expo”) agreed to purchase the stock of the entity which owns the Flushing property from us (“Purchase of the Property”) and gave us a non-refundable deposit of $1,875,000.  Pursuant to a stipulation of settlement, we settled the action Expo brought against us regarding the Purchase of the Property and in June 2011, deposited the settlement amount with the Court, in exchange for which we received a stipulation of discontinuance, with prejudice, as well as general releases.  In November 2011, Expo filed another action, this time against our tenant at the Flushing property asserting, among other things, that such tenant interfered with Expo’s Purchase of the Property from us.  In this new action Expo is seeking $50,000,000 in damages from our tenant, who is seeking indemnification from us for such amount.  We believe, after consultation with counsel, that the new claim is without merit.  The amount or range of reasonably possible losses, if any, cannot be estimated.

 

Environmental Remediation

In July 2006, we discovered an oil spill at our Kings Plaza Regional Shopping Center.  We have notified the New York State Department of Environmental Conservation (“NYSDEC”) about the spill and have developed a remediation plan. The NYSDEC has approved a portion of the remediation plan and clean up is ongoing.  The estimated costs associated with the clean up will aggregate approximately $3,000,000.  We have paid $500,000 of such amount and the remainder is covered under our insurance policy.

 

 

 

11

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

10.          Commitments and Contingencies - continued

Paramus

In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a 40-year term with 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 $62,000,000. 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 $3,998,000 of standby letters of credit were outstanding as of June 30, 2012.

 

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 condition, results of operations or cash flows.

 

 

11.          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 earnings per share. Basic income per share is determined using the weighted average shares of common stock outstanding during the period, including deferred stock units. Diluted income per share is determined using the weighted average shares of common stock outstanding during the period, including deferred stock units, 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 and six months ended June 30, 2012 and 2011.

 

Three Months Ended

Six Months Ended

June 30,

June 30,

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

2012 

2011 

2012 

2011 

Net income attributable to common

stockholders – basic and diluted

$

18,892 

$

20,157 

$

38,374 

$

38,364 

Weighted average shares outstanding – basic and diluted

5,107,415 

5,106,351 

5,107,199 

5,106,144 

Net income per common share – basic and diluted

$

3.70 

$

3.95 

$

7.51 

$

7.51 

12

 


 

 

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 June 30, 2012, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2012 and 2011, and the consolidated statements of changes in equity and cash flows for the six-month periods ended June 30, 2012 and 2011.  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, 2011, and the related consolidated statements of income, changes in equity and cash flows for the year then ended (not presented herein); and in our report dated February 27, 2012, 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, 2011 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
August 6, 2012

13

 


 

 

 

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, 2011.  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 six months ended June 30, 2012 and 2011. 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.

 

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, 2011 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 2012.

 

14

 


 

 

 

Overview

 

Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping 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 national and local economies, the financial condition and operating results of current and prospective tenants, the availability and cost of capital, interest rates, construction and renovation costs, taxes, governmental regulations and 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.

 

We have engaged the services of a real estate broker to sell the 1.2 million square foot Kings Plaza Regional Shopping Center, located in Brooklyn, NY.  There can be no assurance that these efforts will result in a sale of the property.

 

 

Quarter Ended June 30, 2012 Financial Results Summary

 

Net income attributable to common stockholders for the quarter ended June 30, 2012 was $18,892,000, or $3.70  per diluted share, compared to $20,157,000, or $3.95 per diluted share, for the quarter ended June 30, 2011.  Funds from operations attributable to common stockholders (“FFO”) for the quarter ended June 30, 2012 was $27,402,000, or $5.37 per diluted share, compared to $28,596,000, or $5.60  per diluted share, for the prior year’s quarter.

 

 

Six Months Ended June 30, 2012 Financial Results Summary

 

Net income attributable to common stockholders for the six months ended June 30, 2012 was $38,374,000, or $7.51  per diluted share, compared to $38,364,000, or $7.51  per diluted share, for the six months ended June 30, 2011.  FFO for the six months ended June 30, 2012 was $55,432,000, or $10.85  per diluted share, compared to $54,900,000, or $10.75  per diluted share, for the prior year’s six months

 

 

Recently Issued Accounting Literature

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Update No. 2011-04, Fair Value Measurements (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”).  ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between accounting principles generally accepted in the United States of America (“GAAP”) and International Financial Reporting Standards (“IFRS”) and requires additional disclosures, including:  (i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy.  The adoption of this update on January 1, 2012, did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures.

15

 


 

 

 

Leasing Activity

The table below reflects property square footage, occupancy and leasing activity for our business.  The leasing activity presented below is based on leases signed during the period and is not intended to coincide with the commencement of rental revenue in accordance with GAAP.  Second generation relet space referred to in the table below represents square footage that has not been vacant for more than nine months.

 

For the Quarter and Six Months Ended June 30, 2012:

Quarter

Six Months

Total square feet leased (all retail)

19,483 

74,938 

Initial rent(1)

$

60.69 

$

59.06 

Weighted average lease term (years)

12.6 

6.0 

Second generation relet space (all retail):

Square feet

1,768 

24,649 

Cash basis:

Initial rent(1)

$

134.98 

$

83.34 

Prior escalated rent

$

130.03 

$

82.75 

Percentage increase

3.8%

0.7%

GAAP basis:

Straight-line rent(2)

$

140.79 

$

84.45 

Prior straight-line rent

$

120.25 

$

79.18 

Percentage increase

17.1%

6.7%

Tenant improvements and leasing commissions:

Per square foot

$

8.24 

$

12.26 

Per square foot per annum:

$

0.65 

$

2.04 

Percentage of initial rent

0.5%

2.4%

Square Footage and Occupancy Rates:

As of June 30, 2012:

Total square feet

3,389,000 

Number of properties

Occupancy rate

98.0%

As of December 31, 2011:

Total square feet

3,389,000 

Number of properties

Occupancy rate

97.8%

As of June 30, 2011:

Total square feet

3,389,000 

Number of properties

Occupancy rate

96.8%

(1)

Represents the cash basis weighted average starting rent per square foot, which is generally indicative of market rents. Most leases

include free rent and periodic step-ups in rent which are not included in the initial rent per square foot.

(2)

Represents the GAAP basis weighted average rent per square foot that is recognized over the term of the respective leases, and

includes the effect of free rent and periodic step-ups in rent.

 

 

Significant Tenants

 

Bloomberg L.P. (“Bloomberg”) accounted for $42,395,000 and $41,504,000, representing 33% of our consolidated revenues in each of the six-month periods ended June 30, 2012 and 2011, respectively.  No other tenant accounted for more than 10% of our consolidated revenues.  If we were to lose Bloomberg as a tenant, or if Bloomberg were to fail or become unable to perform its obligations under its lease, it would adversely affect our results of operations and financial condition.  We receive and evaluate certain confidential financial information and metrics from Bloomberg on a semi-annual basis.  In addition, we access and evaluate financial information regarding Bloomberg from private sources, as well as publicly available data.

16

 


 

 

 

Results of Operations – Three Months Ended June 30, 2012 compared to June 30, 2011

 

Property Rentals

Property rentals were $43,330,000  in the quarter ended June 30, 2012, compared to $43,424,000  in the prior year’s quarter, a decrease of $94,000

 

Expense Reimbursements

Tenant expense reimbursements were $20,272,000  in the quarter ended June 30, 2012, compared to $18,612,000  in the prior year’s quarter, an increase of $1,660,000.  This increase was primarily due to (i) higher real estate taxes, (ii) higher reimbursable operating expenses and (iii) increased occupancy.

 

Operating Expenses

Operating expenses were $21,199,000  in the quarter ended June 30, 2012, compared to $19,951,000  in the prior year’s quarter, an increase of $1,248,000.  This increase was comprised of higher (i) real estate taxes of $858,000, (ii) reimbursable operating expenses of $460,000 and (iii) bad debt expense of $262,000, partially offset by lower non-reimbursable operating expenses of $332,000.

 

Depreciation and Amortization

Depreciation and amortization was $8,667,000  in the quarter ended June 30, 2012, compared to $8,577,000  in the prior year’s quarter, an increase of $90,000.   

 

General and Administrative Expenses

General and administrative expenses were $1,800,000  in the quarter ended June 30, 2012, compared to $700,000  in the prior year’s quarter, an increase of $1,100,000.   This increase was primarily due to an $807,000 reversal of a portion of the litigation loss accrual at our Flushing property in the prior year’s quarter, and $140,000 of higher professional fees in the current quarter.

 

Interest and Other Income, net

Interest and other income, net was $44,000  in the quarter ended June 30, 2012, compared to $1,715,000 in the prior year’s quarter, a decrease of $1,671,000.  This decrease was primarily due $1,657,000 of income from the collection of prior periods’ tenant utility costs in the prior year’s quarter and lower average yields on investments in the current year’s quarter.

 

Interest and Debt Expense

Interest and debt expense was $12,751,000 in the quarter ended June 30, 2012, compared to $14,319,000 in the prior year’s quarter, a decrease of $1,568,000.  This decrease was primarily due to savings of $2,070,000 from lower average interest rates (3.54% in the current quarter as compared to 4.19% in the prior year’s quarter), partially offset by $453,000 from higher average outstanding debt balances.

 

Income Tax Benefit (Expense)

In the quarter ended June 30, 2012, we had an income tax benefit of $9,000, compared to an income tax expense of $9,000 in the prior year’s quarter

 

Net Income  Attributable to the Noncontrolling Interest

Net income  attributable to the noncontrolling interest was $346,000 in the quarter ended June 30, 2012, compared to $38,000 in the prior year’s quarter, and represents our venture partner’s 75% pro-rata share of net income from our consolidated partially owned entity, the Kings Plaza energy plant joint venture. 

17

 


 

 

 

Results of Operations – Six Months Ended June 30, 2012 compared to June 30, 2011

 

Property Rentals

Property rentals were $87,159,000 in the six months ended June 30, 2012, compared to $86,889,000 in the prior year’s six months, an increase of $270,000. 

 

Expense Reimbursements

Tenant expense reimbursements were $40,103,000 in the six months ended June 30, 2012, compared to $38,019,000 in the prior year’s six months, an increase of $2,084,000. This increase was primarily due to higher real estate taxes

 

Operating Expenses

Operating expenses were $42,461,000 in the six months ended June 30, 2012, compared to $41,138,000 in the prior year’s six months, an increase of $1,323,000.  This increase was primarily due to (i) higher real estate taxes of $1,647,000, (ii) higher bad debt expense of $439,000, partially offset by (iii) lower non-reimbursable operating expenses of $611,000.

 

Depreciation and Amortization

Depreciation and amortization was $17,364,000 in the six months ended June 30, 2012, compared to $16,811,000 in the prior year’s six months, an increase of $553,000.  This increase resulted primarily from depreciation on the portion of Rego Park II placed into service in the prior year’s six months.

 

General and Administrative Expenses

General and administrative expenses were $2,924,000 in the six months ended June 30, 2012, compared to $1,799,000  in the prior year’s six months, an increase of $1,125,000.  This increase was primarily due to an $807,000 reversal of a portion of the litigation loss accrual at our Flushing property in the prior year’s six months, and $248,000 of higher professional fees in the current year’s six months.

 

Interest and Other Income, net

Interest and other income, net was $78,000 in the six months ended June 30, 2012, compared to $1,820,000 in the prior year’s six months, a decrease of $1,742,000.  This decrease  was primarily due to $1,657,000 of income from the collection of prior periods’ tenant utility costs in the prior year’s six months and lower average yields on investments in the current year’s six months

 

Interest and Debt Expense

Interest and debt expense was $25,819,000 in the six months ended June 30, 2012, compared to $29,124,000 in the prior year’s six months, a decrease of $3,305,000. This decrease was primarily due to savings of $4,658,000 from lower average interest rates (3.58% in the current year’s six months as compared to 4.32% in the prior year’s six months), partially offset by $1,215,000 from higher average outstanding debt balances

 

Income Tax (Expense) Benefit

In the six months ended June 30, 2012,  we had an income tax expense of $110,000, compared to an income tax benefit of $151,000 in the prior year’s six months, an increase in expense of $261,000.  This increase resulted from a true-up of our estimated income tax liability in the prior year’s six months.

 

Net (Income) Loss Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest was $288,000 in the six months ended June 30, 2012, compared to a loss of $357,000 in the prior year’s six months, and represents our venture partner’s 75% pro-rata share of net income or loss from our consolidated partially owned entity, the Kings Plaza energy plant joint venture.

18

 


 

 

 

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 secured by our properties, and proceeds from asset sales.  We anticipate that cash from 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 maturities, and recurring capital expenditures.

 

 

Six Months Ended June 30, 2012

Cash and cash equivalents were $488,779,000 at June 30, 2012, compared to $506,619,000 at December 31, 2011, a decrease of $17,840,000.  This decrease  resulted from $46,103,000 of net cash used in financing activities and $983,000 of net cash used in investing activities, partially offset by $29,246,000 of net cash provided by operating activities.

 

Net cash provided by operating activities of $29,246,000 was comprised of net income of $38,662,000 and adjustments for non-cash items of $16,606,000, partially offset by the net change in operating assets and liabilities of $26,022,000.  The adjustments for non-cash items were comprised of (i) depreciation and amortization of $18,970,000  and (ii) stock-based compensation expense of $300,000, partially offset by (iii) straight-lining of rental income of $2,664,000.   The net change in operating assets and liabilities was primarily due to higher prepaid real estate taxes of $25,405,000.

  

Net cash used in investing activities of $983,000 was comprised of (i)  capital expenditures of $5,128,000 (primarily Rego Park II) and (ii) an increase in restricted cash of $855,000, partially offset by (iii) proceeds from maturing short-term investments of $5,000,000

 

Net cash used in financing activities of $46,103,000 was primarily comprised of dividends paid on common stock of $38,303,000  and debt amortization of $7,400,000.

 

 

Six Months Ended June 30, 2011

Cash and cash equivalents were $490,950,000 at June 30, 2011, compared to $397,220,000 at December 31, 2010, an increase of $93,730,000. This increase resulted from $24,113,000 of net cash provided by operating activities, $12,378,000 of net cash provided by investing activities and $57,239,000 of net cash provided by financing activities.

 

Net cash provided by operating activities of $24,113,000 was comprised of net income of $38,007,000 and adjustments for non-cash items of $11,472,000, partially offset by the net change in operating assets and liabilities of $25,366,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization of $18,254,000 and (ii) stock-based compensation expense of $300,000, partially offset by (iii) straight-lining of rental income of $7,082,000. The net change in operating assets and liabilities was primarily due to higher prepaid real estate taxes of $21,740,000.

  

Net cash provided by investing activities of $12,378,000 was comprised of (i) proceeds from maturing short-term investments of $23,000,000, partially offset by (ii) capital expenditures of $8,039,000 (primarily Rego Park II) and (iii) a decrease in restricted cash of $2,583,000.

  

Net cash provided by financing activities of $57,239,000 was primarily comprised of $250,000,000 of proceeds from the refinancing of our Kings Plaza property, partially offset by repayments of borrowings of $157,090,000 (primarily Kings Plaza) and dividends paid on common stock of $30,636,000.

19

 


 

 

Liquidity and Capital Resources – continued

 

Commitments and Contingencies

 

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for terrorist acts, 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 of 2007.  Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies with no exposure to FNSIC.  For NBCR acts, FNSIC is responsible for a $275,000 deductible and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss.  We are ultimately responsible for any loss borne by FNSIC.

 

There can be no assurance that we will be able to maintain similar levels of insurance coverage in the future in amounts and on terms that are commercially reasonable.  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, except for $75,000,000 of the $320,000,000 mortgage on our 731 Lexington Avenue property, in the event of a substantial casualty, as defined.  Our mortgage loans contain customary covenants requiring us to maintain insurance.  If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.

 

Flushing Property

In 2002 Flushing Expo, Inc. (“Expo”) agreed to purchase the stock of the entity which owns the Flushing property from us (“Purchase of the Property”) and gave us a non-refundable deposit of $1,875,000.  Pursuant to a stipulation of settlement, we settled the action Expo brought against us regarding the Purchase of the Property and in June 2011, deposited the settlement amount with the Court, in exchange for which we received a stipulation of discontinuance, with prejudice, as well as general releases.  In November 2011, Expo filed another action, this time against our tenant at the Flushing property asserting, among other things, that such tenant interfered with Expo’s Purchase of the Property from us.  In this new action Expo is seeking $50,000,000 in damages from our tenant, who is seeking indemnification from us for such amount.  We believe, after consultation with counsel, that the new claim is without merit.  The amount or range of reasonably possible losses, if any, cannot be estimated.

 

Environmental Remediation

In July 2006, we discovered an oil spill at our Kings Plaza Regional Shopping Center.  We have notified the New York State Department of Environmental Conservation (“NYSDEC”) about the spill and have developed a remediation plan. The NYSDEC has approved a portion of the remediation plan and clean up is ongoing.  The estimated costs associated with the clean up will aggregate approximately $3,000,000.  We have paid $500,000 of such amount and the remainder is covered under our insurance policy.

 

Paramus

In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a 40-year term with 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 $62,000,000. 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.

20

 


 

 

Liquidity and Capital Resources – continued

 

Commitments and Contingencies – continued

 

Letters of Credit

Approximately $3,998,000 of standby letters of credit were outstanding as of June 30, 2012. 

 

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 condition, results of operations or cash flows.

 

 

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, extraordinary items 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 Attributable to Common Stockholders for the Three and Six Months Ended June 30, 2012 and 2011

 

FFO attributable to common stockholders for the quarter ended June 30, 2012 was $27,402,000,  or $5.37 per diluted share, compared to $28,596,000,  or $5.60 per diluted share, for the prior year’s quarter. 

 

FFO attributable to common stockholders for the six months ended June 30, 2012 was $55,432,000,  or $10.85 per diluted share, compared to $54,900,000,  or $10.75 per diluted share, for the prior year’s six months.

 

The following table reconciles our net income to FFO:

Three Months Ended

Six Months Ended

June 30,

June 30,

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

2012 

2011 

2012 

2011 

Net income attributable to Alexander’s

$

18,892 

$

20,157 

$

38,374 

$

38,364 

Depreciation and amortization of real property

8,510 

8,439 

17,058 

16,536 

FFO attributable to common stockholders

$

27,402 

$

28,596 

$

55,432 

$

54,900 

FFO attributable to common stockholders per diluted share

$

5.37 

$

5.60 

$

10.85 

$

10.75 

Weighted average shares used in computing FFO per diluted share

5,107,415 

5,106,351 

5,107,199 

5,106,144 

21

 


 

 

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.

 

2012 

2011 

Weighted

Effect of 1%

Weighted

June 30,

Average

Change in

December 31,

Average

(Amounts in thousands, except per share amounts)

Balance

Interest Rate

Base Rates

Balance

Interest Rate

Variable Rate (including $39,838 and $40,728

due to Vornado, respectively)

$

563,382 

2.03%

$

5,634 

$

565,524 

2.16%

Fixed Rate

799,988 

4.49%

806,136 

4.78%

$

1,363,370 

$

5,634 

$

1,371,660 

Total effect on diluted earnings per share

$

1.10 

 

The fair value of our notes and 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 June 30, 2012 and December 31, 2011, the estimated fair value of our notes and mortgages payable was $1,386,000,000 and $1,374,000,000, 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.

22

 


 

 

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. 

 

 

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, 2011.

  

 

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

 

None.

  

  

 

Item 6.     Exhibits

 

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

  

  

23

 


 

 

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: August 6, 2012

By:

/s/ Joseph Macnow

 

 

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

 

 

24

 


 
 

 

 

EXHIBIT INDEX

 

Exhibit

 

No.

 

10.1

-

First Amendment and Modification of Loan and Security Agreement and Other Loan Documents, dated as of June 20, 2012 by and between Rego II Borrower LLC as Borrower, and the Lender

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                   

 

25