What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-03 compared with 2020-05-04 · 84 added, 56 removed, 122 unchanged (53% of the section changed)

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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 novel strain of coronavirus (“COVID-19”) pandemic on our business, financial condition, results of operations, cash flows, operating performance and the effect it will have on our tenants, the global, national, regional and local economies and financial markets and the real estate market in general.

Currently, one of the most significant factors is the ongoing adverse effect of the novel strain of coronavirus (“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, which are highly uncertain at this time, but that impact could be material.

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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, 2019 and “Item 1A.

– Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, “Item 1A.

– Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and “Item 1A.

– Risk Factors” in this Quarterly Report on Form 10-Q.

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We do not undertake any obligation to release publicly, any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three months ended March 31, 2020 and 2019.

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, 2020 and 2019.

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 months ended March 31, 2020 are not necessarily indicative of the operating results for the full year.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the operating results for the full year.

Critical Accounting Policies

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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.

For the three months ended March 31, 2020, there were no material changes to these policies.

For the six months ended June 30, 2020, there were no material changes to these policies.

Alexander’s, Inc.

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COVID-19 Pandemic

In December 2019, COVID-19 was identified in Wuhan, China and by March 11, 2020, the World Health Organization had declared it a global pandemic.

Many states in the U.S., including New York and New Jersey, have implemented stay-at-home orders for all “non-essential” business and activity in an aggressive effort to curb the spread of the virus.

Consequently, the U.S.

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified in Wuhan, China and by March 11, 2020, the World Health Organization had declared it a global pandemic.

Many states in the U.S., including New York and New Jersey, implemented stay-at-home orders for all “non-essential” business and activity in an aggressive effort to curb the spread of the virus.

In June 2020, the New York City metropolitan area began a phased re-opening of the businesses that were previously ordered to close, with limitations on occupancy and certain other restrictions.

It is uncertain as to how long these restrictions will continue or if additional restrictions or closures will be imposed.

As a result of the COVID-19 pandemic, the U.S.

economy has suffered and there has been significant volatility in the financial markets.

industries and businesses have been negatively affected and millions of people have filed for unemployment.

Our properties, which are all located in the greater New York City metropolitan area, have been adversely affected as a result of the COVID-19 pandemic and the preventive measures taken to help curb the spread.

Based on their percentage of the Company’s monthly revenue, approximately 21% of our retail tenants have closed their stores and approximately 12% have not paid their April 2020 rent.

While we believe our tenants are required to pay rent under their leases, we are considering temporary rent relief on a case-by-case basis.

The office space at our 731 Lexington Avenue property remains open and our tenant, Bloomberg L.P.

(“Bloomberg”) continues to pay rent.

Rent collections at our residential property, The Alexander apartment tower, have not been significantly impacted to date.

Because certain of our redevelopment projects are deemed “non-essential,” they have been temporarily paused due to New York State executive orders.

In light of the evolving health, social, economic, and business environment, governmental regulation or mandates, and business disruptions that have occurred and may continue to occur, the impact of COVID-19 on our financial condition and operating results remains highly uncertain, but that impact could be material.

The impact on us may include lower rental income and occupancy levels at our properties which may result in less cash flow available for operating costs, to pay our indebtedness and for distribution to our stockholders.

In addition, the value of our real estate assets may decline, which may result in non-cash impairment charges in future periods and the impact could be material.

Quarter Ended March 31, 2020 Financial Results Summary

Net income for the quarter ended March 31, 2020 was $4,572,000, or $0.89 per diluted share, compared to $17,865,000, or $3.49 per diluted share in the prior year’s quarter.

Net income for the quarter ended March 31, 2020 included an expense of $11,395,000, or $2.23 per diluted share, from the change in fair value of marketable securities.

For the quarter ended March 31, 2019, the change in fair value of marketable securities was insignificant.

Funds from operations (“FFO”) (non-GAAP) for the quarter ended March 31, 2020 was $23,744,000, or $4.64 per diluted share, compared to $25,531,000 or $4.99 per diluted share in the prior year’s quarter.

Other than grocery stores and other “essential” businesses, all of our retail tenants closed their stores in March 2020 and although substantially all have re-opened in the latter part of June 2020, when the phased re-opening began, there are limitations on occupancy and other restrictions that limit their ability to resume full operations.

Because certain of our redevelopment projects are deemed “non-essential,” they were temporarily paused in March 2020 due to New York State executive orders and resumed under updated safety guidelines once the orders were lifted in June 2020.

In limited circumstances, we have agreed to and may continue to agree to rent deferrals and abatements for certain of our tenants.

We have made the policy election available to us based on the Financial Accounting Standards Board’s (“FASB”) guidance for leases during the COVID-19 pandemic, which allows us to continue recognizing rental revenue for rent deferral agreements and to recognize rent abatements as a reduction to rental revenue in the period granted.

See Note 4 - Recently Issued Accounting Literature for additional information.

Overall, we have collected approximately 89% of rent billed for the quarter ended June 30, 2020 (92% including rent deferrals under agreements which generally require repayment in monthly installments over a period of time not to exceed twelve months), including 100% for our office tenant, approximately 76% for our retail tenants (83% including rent deferrals) and approximately 96% for our residential tenants.

Based on our assessment of the probability of collecting the rent for certain tenants, we have written off as uncollectible $1,022,000 resulting in a reduction of rental revenues during the three and six months ended June 30, 2020.

In addition, we have written off receivables arising from the straight-lining of rents of $4,247,000 related to these tenants resulting in a reduction of rental revenues during the three and six months ended June 30, 2020.

Prospectively, revenue recognition for these tenants will be based on actual amounts received.

Overview - continued

Quarter Ended June 30, 2020 Financial Results Summary

Net income for the quarter ended June 30, 2020 was $12,331,000, or $2.41 per diluted share, compared to $11,283,000, or $2.20 per diluted share in the prior year’s quarter.

Funds from operations (“FFO”) (non-GAAP) for the quarter ended June 30, 2020 was $17,995,000, or $3.51 per diluted share, compared to $24,305,000 or $4.75 per diluted share in the prior year’s quarter.

Six Months Ended June 30, 2020 Financial Results Summary

Net income for the six months ended June 30, 2020 was $16,903,000, or $3.30 per diluted share, compared to $29,148,000, or $5.70 per diluted share in the prior year’s six months.

FFO (non-GAAP) for the six months ended June 30, 2020 was $41,739,000, or $8.15 per diluted share, compared to $49,836,000 or $9.74 per diluted share in the prior year’s six months.

Square Footage, Occupancy and Leasing Activity

As of March 31, 2020 , our portfolio was comprised of seven properties aggregating 2,449,000 square feet, of which 2,230,000 square feet was in service and 219,000 square feet (primarily the former Sears space at our Rego Park I property) was out of service due to redevelopment.

The in service square feet was 96.5% occupied as of March 31, 2020.

As of June 30, 2020 , our portfolio was comprised of seven properties aggregating 2,449,000 square feet, of which 2,254,000 square feet was in service and 195,000 square feet (the former Sears space at our Rego Park I property) was out of service for redevelopment.

The in service square feet was 97% occupied as of June 30, 2020.

Significant Tenant

Bloomberg accounted for revenue of $27,115,000 and $27,004,000 for the three months ended March 31, 2020 and 2019, respectively, representing approximately 50% and 48% of our total revenues in each period, respectively.

Bloomberg accounted for revenue of $53,180,000 and $53,676,000 for the six months ended June 30, 2020 and 2019, respectively, representing approximately 53% and 48% of our total revenues in each period, respectively.

No other tenant accounted for more than 10% of our total revenues.

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In addition, we access and evaluate financial information regarding Bloomberg from other private sources, as well as publicly available data.

Results of Operations – Three Months Ended March 31, 2020 , compared to March 31, 2019

Results of Operations – Three Months Ended June 30, 2020 , compared to June 30, 2019

Rental Revenues

Rental revenues were $54,110,000 in the quarter ended March 31, 2020 , compared to $56,778,000 in the prior year’s quarter, a decrease of $2,668,000.

This decrease was primarily due to a retail tenant vacancy at our 731 Lexington Avenue property.

Rental revenues were $45,478,000 in the quarter ended June 30, 2020 , compared to $55,932,000 in the prior year’s quarter, a decrease of $10,454,000.

This decrease was primarily due to (i) $4,247,000 from the write-off of receivables arising from the straight-lining of rents from certain of our retail tenants, (ii) $2,999,000 from retail tenant vacancies at our 731 Lexington Avenue property and (iii) $1,022,000 of lower rental income from certain of our retail tenants which were deemed uncollectible.

Operating Expenses

Operating expenses were $21,753,000 in the quarter ended March 31, 2020 , compared to $21,849,000 in the prior year’s quarter, a decrease of $96,000.

Operating expenses were $19,778,000 in the quarter ended June 30, 2020 , compared to $21,667,000 in the prior year’s quarter, a decrease of $1,889,000.

This decrease was primarily due to lower reimbursable operating expenses.

Depreciation and Amortization

Depreciation and amortization was $7,909,000 in the quarter ended March 31, 2020 , compared to $7,828,000 in the prior year’s quarter, an increase of $81,000.

Depreciation and amortization was $7,633,000 in the quarter ended June 30, 2020 , compared to $7,869,000 in the prior year’s quarter, a decrease of $236,000.

General and Administrative Expenses

General and administrative expenses were $1,451,000 in the quarter ended March 31, 2020 , compared to $1,245,000 in the prior year’s quarter, an increase of $206,000.

This increase was primarily due to higher professional fees.

General and administrative expenses were $2,111,000 in the quarter ended June 30, 2020 , compared to $1,893,000 in the prior year’s quarter, an increase of $218,000.

This increase was primarily due to higher stock-based compensation expense in connection with the fair value of deferred stock units granted to a newly appointed member of our Board of Directors during the second quarter of 2020, comprised of an initial award of $150,000 and a $56,000 annual award.

Interest and Other Income, net

Interest and other income, net was $1,543,000 in the quarter ended March 31, 2020 , compared to $2,130,000 in the prior year’s quarter, a decrease of $587,000.

Interest and other income, net was $710,000 in the quarter ended June 30, 2020 , compared to $2,223,000 in the prior year’s quarter, a decrease of $1,513,000.

This decrease was primarily due to $1,517,000 of lower interest income due to a decrease in average interest rates.

Interest and Debt Expense

Interest and debt expense was $6,172,000 in the quarter ended June 30, 2020, compared to $10,165,000 in the prior year’s quarter, a decrease of $3,993,000.

This decrease was primarily due to $4,400,000 of lower interest expense due to a decrease in LIBOR, partially offset by $612,000 of higher interest expense due to an increase in average debt balances.

Change in Fair Value of Marketable Securities

Change in fair value of marketable securities was income of $1,837,000 in the quarter ended June 30, 2020, consisting of $1,788,000 resulting from an increase in The Macerich Company’s (“Macerich”) share price of $3.34 on 535,265 shares owned and $49,000 resulting from an increase in Macerich’s share price of $1.67 on 29,347 shares owned.

Change in fair value of marketable securities was an expense of $5,278,000 in the prior year’s quarter, resulting from a decrease in Macerich’s share price of $9.86 on 535,265 shares owned.

Results of Operations – Six Months Ended June 30, 2020 , compared to June 30, 2019

Rental Revenues

Rental revenues were $99,588,000 in the six months ended June 30, 2020 , compared to $112,710,000 in the prior year’s six months, a decrease of $13,122,000.

This decrease was primarily due to (i) $6,012,000 from retail tenant vacancies at our 731 Lexington Avenue property, (ii) $4,314,000 from the write-off of receivables arising from the straight-lining of rents from certain of our retail tenants and (iii) $1,022,000 of lower rental income from certain of our retail tenants which were deemed uncollectible.

Operating Expenses

Operating expenses were $41,531,000 in the six months ended June 30, 2020 , compared to $43,516,000 in the prior year’s six months, a decrease of $1,985,000.

This decrease was primarily due to lower reimbursable operating expenses.

Depreciation and Amortization

Depreciation and amortization was $15,542,000 in the six months ended June 30, 2020 , compared to $15,697,000 in the prior year’s six months, a decrease of $155,000.

General and Administrative Expenses

General and administrative expenses were $3,562,000 in the six months ended June 30, 2020 , compared to $3,138,000 in the prior year’s six months, an increase of $424,000.

Interest and Other Income, net

Interest and other income, net was $2,253,000 in the six months ended June 30, 2020 , compared to $4,353,000 in the prior year’s six months, a decrease of $2,100,000.

This decrease was primarily due to $2,404,000 of lower interest income due to a decrease in average interest rates, partially offset by $433,000 of higher interest income due to an increase in average investment balances.

Interest and Debt Expense

Interest and debt expense was $8,573,000 in the quarter ended March 31, 2020, compared to $10,159,000 in the prior year’s quarter, a decrease of $1,586,000.

This decrease was primarily due to $2,045,000 of lower interest due to a decrease in LIBOR, partially offset by $512,000 of higher interest expense due to an increase in average debt balances.

Interest and debt expense was $14,745,000 in the six months ended June 30, 2020, compared to $20,324,000 in the prior year’s six months, a decrease of $5,579,000.

This decrease was primarily due to $6,525,000 of lower interest expense due to a decrease in LIBOR, partially offset by $1,204,000 of higher interest expense due to an increase in average debt balances.

Change in Fair Value of Marketable Securities

Change in fair value of marketable securities was an expense of $11,395,000 in the quarter ended March 31, 2020, resulting from The Macerich Company’s (“Macerich”) closing share prices of $5.63 and $26.92 as of March 31, 2020 and December 31, 2019, respectively, on 535,265 shares owned.

Change in fair value of marketable securities was income of $38,000 in the prior year’s quarter, resulting from Macerich’s closing share prices of $43.35 and $43.28 as of March 31, 2019 and December 31, 2018, respectively, on 535,265 shares owned.

Change in fair value of marketable securities was an expense of $9,558,000 in the six months ended June 30, 2020, consisting of $9,607,000 resulting from a decrease in Macerich’s share price of $17.95 on 535,265 shares owned, partially offset by $49,000 resulting from an increase in Macerich’s share price of $1.67 on 29,347 shares owned.

Change in fair value of marketable securities was an expense of $5,240,000 in the prior year’s six months, resulting from a decrease in Macerich’s share price of $9.79 on 535,265 shares owned.

Liquidity and Capital Resources

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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.

As of April 30, 2020, we have rent receivables due from retail tenants representing approximately 12% of total monthly revenue.

While we believe our tenants are required to pay rent under their leases, we are considering temporary rent relief on a case-by-case basis.

As a result of the COVID-19 pandemic, in limited circumstances, we have agreed to and may continue to agree to rent deferrals and abatements for certain of our tenants.

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 March 31, 2020, we have $457,660,000 of liquidity comprised of $454,646,000 of cash and cash equivalents and restricted cash and $3,014,000 of marketable securities.

As of June 30, 2020, we have $458,330,000 of liquidity comprised of $453,265,000 of cash and cash equivalents and restricted cash and $5,065,000 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.

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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 non-recourse mortgage loan for the retail condominiums of our 731 Lexington Avenue property matures on August 5, 2020;

we are in discussions with the lender.

The challenges posed by the COVID-19 pandemic and the impact on our business and cash flows are evolving rapidly 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.

Three Months Ended March 31, 2020

Cash and cash equivalents and restricted cash were $454,646,000 as of March 31, 2020 , compared to $313,977,000 as of December 31, 2019, an increase of $140,669,000.

Six Months Ended June 30, 2020

Cash and cash equivalents and restricted cash were $453,265,000 as of June 30, 2020 , compared to $313,977,000 as of December 31, 2019, an increase of $139,228,000.

This increase resulted from (i) $99,541,000 of net cash provided by financing activities and (ii) $52,756,000 of net cash provided by operating activities, partially offset by (iii) $13,009,000 of net cash used in investing activities.

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Net cash provided by operating activities of $52,756,000 was comprised of (i) net income of $16,903,000 and (ii) adjustments for non-cash items of $37,578,000, partially offset by (iii) the net change in operating assets and liabilities of $1,725,000.

The adjustments for non-cash items were comprised of (i) the change in fair value of marketable securities of $11,395,000, (ii) depreciation and amortization (including amortization of debt issuance costs) of $9,202,000 and (iii) straight-lining of rental income of $1,935,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $17,792,000, (ii) the change in fair value of marketable securities of $9,558,000, (iii) straight-lining of rental income of $8,820,000, (iv) write-off of tenant receivables of $1,022,000 and (v) stock based compensation expense of $600,000, partially offset by (vi) $214,000 of dividends received in stock from Macerich.

Net cash used in investing activities was comprised of construction in progress and real estate additions of $13,009,000.

Three Months Ended March 31, 2019

Cash and cash equivalents and restricted cash were $312,734,000 as of March 31, 2019 , compared to $289,495,000 as of December 31, 2018, an increase of $23,239,000.

This increase resulted from (i) $48,083,000 of net cash provided by operating activities, partially offset by (ii) $23,028,000 of net cash used in financing activities and (iii) $1,816,000 of net cash used in investing activities.

Net cash provided by operating activities of $48,083,000 was comprised of (i) net income of $17,865,000, (ii) adjustments for non-cash items of $9,725,000 and (iii) the net change in operating assets and liabilities of $20,493,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $9,118,000 and (ii) straight-lining of rental income of $645,000, partially offset by (iii) the change in fair value of marketable securities of $38,000.

Net cash used in financing activities was comprised of dividends paid of $23,028,000.

Six Months Ended June 30, 2019

Cash and cash equivalents and restricted cash were $289,322,000 as of June 30, 2019 , compared to $289,495,000 as of December 31, 2018, a decrease of $173,000.

This decrease resulted from (i) $46,070,000 of net cash used in financing activities and (ii) $4,901,000 of net cash used in investing activities, partially offset by (iii) $50,798,000 of net cash provided by operating activities.

Net cash used in financing activities was primarily comprised of dividends paid of $46,056,000.

Net cash used in investing activities was comprised of construction in progress and real estate additions of $4,901,000.

Net cash provided by operating activities of $50,798,000 was comprised of (i) net income of $29,148,000 and (ii) adjustments for non-cash items of $25,225,000, partially offset by (iii) the net change in operating assets and liabilities of $3,575,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $18,278,000, (ii) the change in fair value of marketable securities of $5,240,000, (iii) straight-lining of rental income of $1,313,000 and (iv) stock-based compensation expense of $394,000.

Liquidity and Capital Resources - continued

Commitments and Contingencies

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

We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, of which the first $1,000,000 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.

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.

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We are currently evaluating our options relating to this matter.

Tenant Matter

On January 24, 2020, Kohl’s subleased its store at our Rego Park I shopping center to At Home and remains obligated under its 133,000 square foot lease which expires in January 2031.

Letters of Credit

Approximately $1,030,000 of standby letters of credit were issued and outstanding as of March 31, 2020 .

Approximately $1,030,000 of standby letters of credit were issued and outstanding as of June 30, 2020 .

There are various other legal actions against us in the ordinary course of business.

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A reconciliation of our net income to FFO is provided below.

FFO (non-GAAP) for the three months ended March 31, 2020 and 2019

FFO (non-GAAP) for the quarter ended March 31, 2020 was $23,744,000, or $4.64 per diluted share, compared to $25,531,000, or $4.99 per diluted share in the prior year’s quarter.

FFO (non-GAAP) for the three and six months ended June 30, 2020 and 2019

FFO (non-GAAP) for the quarter ended June 30, 2020 was $17,995,000, or $3.51 per diluted share, compared to $24,305,000, or $4.75 per diluted share in the prior year’s quarter.

FFO (non-GAAP) for the six months ended June 30, 2020 was $41,739,000, or $8.15 per diluted share, compared to $49,836,000, or $9.74 per diluted share in the prior year’s six months.

The following table reconciles our net income to FFO (non-GAAP):

Three Months Ended

Six Months Ended

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis