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Item 7. Management’s Discussion and Analysis

2022-02-14 compared with 2021-02-16 · 89 added, 194 removed, 108 unchanged (72% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial statements and related notes included under Part II, Item 8 of this Annual Report on Form 10-K.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) within this section is focused on the years ended December 31, 2021 and 2020, including year-to-year comparisons between these years.

Our MD&A for the year ended December 31, 2019, including year-to-year comparisons between 2020 and 2019, can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Alexander’s, Inc.

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We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE:

We have seven properties in the greater New York City metropolitan area.

We have six properties in the New York City metropolitan area.

We compete with a large number of property owners and developers.

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Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.

In January 2021, the SEC issued Final Rule Release No.

33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information .

This rule, which became effective on February 10, 2021, adopts amendments to modernize, simplify and enhance certain financial disclosure requirements in Regulation S-K.

Specifically, the amendments eliminate the requirement for Selected Financial Data, streamline the requirement to disclose Supplementary Financial Information, and amend our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).

We early adopted the amendments to two items resulting in the elimination of Item 301, Selected Financial Data , and the omission of Item 302(a), Supplementary Financial Information .

The amendments to Item 303(a)(b) MD&A , will be adopted in our Form 10-K for the year ended December 31, 2021.

COVID-19 Pandemic

Our business has been adversely affected by the ongoing COVID-19 pandemic.

In March 2020, our “non-essential” retail tenants were ordered to temporarily close and although substantially all re-opened in the latter part of June 2020, there are limitations on occupancy and other restrictions that affect their ability to resume full operations.

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 3 - Summary of Significant Accounting Policies, to our consolidated financial statements in this Annual Report on Form 10-K for additional information.

Overall, we have collected approximately 95% of rent billed for the quarter ended December 31, 2020 (96% 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 90% for our retail tenants (91% including rent deferrals) and approximately 98% for our residential tenants.

On September 10, 2020, Century 21, which leased 135,000 square feet at our Rego Park II shopping center ($6,400,000 of annual revenue), filed for Chapter 11 bankruptcy and closed its store on December 7, 2020.

Based on our assessment of the probability of collecting rent from certain tenants, we have written off as uncollectible tenant receivables of $4,122,000 during the year ended December 31, 2020, resulting in a reduction of rental revenues.

Of this amount, $2,716,000 is attributable to Century 21.

In addition, we have written off receivables arising from the straight-lining of rents related to these tenants of $10,837,000 during the year ended December 31 2020, resulting in a reduction of rental revenues.

Of this amount, $5,919,000 is attributable to Century 21.

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

Although substantially all our retail tenants are currently open and operating and previous government restrictions have been lifted, there continue to be economic conditions and other factors that adversely affect the financial health of our retail tenants.

Overview - continued

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Net income for the year ended December 31, 2021 was $132,930,000 or $25.94 per diluted share, compared to $41,939,000 or $8.19 per diluted share for the year ended December 31, 2020.

Net income for the year ended December 31, 2021 included $72,298,000, or $14.11 per diluted share, of income as a result of net gains on the sale of real estate, including $2,348,000, or $0.46 per diluted share, from discontinued operations.

Funds from operations (“FFO”) (non-GAAP) for the year ended December 31, 2021 was $89,757,000, or $17.52 per diluted share, compared to $82,509,000, or $16.11 per diluted share for the year ended December 31, 2020.

Quarter Ended December 31, 2020 Financial Results Summary

Net income for the quarter ended December 31, 2020 was $18,432,000, or $3.60 per diluted share, compared to $14,434,000, or $2.82 per diluted share for the quarter ended December 31, 2019.

FFO (non-GAAP) for the quarter ended December 31, 2020 was $25,407,000, or $4.96 per diluted share, compared to $24,626,000, or $4.81 per diluted share for the quarter ended December 31, 2019.

Square Footage, Occupancy and Leasing Activity

As of December 31, 2020, our portfolio was comprised of seven properties aggregating 2,444,000 square feet, of which 2,366,000 square feet was in service and 78,000 square feet (a portion of our Rego Park I shopping center) was out of service due to redevelopment.

The in service square feet was 97% occupied as of December 31, 2020.

As of December 31, 2021, our portfolio was comprised of six properties aggregating 2,454,000 sq uare feet, of which 2 ,218,000 squar e feet was in service and 236,000 square feet (primarily the former Century 21 space at our Rego Park II property and a portion of the former Sears space at our Rego Park I property) was out of service for redevelopment.

Excluding residential, the in service square feet was 96% occupied as of December 31, 2021.

The in service residential square feet was 95% occupied as of December 31, 2021.

Real Estate Sales

On June 4, 2021, we sold a parcel of land in the Bronx, New York (“Bronx Land Parcel”) for $10,000,000.

Net proceeds from the sale were $9,291,000 after closing costs, the financial statement gain was $9,124,000 and the tax gain was $9,123,000.

On October 4, 2021, we sold our Paramus Property to IKEA, the tenant at the property, for $75,000,000, pursuant to IKEA’s purchase option contained in the lease.

Net proceeds from the sale were $4,580,000 after closing costs and the repayment of the $68,000,000 mortgage loan.

The financial statement gain was $60,826,000, which was recognized in the fourth quarter of 2021, and the tax gain was $63,898,000.

Prior to the sale, the Paramus Property had annual rental revenues of $7,200,000, annual operating expenses of $3,200,000 and annual interest and debt expense of $3,300,000.

Marketable Securities

In December 2021, we sold our 564,612 common shares of the Macerich Company (“Macerich”), realizing cash proceeds of $9,506,000.

Financing Activity

On February 14, 2020, we reduced our participation in our Rego Park II shopping center loan to $50,000,000 and received cash proceeds of approximately $145,000,000.

On September 14, 2020, we amended and extended the $350,000,000 mortgage loan on the retail condominium of our 731 Lexington Avenue property.

Under the terms of the amendment, we paid down the loan by $50,000,000 to $300,000,000, extended the maturity date to August 2025 and guaranteed the interest payments and certain leasing costs.

The principal of the loan is non-recourse to us.

The interest-only loan is at LIBOR plus 1.40% (1.55% as of December 31, 2020) which is subject to an interest rate swap with a fixed rate of 1.72%.

On October 23, 2020, we completed a financing of The Alexander apartment tower in the amount of $94,000,000.

The interest-only loan has a fixed rate of 2.63% and matures in November 2027.

On April 7, 2021, we used our $50,000,000 participation in our Rego Park II shopping center loan to reduce the loan balance from $252,544,000 to $202,544,000.

On October 4, 2021, our $68,000,0000 Paramus Property mortgage loan was repaid in connection with the sale of the property.

Significant Tenant

Bloomberg accounted for revenue of $109,066,000, $109,113,000, and $107,356,000 in the years ended December 31, 2020, 2019 and 2018, respectively, representing approximately 55%, 48% and 46% of our total revenues in each year, respectively.

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

Bloomberg accounted for revenue of $113,140,000, $109,066,000, and $109,113,000 in the years ended December 31, 2021, 2020 and 2019, respectively, representing approximately 55%, 55% and 48% of our rental revenues in each year, respectively.

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

If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition.

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

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates.

Set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements.

This summary should be read in conjunction with a more complete discussion of our accounting policies included in Note 3 – Summary of Significant Accounting Policies, to the consolidated financial statements in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates - continued

Real estate is carried at cost, net of accumulated depreciation and amortization.

As of December 31, 2020 and 2019, the carrying amount of our real estate, net of accumulated depreciation and amortization, was $720,921,000 and $716,843,000, respectively.

Maintenance and repairs are generally expensed as incurred.

Depreciation requires an estimate by management of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components.

If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated.

We capitalize all property operating expenses directly associated with and attributable to, the development and construction of a project, including interest expense.

The capitalization period begins when development activities are underway and ends when it is determined that the asset is substantially complete and ready for its intended use, which is typically evidenced by the receipt of a temporary certificate of occupancy.

General and administrative costs are expensed as incurred.

Our properties, including properties to be developed in the future, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

An impairment exists when the carrying amount of an asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset, including an estimated terminal value calculated using an appropriate capitalization rate.

Estimates of future cash flows are based on our current plans, intended holding periods and available market information at the time the analyses are prepared.

For our development properties, estimates of future cash flows also include all future expenditures necessary to develop the asset, including interest payments that will be capitalized as part of the cost of the asset.

An impairment loss is recognized only if the carrying amount of the asset is not recoverable and is measured based on the excess of the property’s carrying amount over its estimated fair value.

If our estimates of future cash flows, anticipated holding periods, or fair values change, based on market conditions or otherwise, our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements.

Estimates of future cash flows are subjective and are based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results.

Plans to hold properties over longer periods decrease the likelihood of recording impairment losses.

Revenue Recognition

Our rental revenues include revenues from the leasing of space to tenants at our properties and revenues from parking and tenant services.

We have the following revenue recognition policies:

• Lease revenues from the leasing of space to tenants at our properties.

Revenues derived from base rent are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements.

We commence rental revenue recognition when the underlying asset is available for use by the lessee.

In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.

Revenues derived from the reimbursement of real estate taxes, insurance expenses and common area maintenance expenses are generally recognized in the same period as the related expenses are incurred.

As lessor, we have elected to combine the lease components (base and variable rent), non-lease components (reimbursements of common area maintenance expenses) and reimbursement of real estate taxes and insurance expenses from our operating lease agreements and account for the components as a single lease component in accordance with ASC Topic 842, Leases (“ASC 842”).

• Parking revenue arising from the rental of parking spaces at our properties.

This income is recognized as the services are transferred in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

• Tenant services is revenue arising from sub-metered electric, elevator and other services provided to tenants at their request.

This revenue is recognized as the services are transferred in accordance with ASC 606.

Under ASC 842, we must assess on an individual lease basis whether it is probable that we will collect substantially all of the future lease payments.

We consider the tenant’s payment history and current credit status when assessing collectability.

When collectability is not deemed probable, we write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received.

We recognize changes in the collectability assessment of our operating leases as adjustments to rental revenues.

Critical Accounting Policies and Estimates - continued

We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856 – 860 of the Internal Revenue Code of 1986, as amended (the “Code”).

In order to maintain our qualification as a REIT under the Code, we must distribute at least 90% of our taxable income to stockholders each year.

We distribute to our stockholders 100% of our taxable income and therefore, no provision for Federal income taxes is required.

If we fail to distribute the required amount of income to our stockholders, or fail to meet other REIT requirements, we may fail to qualify as a REIT, which may result in substantial adverse tax consequences.

Critical Accounting Estimates

In preparing the consolidated financial statements we have made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Accounting estimates are deemed critical if they involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

Below is a summary of the critical accounting estimates used in the preparation of our consolidated financial statements.

A discussion of our accounting policies is included in Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K.

Impairment Analyses for Real Estate

Impairment analyses are based on current plans, intended holding periods, ability to hold, and available information at the time the analyses are prepared.

Assessing impairment can be complex and involves a high degree of subjectivity in determining if impairment indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset.

In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions.

These estimates can have a significant impact on the undiscounted cash flows or estimated fair value of an asset and could thereby affect the value of our real estate on our consolidated balance sheets as well as any potential impairment losses recognized on our consolidated statements of income.

Collectability Assessments for Revenue Recognition

We evaluate on an individual lease basis whether it is probable that we will collect substantially all amounts due from our tenants and recognize changes in the collectability assessment of our operating leases as adjustments to rental revenue.

Management exercises judgment in assessing collectability of tenant receivables and considers payment history, current credit status, publicly available information about the financial condition of the tenant, the impact of COVID-19 on tenants’ businesses, and other factors.

Our assessment of the collectability of tenant receivables can have a significant impact on the rental revenue recognized in our consolidated statements of income.

Recent Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K for a discussion concerning recent accounting pronouncements.

Results of Operations – Year Ended December 31, 2021 compared to December 31, 2020

Rental Revenues

Rental revenues were $199,142,000 in the year ended December 31, 2020, compared to $226,350,000 in the prior year, a decrease of $27,208,000.

This decrease was primarily due to (i) $10,837,000 from the write-off of receivables arising from the straight-lining of rents from certain of our retail tenants, of which $5,919,000 is attributable to Century 21, (ii) $10,512,000 from retail tenant vacancies at our 731 Lexington Avenue property and (iii) $5,590,000 of lower rental income from certain of our retail tenants which were deemed uncollectible, of which $3,036,000 is attributable to Century 21.

Rental revenues were $206,148,000 in the year ended December 31, 2021, compared to $199,142,000 in the prior year, an increase of $7,006,000.

This was primarily due to (i) $10,837,000 fr om write-offs in the prior year related to receivables arising from the straight-lining of rents from certain of our retail tenants who were put on a cash basis and (ii) $8,163,000 of higher revenue from new tenants, partially offset by (iii) $12,905,000 from retail tenant vacancies at our 731 Lexington Avenue and Rego Park II properties.

Operating Expenses

Operating expenses were $88,403,000 in the year ended December 31, 2020, compared to $89,738,000 in the prior year, a decrease of $1,335,000.

This decrease was primarily due to lower operating expenses subject to recovery, including utilities and common area maintenance.

Operating expenses were $91,089,000 in the year ended December 31, 2021, compared to $88,403,000 in the prior year, an increase of $2,686 ,000.

This was primarily due to higher operating expenses subject to recovery, including utilities and common area maintenance.

Depreciation and Amortization

Depreciation and amortization was $32,938,000 in the year ended December 31, 2021, compared to $32,357,000 in the prior year, an increase of $581,000.

This increase is primarily due to the acceleration of amortization of deferred leasing costs related to Century 21 at our Rego Park II property.

General and Administrative Expenses

General and administrative expenses were $6,307,000 in the year ended December 31, 2020, compared to $5,772,000 in the prior year, an increase of $535,000.

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 and $245,000 due to higher professional fees.

Interest and Other Income, net

Interest and other income, net was $2,667,000 in the year ended December 31, 2020, compared to $8,244,000 in the prior year, a decrease of $5,577,000.

This decrease was primarily due to $5,216,000 of lower interest income due to a decrease in interest rates.

Interest and Debt Expense

Interest and debt expense was $24,204,000 in the year ended December 31, 2020, compared to $38,901,000 in the prior year, a decrease of $14,697,000.

This decrease was primarily due to $15,149,000 of lower interest expense due to a decrease in LIBOR.

Change in Fair Value of Marketable Securities

Change in fair value of marketable securities was an expense of $8,599,000 in the year ended December 31, 2020, consisting of $8,698,000 resulting from a decrease in Macerich’s share price of $16.25 on 535,265 shares owned, partially offset by $99,000 resulting from an increase in Macerich’s share price of $3.37 on 29,347 shares owned.

Change in fair value of marketable securities was an expense of $8,757,000 in the prior year, resulting from a decrease in Macerich’s share prices of $16.36 on 535,265 shares owned.

Results of Operations – Year Ended December 31, 2019 compared to December 31, 2018

Rental Revenues

Rental revenues were $226,350,000 in the year ended December 31, 2019, compared to $232,825,000 in the prior year, a decrease of $6,475,000.

This decrease was primarily due to the Sears vacancy effective October 2018 at our Rego Park I property.

Operating Expenses

Operating expenses were $89,738,000 in the year ended December 31, 2019, compared to $93,775,000 in the prior year, a decrease of $4,037,000.

This decrease was primarily due to bad debt expense in 2018 of $4,459,000, primarily due to the Sears bankruptcy and lease termination.

Depreciation and Amortization

Depreciation and amortization was $31,351,000 in the year ended December 31, 2019, compared to $33,089,000 in the prior year, a decrease of $1,738,000.

This decrease was primarily due to acceleration of depreciation and amortization in 2018 related to the Toys “R” Us, Inc.

bankruptcy and lease termination at our Rego Park II property.

General and Administrative Expenses

General and administrative expenses were $5,772,000 in the year ended December 31, 2019, compared to $5,343,000 in the prior year, an increase of $429,000.

This increase was primarily due to higher professional fees.

General and administrative expenses were $5,924,000 in the year ended December 31, 2021, compared to $6,307,000 in the prior year, a decrease of $383,000.

This was primarily due to $232,000 of lower professional fees and $150,000 of lower stock-based compensation expense from an initial award granted to a newly appointed member of our Board of Directors in the prior year.

Interest and Other Income, net

Interest and other income, net was $639,000 in the year ended December 31, 2021, compared to $2,667,000 in the prior year, a decrease of $2,028,000.

This decrease was primarily due to (i) $7,126,000 of interest income in 2018 from our Rego Park II loan participation (on December 12, 2018, we refinanced our $252,544,000 Rego Park II shopping center mortgage loan and GAAP required that our loan participation be treated as an extinguishment of debt), partially offset by (ii) $1,364,000 of higher interest income due to an increase in average interest rates and (iii) $1,600,000 of expense in 2018 from a litigation settlement.

This was primarily due to $1,544,000 of lower interest income due to a decrease in interest rates and $499,000 of lower dividend income from Macerich .

Interest and Debt Expense

Interest and debt expense was $19,686,000 in the year ended December 31, 2021, compared to $24,204,000 in the prior year, a decrease of $4,518,000.

This decrease was primarily due to $7,178,000 of lower interest expense due to the refinancing of our Rego Park II shopping center loan, partially offset by $1,810,000 of higher interest expense resulting from an increase in average interest rates.

This was primarily due to $5,052,000 of lower interest expense due to a decrease in LIBOR.

Change in Fair Value of Marketable Securities

Change in fair value of marketable securities was an expense of $8,757,000 in the year ended December 31, 2019, resulting from Macerich’s closing share prices of $26.92 and $43.28 as of December 31, 2019 and 2018, respectively, on 535,265 shares owned.

Change in fair value of marketable securities was an expense of $11,990,000 in the prior year, resulting from Macerich’s closing share prices of $43.28 and $65.68 as of December 31, 2018 and 2017, respectively.

Loss from Discontinued Operations

Loss from discontinued operations was $23,797,000 in the year ended December 31, 2018.

The loss was due to an expense for potential additional real property transfer taxes from the 2012 sale of the Kings Plaza Regional Shopping Center (“Kings Plaza”).

Change in fair value of marketable securities was income of $3,482,000 in the year ended December 31, 2021, compared to an expense of $8,599,000 in the prior year, an increase to income of $12,081,000.

This was due to the change in Macerich’s share price through December 2021, when we sold our Macerich common shares.

Net Gains on Sale of Real Estate

Net gains on the sale of real estate were $69,950,000 in the year ended December 31, 2021.

This was due to $60,826,000 from the sale of our Paramus Property and $9,124,000 from the sale o f the Bronx Land Parcel.

Income from Discontinued Operations

Income from discontinued operations was $2,348,000 in the year ended December 31, 2021.

This was due to the recognition of a previously deferred gain on the 2012 sale of Kings Plaza Regional Shopping Center to Macerich.

The deferred gain was recognized due to the sale of our Macerich common shares.

See Note 7 - Discontinued Operations , to our consolidated financial statements in this Annual Report on Form 10-K.

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Roth, Interstate and its other two general partners, David Mandelbaum and Russell B.

(who are also directors of the Company and trustees of Vornado) owned, in the aggregate, 26.1% of our outstanding common stock, in addition to the 2.3% they indirectly own through Vornado.

Matthew Iocco, our Chief Financial Officer, is the Executive Vice President - Chief Accounting Officer of Vornado.

(who are also directors of the Company and trustees of Vornado) owned, in the aggregate, 26.0% of our outstanding common stock, in addition to the 2.2% th ey indirectly own through Vornado.

Liquidity and Capital Resources

Rental revenue is our primary source of cash flow and is dependent on a number of factors, including the occupancy level and rental rates of our properties, as well as our tenants’ ability to pay their rents.

Our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses, interest expense, recurring capital expenditures and cash dividends to stockholders.

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 December 31, 2020, we had $455,901,000 of liquidity comprised of $449,877,000 of cash and cash equivalents and restricted cash and $6,024,000 of marketable securities.

Our cash requirements include property operating expenses, capital improvements, tenant improvements, debt service, leasing commissions, dividends to stockholders as well as development costs.

The sources of liquidity to fund these cash requirements include rental revenue, which is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties, as well as our existing cash, proceeds from financings, including mortgage or construction loans secured by our properties and proceeds from asset sales.

As of December 31, 2021, we had $483,505,000 of liquidity comprised of cash and cash equivalents and restricted cash.

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 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.

The challenges posed by the COVID-19 pandemic and the impact on our business and cash flows continue to evolve and cannot be predicted at this time but that impact could be material.

Cash Flows for the Year Ended December 31, 2021

Cash and cash equivalents and restricted cash were $483,505,000 at December 31, 2021, compared to $449,877,000 at December 31, 2020, an increase of $33,628,000.

This resulted from (i) $118,465 ,000 of net cash provided by operating activities and (ii) $75,457,000 of net cash provided to investing activities, partially offset by (iii) $160,294,000 of net cash used in financing activities.

Net cash provided by operating activities of $118,465,000 was comprised of (i) net income of $132,930,000 and (ii) the net change in operating assets and liabilities of $16,456,000, partially offset by (iii) adjustments for non-cash items of $30,921,000.

The adjustments for non-cash items were comprised of (i) net gains on sale of real estate of $72,298,000 (including $2,348,000 from discontinued operations) and (ii) the change in fair value of marketable securities of $3,482,000, partially offset by (iii) depreciation and amortization (including amortization of debt issuance costs) of $34,592,000, (iv) straight-lining of rental income of $9,817,000 and (v) stock-based compensation of $450,000.

Net cash provided by investing activities of $75,457,000 was comprised of (i) proceeds from the sale of real estate of $81,871,000, (ii) proceeds from the sale of marketable securities of $9,506,000 and (iii) the return of short-term investments of $3,600,000, partially offset by (iv) construction in progress and real estate additions of $19,520,000.

Net cash used in financing activities of $160,294,000 was primarily comprised of dividends paid of $92,220,000 and debt repayments of $68,000,000 in connection with the sale of our Paramus Property.

Liquidity and Capital Resources - continued

Cash Flows for the Year Ended December 31, 2020

Cash and cash equivalents and restricted cash were $449,877,000 at December 31, 2020, compared to $313,977,000 at December 31, 2019, an increase of $135,900,000.

This resulted from (i) $78,066,000 of net cash provided by operating activities and (ii) $90,294,000 of net cash provided by financing activities, partially offset by (iii) $32,460,000 of net cash used in investing activities.

Net cash provided by operating activities of $78,066,000 was comprised of (i) net income of $41,939,000 and (ii) adjustments for non-cash items of $69,330,000, partially offset by (iii) the net change in operating assets and liabilities of $33,203,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $35,121,000, (ii) straight-lining of rental income of $21,102,000, (iii) the change in fair value of marketable securities of $8,599,000, (iv) write-off of tenant receivables of $4,122,000 and (v) stock-based compensation expense of $600,000, partially offset by (vi) $214,000 of dividends received in stock from Macerich.

Net cash provided by financing activities was primarily comprised of (i) proceeds from the reduction of our participation in our Rego Park II mortgage loan of $145,708,000 and (ii) proceeds from the financing of The Alexander apartment tower of $94,000,000, partially offset by (iii) dividends paid of $92,168,000 and (iv) debt repayments of $50,000,000.

Net cash used in investing activities was comprised of construction in progress and real estate additions of $32,460,000.

On January 19, 2022, our Board of Directors declared a regular quarterly dividend to $4.50 per share (an indicated annual rate of $18.00 per share).

The dividend, if declared by the Board of Directors at the same rate for all of 2021, would require us to pay out approximately $92,200,000.

Financing Activity and Contractual Obligations

On February 14, 2020, we reduced our participation in our Rego Park II shopping center loan to $50,000,000 and received cash proceeds of approximately $145,000,000.

On September 14, 2020, we amended and extended the $350,000,000 mortgage loan on the retail condominium of our 731 Lexington Avenue property.

Under the terms of the amendment, we paid down the loan by $50,000,000 to $300,000,000, extended the maturity date to August 2025 and guaranteed the interest payments and certain leasing costs.

The principal of the loan is non-recourse to us.

The interest-only loan is at LIBOR plus 1.40% (1.55% as of December 31, 2020) which is subject to an interest rate swap with a fixed rate of 1.72%.

The dividend, if declared by the Board of Directors at the same rate for all of 2022, would require us to pay out approximately $92,200,000 in 2022.

On April 7, 2021, we used our $50,000,000 participation in our Rego Park II shopping center loan to reduce the loan balance from $252,544,000 to $202,544,000.

On October 4, 2021, our $68,000,000 Paramus Property mortgage loan was repaid in connection with the sale of the property.

Liquidity and Capital Resources - continued

On October 23, 2020, we completed a financing of The Alexander apartment tower in the amount of $94,000,000.

The interest-only loan has a fixed rate of 2.63% and matures in November 2027.

Below is a summary of our outstanding debt and maturities as of December 31, 2021.

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(Amounts in thousands)

Paramus $ 68,000 4.72 % Oct.

731 Lexington Avenue, office condominium (1)

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Maturity date represents the extended maturity based on our unilateral right to extend.

(2) Interest at LIBOR plus 1.40% which is subject to an interest rate swap with a fixed rate of 1.72%.

(2) Interest at LIBOR plus 1.40% which was swapped to a fixed rate of 1.72%.

(3) Interest at LIBOR plus 1.35%.

The amount of this loan is net of our $50,000 loan participation.

Below is a summary of our contractual obligations and commitments as of December 31, 2020.

Below is a summary of our principal and interest repayments scheduled as of December 31, 2021.

Less than One to Three to More than

(Amounts in thousands) Total One Year Three Years Five Years Five Years

Contractual obligations (1) (principal and interest) (2) :

Long-term debt obligations $ 1,154,325 $ 15,845 $ 528,734 $ 513,651 $ 96,095

$ 1,241,929 $ 86,617 $ 32,384 $ 1,024,327 $ 98,601

Operating lease obligations 4,800 800 1,600 1,600 800

Purchase obligations, primarily construction commitments 4,523 4,523 — — —

Total principal and interest repayments (1)

$ 1,154,325 $ 15,845 $ 528,734 $ 513,651 $ 96,095

Standby letters of credit $ 960 $ 950 $ 10 $ — $ —

(1) Excludes committed tenant-related obligations as timing and amounts of payments are uncertain and may only be due upon satisfactory performance of certain conditions.

(1) Principal repayments based on extended loan maturity dates.

Interest on variable rate debt is computed using rates in effect as of December 31, 2021.

(3) Net of loan participation and related interest.

Liquidity and Capital Resources - continued

Commitments and Contingencies

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If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.

In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA.

The lease expires in 2041, with a purchase option in October 2021 for $75,000,000.

The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 4.72%, which matures in October 2021.

The annual triple-net rent is the sum of $700,000 plus the amount of interest on the mortgage loan.

If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000.

If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.

Liquidity and Capital Resources - continued

Rego Park I Litigation

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On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief resulting in an automatic stay of this case.

Liquidity and Capital Resources - continued

Kings Plaza Transfer Tax

In 2012, we sold Kings Plaza and paid real property transfer taxes to New York City in connection with the sale.

In 2015, the New York City Department of Finance (“NYC DOF”) issued a Notice of Determination to us assessing an additional New York City real property transfer tax amount, including interest.

In 2014, in a case with similar facts, the NYC DOF issued a Notice of Determination to a Vornado joint venture assessing an additional New York City real property transfer tax amount, including interest.

In January 2017, a New York City administrative law judge made a determination upholding the Vornado joint venture’s position that such additional real property transfer taxes were not due.

On February 16, 2018, the New York City Tax Appeals Tribunal (the “Tribunal”) overturned the January 2017 determination.

The Vornado joint venture appealed the Tribunal’s decision to the Appellate Division of the Supreme Court of the State of New York and on April 25, 2019, the Tribunal’s decision was unanimously upheld.

The Vornado joint venture filed a motion to reargue the Appellate Division’s decision or for leave to appeal to the New York State Court of Appeals.

On December 12, 2019, that motion was denied and the case can no longer be appealed.

Based on the precedent of the Tribunal’s decision, we paid the additional real property transfer taxes of $23,797,000 ($15,874,000 of real property transfer tax and $7,923,000 of interest) on April 5, 2018.

On January 12, 2021, we decided not to further contest the additional real property transfer taxes paid in connection with the sale of Kings Plaza.

Both parties have filed motions for summary judgment and in November 2021, the parties stipulated to lift the stay to allow the motions to be decided by the court.

Letters of Credit

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In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial position, results of operations or cash flows.

Cash Flows for the Year Ended December 31, 2020

Cash and cash equivalents and restricted cash were $449,877,000 at December 31, 2020, compared to $313,977,000 at December 31, 2019, an increase of $135,900,000.

This increase resulted from (i) $78,066,000 of net cash provided by operating activities and (ii) $90,294,000 of net cash provided by financing activities, partially offset by (iii) $32,460,000 of net cash used in investing activities.

Net cash used in investing activities was comprised of construction in progress, real estate additions and other of $32,460,000.

Liquidity and Capital Resources - continued

Cash Flows for the Year Ended December 31, 2019

Cash and cash equivalents and restricted cash were $313,977,000 at December 31, 2019, compared to $289,495,000 at December 31, 2018, an increase of $24,482,000.

This increase resulted from (i) $126,070,000 of net cash provided by operating activities, partially offset by (ii) $92,139,000 of net cash used in financing activities and (iii) $9,449,000 of net cash used in investing activities.

Net cash provided by operating activities of $126,070,000 was comprised of (i) net income of $60,075,000, (ii) adjustments for non-cash items of $48,079,000 and (iii) the net change in operating assets and liabilities of $17,916,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $36,515,000, (ii) the change in fair value of marketable securities of $8,757,000, (iii) straight-lining of rental income of $2,413,000 and (iv) stock-based compensation expense of $394,000.

Net cash used in financing activities was primarily comprised of dividends paid of $92,124,000.

Net cash used in investing activities was comprised of construction in progress and real estate additions of $9,449,000.

Cash Flows for the Year Ended December 31, 2018

Cash and cash equivalents and restricted cash were $289,495,000 at December 31, 2018, compared to $393,279,000 at December 31, 2017, a decrease of $103,784,000.

This decrease resulted from (i) $176,185,000 of net cash used in financing activities and (ii) $1,137,000 of net cash used in investing activities, partially offset by (iii) $73,538,000 of net cash provided by operating activities.

Net cash used in financing activities of $176,185,000 was primarily comprised of net debt repayments of $81,896,000 (primarily the refinancing and subsequent repayment of the mortgage loan on our Rego Park I shopping center) and dividends paid of $92,100,000.

Net cash used in investing activities of $1,137,000 was comprised of construction in progress and real estate additions of $3,966,000, partially offset by repayment of Rego Park II loan participation of $2,829,000.

Net cash provided by operating activities of $73,538,000 was comprised of (i) net income of $32,844,000 and (ii) adjustments for non-cash items of $56,807,000, partially offset by (iii) the net change in operating assets and liabilities of $16,113,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $38,499,000, (ii) the change in fair value of marketable securities of $11,990,000, (iii) straight-lining of rental income of $5,924,000 and (iv) stock-based compensation expense of $394,000.

Funds from Operations (“FFO”) (non-GAAP)

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”).

NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciable real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries.

NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of certain real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries.

FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.

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

FFO (non-GAAP) for the years and quarters ended December 31, 2020 and 2019

FFO (non-GAAP) for the years ended December 31, 2021 and 2020

FFO (non-GAAP) for the year ended December 31, 2021 was $89,757,000, or $17.52 per diluted share, compared to $82,509,000, or $16.11 per diluted share for the year ended December 31, 2020.

FFO (non-GAAP) for the quarter ended December 31, 2020 was $25,407,000, or $4.96 per diluted share, compared to $24,626,000, or $4.81 per diluted share for the quarter ended December 31, 2019.

Funds from Operations (“FFO”) (non-GAAP) - continued

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

For the Year Ended For the Three Months Ended

(Amounts in thousands, except share and per share amounts) December 31, December 31,

2020 2019 2020 2019

For the Year Ended

(Amounts in thousands, except share and per share amounts) December 31,

Net income $ 132,930 $ 41,939

Depreciation and amortization of real property 32,607 31,971

Net gains on the sale of real estate (including $2,348 from discontinued operations) (72,298) —

Change in fair value of marketable securities (3,482) 8,599

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Weighted average shares used in computing FFO per diluted share 5,123,613 5,120,922

5,120,922 5,118,198 5,122,206 5,118,698

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-K

Item 7. Management’s Discussion and Analysis