What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-02 compared with 2021-11-01 · 49 added, 96 removed, 86 unchanged (63% of the section changed)

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Currently, one of the most significant factors is the ongoing adverse effect of the COVID-19 pandemic on our business, financial condition, results of operations, cash flows, operating performance and the effect it has had and may continue to have on our tenants, the global, national, regional and local economies and financial markets and the real estate market in general.

The extent of the impact of the COVID-19 pandemic will depend on future developments, including the duration of the pandemic, current and future variants, the efficacy and durability of vaccines against the variants and the potential for increased government restrictions, which continue to be uncertain at this time but that impact could be material.

The extent of the impact of the COVID-19 pandemic will continue to depend on future developments, including vaccination rates among the population, the efficacy and durability of vaccines against emerging variants, and governmental and tenant responses thereto, which continue to be uncertain but the impact could be material.

Moreover, you are cautioned that the COVID-19 pandemic will heighten many of the risks identified in “Item 1A.

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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 and nine months ended September 30, 2021 and 2020.

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, 2022 and 2021.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Actual results could differ from those estimates.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the operating results for the full year.

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2020 in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 3 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein.

For the nine months ended September 30, 2021, there were no material changes to these policies.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full year.

Critical Accounting Estimates and Significant Accounting Policies

A summary of the critical accounting estimates used in the preparation of our consolidated financial statements is included in our Annual Report on Form 10-K for the year ended December 31, 2021 in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” and a summary of our significant accounting policies is included in “Note 2 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein.

For the three months ended March 31, 2022, there were no material changes to these policies.

Alexander’s, Inc.

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

As of September 30, 2021, we had seven properties in the greater New York City metropolitan area, including 30.3 acres of land located in Paramus, New Jersey (“Paramus Property”) which we sold in October 2021.

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

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

Our success depends upon, among other factors, trends of the world, national and local economies, the financial condition and operating results of current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels.

Our success depends upon, among other factors, trends of the world, national and local economies, the financial condition and operating results of current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels.

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

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

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

Quarter Ended September 30, 2021 Financial Results Summary

Net income for the quarter ended September 30, 2021 was $11,401,000, or $2.22 per diluted share, compared to $6,604,000, or $1.29 per diluted share in the prior year’s quarter.

Funds from operations (“FFO”) (non-GAAP) for the quarter ended September 30, 2021 was $21,181,000, or $4.13 per diluted share, compared to $15,363,000 or $3.00 per diluted share in the prior year’s quarter.

Nine Months Ended September 30, 2021 Financial Results Summary

Net income for the nine months ended September 30, 2021 was $55,181,000, or $10.77 per diluted share, compared to $23,507,000, or $4.59 per diluted share in the prior year’s nine months.

FFO (non-GAAP) for the nine months ended September 30, 2021 was $68,095,000, or $13.29 per diluted share, compared to $57,102,000 or $11.15 per diluted share in the prior year’s nine months.

While substantially all the limitations and restrictions imposed on our retail tenants during the onset of the pandemic have been lifted, economic conditions and other factors continue to adversely affect the financial health of our retail tenants.

Quarter Ended March 31, 2022 Financial Results Summary

Net income for the quarter ended March 31, 2022 was $14,532,000, or $2.84 per diluted share, compared to $17,882,000, or $3.49 per diluted share in the prior year’s quarter.

Funds from operations (“FFO”) (non-GAAP) for the quarter ended March 31, 2022 was $21,785,000, or $4.25 per diluted share, compared to $25,781,000 or $5.03 per diluted share in the prior year’s quarter.

Square Footage, Occupancy and Leasing Activity

As of September 30, 2021, our portfolio was comprised of seven properties aggregating 2,454,000 square feet, of which 2,218,000 square feet was in service 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 square feet, the in service square feet was 96% occupied as of September 30, 2021.

The in service residential square feet was 93% occupied as of September 30, 2021.

Real Estate Sales

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

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

On October 4, 2021, we sold our Paramus Property to IKEA Property, Inc.

(“IKEA”), the tenant at the property, for $75,000,000, pursuant to IKEA’s purchase option contained in the lease.

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

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

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

We do not expect to pay a special dividend related to these transactions.

Overview - continued

As of March 31, 2022, our portfolio was comprised of six properties aggregating 2,454,000 square feet, of which 2,218,000 square feet was in service and 236,000 square feet (primarily at our Rego Park I and Rego Park II properties) was out of service for redevelopment.

Excluding residential, the in service square feet was 96% occupied as of March 31, 2022.

The in service residential square feet was 99% occupied as of March 31, 2022.

Significant Tenant

Bloomberg L.P.

(“Bloomberg”) accounted for revenue of $85,057,000 and $80,696,000 for the nine months ended September 30, 2021 and 2020, respectively, representing approximately 54% and 56% of our total revenues in each period, respectively.

(“Bloomberg”) accounted for revenue of $27,518,000 and $28,757,000 for the three months ended March 31, 2022 and 2021, respectively, representing approximately 56% and 51% 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 September 30, 2021, compared to September 30, 2020

Results of Operations – Three Months Ended March 31, 2022, compared to March 31, 2021

Rental Revenues

Rental revenues were $48,950,000 in the quarter ended September 30, 2021, compared to $43,499,000 in the prior year’s quarter, an increase of $5,451,000.

This was primarily due to (i) $6,590,000 from write-offs in the prior year related to receivables arising from the straight-lining of rents from certain of our retail tenants who were put on a cash basis given the probability of collecting the rent due under the lease agreements and (ii) $2,130,000 of higher revenue from new tenants, partially offset by (iii) $3,707,000 from retail tenant vacancies at our 731 Lexington Avenue and Rego Park II properties.

Rental revenues were $49,215,000 in the three months ended March 31, 2022, compared to $56,153,000 in the prior year’s three months, a decrease of $6,938,000.

This was primarily due to (i) $2,750,000 of lease termination fee income received in the prior year from a retail tenant at our 731 Lexington Avenue property, (ii) $1,761,000 of lower revenue due to the sale of our Paramus property in October 2021 and (iii) $1,596,000 from retail tenant vacancies at our 731 Lexington Avenue property.

Operating Expenses

Operating expenses were $21,433,000 in the quarter ended September 30, 2021, compared to $22,448,000 in the prior year’s quarter, a decrease of $1,015,000.

Operating expenses were $21,542,000 in the three months ended March 31, 2022, compared to $23,800,000 in the prior year’s three months, a decrease of $2,258,000.

This was primarily due to lower operating expenses subject to recovery, including real estate taxes and common area maintenance.

Depreciation and Amortization

Depreciation and amortization was $9,008,000 in the quarter ended September 30, 2021, compared to $7,587,000 in the prior year’s quarter, an increase of $1,421,000.

This was primarily due to the acceleration of amortization of the deferred leasing commission at our Paramus property.

Depreciation and amortization was $7,351,000 in the three months ended March 31, 2022, compared to $8,542,000 in the prior year’s three months, a decrease of $1,191,000.

This was primarily due to the acceleration of depreciation expense in the prior year related to retail tenant lease expirations at our 731 Lexington Avenue property.

General and Administrative Expenses

General and administrative expenses were $1,272,000 in the quarter ended September 30, 2021, compared to $1,386,000 in the prior year’s quarter, a decrease of $114,000.

General and administrative expenses were $1,469,000 in the three months ended March 31, 2022, compared to $1,543,000 in the prior year’s three months, a decrease of $74,000.

This was primarily due to lower professional fees.

Interest and Other Income, net

Interest and other income, net was $157,000 in the quarter ended September 30, 2021, compared to $220,000 in the prior year’s quarter, a decrease of $63,000.

This was primarily due to $81,000 of lower interest income due to a decrease in average interest rates.

Interest and Debt Expense

Interest and debt expense was $5,124,000 in the quarter ended September 30, 2021, compared to $4,463,000 in the prior year’s quarter, an increase of $661,000.

This was primarily due to $632,000 of higher interest expense due to the financing of The Alexander apartment tower in October 2020.

Change in Fair Value of Marketable Securities

Change in fair value of marketable securities was an expense of $869,000 in the quarter ended September 30, 2021, compared to an expense of $1,231,000 in the prior year’s quarter, a decrease of $362,000.

This was due to the change in The Macerich Company’s (“Macerich”) share price during the periods.

Results of Operations – Nine Months Ended September 30, 2021, compared to September 30, 2020

Rental Revenues

Rental revenues were $156,491,000 in the nine months ended September 30, 2021, compared to $143,087,000 in the prior year’s nine months, an increase of $13,404,000.

This was primarily due to (i) $10,837,000 from write-offs in the prior year related to receivables arising from the straight-lining of rents from certain of our retail tenants who were put on a cash basis, (ii) $6,436,000 of higher revenue from new tenants and (iii) $4,836,000 from write-offs in the prior year related to receivables from retail tenants who were put on a cash basis, partially offset by (iv) $9,604,000 from retail tenant vacancies at our 731 Lexington Avenue and Rego Park II properties.

Operating Expenses

Operating expenses were $68,655,000 in the nine months ended September 30, 2021, compared to $63,979,000 in the prior year’s nine months, an increase of $4,676,000.

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

Depreciation and Amortization

Depreciation and amortization was $25,682,000 in the nine months ended September 30, 2021, compared to $23,129,000 in the prior year’s nine months, an increase of $2,553,000.

This was primarily due to the acceleration of amortization of the deferred leasing commission at our Paramus property.

General and Administrative Expenses

General and administrative expenses were $4,638,000 in the nine months ended September 30, 2021, compared to $4,948,000 in the prior year’s nine months, a decrease of $310,000.

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

Interest and Other Income, net

Interest and other income, net was $480,000 in the nine months ended September 30, 2021, compared to $2,473,000 in the prior year’s nine months, a decrease of $1,993,000.

This was primarily due to $1,514,000 of lower interest income due to a decrease in average interest rates and $499,000 of lower dividend income from Macerich.

Interest and other income, net was $94,000 in the three months ended March 31, 2022, compared to $172,000 in the prior year’s three months, a decrease of $78,000.

This was primarily due to lower dividend income resulting from the sale of our common shares of The Macerich Company (“Macerich”) in December 2021.

Interest and Debt Expense

Interest and debt expense was $15,350,000 in the nine months ended September 30, 2021, compared to $19,208,000 in the prior year’s nine months, a decrease of $3,858,000.

This was primarily due to (i) $4,414,000 of lower interest expense due to a decrease in LIBOR and (ii) $1,276,000 of lower amortization of debt issuance costs, partially offset by (iii) $1,875,000 of higher interest expense due to the financing of The Alexander apartment tower in October 2020.

Interest and debt expense was $4,415,000 in the three months ended March 31, 2022, compared to $5,140,000 in the prior year’s three months, a decrease of $725,000.

This was primarily due to lower interest expense resulting from the sale of our Paramus property and related debt payoff in October 2021.

Change in Fair Value of Marketable Securities

Change in fair value of marketable securities was income of $3,411,000 in the nine months ended September 30, 2021, compared to an expense of $10,789,000 in the prior year’s nine months, an increase to income of $14,200,000.

This was due to the change in Macerich’s share price during the periods.

Net Gain on Sale of Real Estate

Net gain on sale of real estate was $9,124,000 in the nine months ended September 30, 2021, resulting from the sale of the Bronx Land Parcel.

Change in fair value of marketable securities was income of $582,000 in the three months ended March 31, 2021.

This was due to the change in Macerich’s common share price through March 31, 2021.

We sold our Macerich common shares in December 2021.

Liquidity and Capital Resources

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Other sources of liquidity to fund cash requirements include our existing cash, proceeds from financings, including mortgage or construction loans secured by our properties and proceeds from asset sales.

As of September 30, 2021, we had $479,206,000 of liquidity comprised of $469,771,000 of cash and cash equivalents and restricted cash and $9,435,000 of marketable securities.

As of March 31, 2022, we had $491,472,000 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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The challenges posed by the COVID-19 pandemic and the impact on our business and cash flows continue to evolve and cannot be predicted at this time but that impact could be material.

Consequently, we will continue to evaluate our liquidity and financial position on an ongoing basis.

Nine Months Ended September 30, 2021

Cash and cash equivalents and restricted cash were $469,771,000 as of September 30, 2021, compared to $449,877,000 as of December 31, 2020, an increase of $19,894,000.

Three Months Ended March 31, 2022

Cash and cash equivalents and restricted cash were $491,472,000 as of March 31, 2022, compared to $483,505,000 as of December 31, 2021, an increase of $7,967,000.

This increase resulted from (i) $32,185,000 of net cash provided by operating activities, partially offset by (ii) $23,060,000 of net cash used in financing activities and (iii) $1,158,000 of net cash used in investing activities.

Net cash provided by operating activities of $32,185,000 was comprised of (i) net income of $14,532,000, (ii) adjustments for non-cash items of $9,901,000 and (iii) the net change in operating assets and liabilities of $7,752,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $26,923,000, (ii) straight-lining of rental income of $7,411,000 and (iii) stock-based compensation of $450,000, partially offset by (iv) net gain on sale of real estate of $9,124,000 and (v) the change in fair value of marketable securities of $3,411,000.

Net cash used in financing activities of $69,205,000 was primarily comprised of dividends paid of $69,160,000.

Net cash used in investing activities was comprised of (i) construction in progress and real estate additions of $14,711,000, partially offset by (ii) proceeds from the sale of real estate of $9,291,000 and (iii) the return of short-term investments of $3,600,000.

Nine Months Ended September 30, 2020

Cash and cash equivalents and restricted cash were $369,778,000 as of September 30, 2020, compared to $313,977,000 as of December 31, 2019, an increase of $55,801,000.

This increase resulted from (i) $55,521,000 of net cash provided by operating activities and (ii) $23,910,000 of net cash provided by financing activities, partially offset by (iii) $23,630,000 of net cash used in investing activities.

Net cash provided by operating activities of $55,521,000 was comprised of (i) net income of $23,507,000 and (ii) adjustments for non-cash items of $59,157,000, partially offset by (iii) the net change in operating assets and liabilities of $27,143,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $25,554,000, (ii) straight-lining of rental income of $18,306,000, (iii) the change in fair value of marketable securities of $10,789,000, (iv) write-off of tenant receivables of $4,122,000 and (v) stock-based compensation expense of $600,000, partially offset by (vi) $214,000 of dividends received in stock from Macerich.

Net cash provided by financing activities of $23,910,000 was primarily comprised of (i) proceeds from the reduction of our participation in our Rego Park II mortgage loan of $145,708,000, partially offset by (ii) dividends paid of $69,118,000 and (iii) debt repayments of $50,000,000.

The adjustments for non-cash items were comprised of depreciation and amortization (including amortization of debt issuance costs) of $7,762,000 and straight-lining of rental income of $2,139,000.

Net cash used in financing activities was comprised of dividends paid of $23,060,000.

Net cash used in investing activities was comprised of construction in progress and real estate additions of $1,158,000.

Three Months Ended March 31, 2021

Cash and cash equivalents and restricted cash were $480,516,000 as of March 31, 2021, compared to $449,877,000 as of December 31, 2020, an increase of $30,639,000.

This increase resulted from (i) $53,966,000 of net cash provided by operating activities, partially offset by (ii) $23,085,000 of net cash used in financing activities and (iii) $242,000 of net cash used in investing activities.

Net cash provided by operating activities of $53,966,000 was comprised of (i) net income of $17,882,000, (ii) adjustments for non-cash items of $11,013,000 and (iii) the net change in operating assets and liabilities of $25,071,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $8,958,000 and (ii) straight-lining of rental income of $2,637,000, partially offset by (iii) the change in fair value of marketable securities of $582,000.

Net cash used in financing activities of $23,085,000 was primarily comprised of dividends paid of $23,050,000.

Net cash used in investing activities was comprised of construction in progress and real estate additions of $3,842,000, partially offset by the return of short-term investments of $3,600,000.

Liquidity and Capital Resources - continued

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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.

Rego Park I Litigation

In June 2014, Sears Roebuck and Co.

(“Sears”) filed a lawsuit in the Supreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to the 195,000 square foot store that Sears leased at our Rego Park I property alleging that the defendants are liable for harm that Sears has suffered as a result of (a) water intrusions into the premises, (b) two fires in February 2014 that caused damages to those premises, and (c) alleged violations of the Americans with Disabilities Act in the premises’ parking garage.

Sears asserted various causes of actions for damages and sought to compel compliance with landlord’s obligations to repair the premises and to provide security, and to compel us to abate a nuisance that Sears claims was a cause of the water intrusions into its premises.

In addition to injunctive relief, Sears sought, among other things, damages of not less than $4,000,000 and future damages it estimated would not be less than $25,000,000.

In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $650,000 based on information provided by Sears.

We intend to defend the remaining claim vigorously.

The amount or range of reasonably possible losses, if any, is not expected to be greater than $650,000.

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

Letters of Credit

Approximately $960,000 of standby letters of credit were issued and outstanding as of September 30, 2021.

Approximately $900,000 of standby letters of credit were issued and outstanding as of March 31, 2022.

In January 2022, New World Mall LLC, the sub-tenant at our Flushing property, exercised its one remaining 10-year extension option through January 2037.

As a result, we remeasured our related ground lease liability to include our 10-year extension option and recorded an estimated incremental right-of-use asset and lease liability of approximately $17,000,000 which is included in “other assets” and “other liabilities,” respectively, on our consolidated balance sheet as of March 31, 2022.

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 and nine months ended September 30, 2021 and 2020

FFO (non-GAAP) for the quarter ended September 30, 2021 was $21,181,000, or $4.13 per diluted share, compared to $15,363,000, or $3.00 per diluted share in the prior year’s quarter.

FFO (non-GAAP) for the nine months ended September 30, 2021 was $68,095,000, or $13.29 per diluted share, compared to $57,102,000, or $11.15 per diluted share in the prior year’s nine months.

FFO (non-GAAP) for the three months ended March 31, 2022 and 2021

FFO (non-GAAP) for the quarter ended March 31, 2022 was $21,785,000, or $4.25 per diluted share, compared to $25,781,000, or $5.03 per diluted share in the prior year’s quarter.

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

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended March 31,

(Amounts in thousands, except share and per share amounts) 2022 2021

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Depreciation and amortization of real property 7,253 8,481

Net gain on sale of real estate — — (9,124) —

Change in fair value of marketable securities — (582)

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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