ALEXANDERS INC 10-Q

Item 1. Financial Statements ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share and per share amounts) ASSETS March 31, 2022 December 31, 2021 Real estate, at cost: Land $ 33,050 $ 33,050 Buildings and leasehold improvements 1,014,877 1,014,525 Development and construction in progress 22,586 21,851 Total 1,070,513 1,069,426 Accumulated depreciation and amortization ( 376,921 ) ( 370,557 ) Real estate, net 693,592 698,869 Cash and cash equivalents 472,484 463,539 Restricted cash 18,988 19,966 Tenant and other receivables 5,775 6,385 Receivable arising from the straight-lining of rents 133,318 135,457 Deferred leasing costs, net, including unamortized leasing fees to Vornado of $ 24,505 and $ 23,943 , respectively 31,609 31,312 Other assets 53,001 36,437 $ 1,408,767 $ 1,391,965 LIABILITIES AND EQUITY Mortgages payable, net of deferred debt issuance costs $ 1,089,990 $ 1,089,613 Amounts due to Vornado 2,078 879 Accounts payable and accrued expenses 39,084 44,681 Other liabilities 21,827 4,203 Total liabilities 1,152,979 1,139,376 Commitments and contingencies Preferred stock: $ 1.00 par value per share; authorized, 3,000,000 shares; issued and outstanding, none — — Common stock: $ 1.00 par value per share; authorized, 10,000,000 shares; issued, 5,173,450 shares; outstanding, 5,107,290 shares 5,173 5,173 Additional capital 33,415 33,415 Retained earnings 198,347 206,875 Accumulated other comprehensive income 19,221 7,494 256,156 252,957 Treasury stock: 66,160 shares, at cost ( 368 ) ( 368 ) Total equity 255,788 252,589 $ 1,408,767 $ 1,391,965 See notes to consolidated financial statements (unaudited). 4 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Amounts in thousands, except share and per share amounts) Three Months Ended March 31, 2022 2021 REVENUES Rental revenues $ 49,215 $ 56,153 EXPENSES Operating, including fees to Vornado of $ 1,378 and $ 1,560 , respectively ( 21,542 ) ( 23,800 ) Depreciation and amortization ( 7,351 ) ( 8,542 ) General and administrative, including management fees to Vornado of $ 610 and $ 595 , respectively ( 1,469 ) ( 1,543 ) Total expenses ( 30,362 ) ( 33,885 ) Interest and other income, net 94 172 Interest and debt expense ( 4,415 ) ( 5,140 ) Change in fair value of marketable securities — 582 Net income $ 14,532 $ 17,882 Net income per common share - basic and diluted $ 2.84 $ 3.49 Weighted average shares outstanding - basic and diluted 5,124,478 5,122,206 See notes to consolidated financial statements (unaudited). 5 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Amounts in thousands) Three Months Ended March 31, 2022 2021 Net income $ 14,532 $ 17,882 Other comprehensive income: Change in fair value of interest rate derivatives 11,727 5,198 Comprehensive income $ 26,259 $ 23,080 See notes to consolidated financial statements (unaudited). 6 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) (Amounts in thousands, except per share amounts) Additional Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Equity Common Stock Shares Amount Three Months Ended March 31, 2022 Balance, December 31, 2021 5,173 $ 5,173 $ 33,415 $ 206,875 $ 7,494 $ ( 368 ) $ 252,589 Net income — — — 14,532 — — 14,532 Dividends paid ($ 4.50 per common share) — — — ( 23,060 ) — — ( 23,060 ) Change in fair value of interest rate derivatives — — — — 11,727 — 11,727 Balance, March 31, 2022 5,173 $ 5,173 $ 33,415 $ 198,347 $ 19,221 $ ( 368 ) $ 255,788 Three Months Ended March 31, 2021 Balance, December 31, 2020 5,173 $ 5,173 $ 32,965 $ 166,165 $ ( 707 ) $ ( 368 ) $ 203,228 Net income — — — 17,882 — — 17,882 Dividends paid ($ 4.50 per common share) — — — ( 23,050 ) — — ( 23,050 ) Change in fair value of interest rate derivatives — — — — 5,198 — 5,198 Balance, March 31, 2021 5,173 $ 5,173 $ 32,965 $ 160,997 $ 4,491 $ ( 368 ) $ 203,258 See notes to consolidated financial statements (unaudited). 7 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands) Three Months Ended March 31, CASH FLOWS FROM OPERATING ACTIVITIES 2022 2021 Net income $ 14,532 $ 17,882 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including amortization of debt issuance costs 7,762 8,958 Straight-lining of rental income 2,139 2,637 Change in fair value of marketable securities — ( 582 ) Changes in operating assets and liabilities: Tenant and other receivables 610 1,286 Other assets 11,445 14,278 Amounts due to Vornado 1,195 430 Accounts payable and accrued expenses ( 5,522 ) 9,240 Other liabilities 24 ( 163 ) Net cash provided by operating activities 32,185 53,966 CASH FLOWS FROM INVESTING ACTIVITIES Construction in progress and real estate additions ( 1,158 ) ( 3,842 ) Return of short-term investment — 3,600 Net cash used in investing activities ( 1,158 ) ( 242 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ( 23,060 ) ( 23,050 ) Debt issuance costs — ( 35 ) Net cash used in financing activities ( 23,060 ) ( 23,085 ) Net increase in cash and cash equivalents and restricted cash 7,967 30,639 Cash and cash equivalents and restricted cash at beginning of period 483,505 449,877 Cash and cash equivalents and restricted cash at end of period $ 491,472 $ 480,516 RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH Cash and cash equivalents at beginning of period $ 463,539 $ 428,710 Restricted cash at beginning of period 19,966 21,167 Cash and cash equivalents and restricted cash at beginning of period $ 483,505 $ 449,877 Cash and cash equivalents at end of period $ 472,484 $ 459,384 Restricted cash at end of period 18,988 21,132 Cash and cash equivalents and restricted cash at end of period $ 491,472 $ 480,516 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments for interest $ 3,728 $ 4,565 NON-CASH TRANSACTIONS Liability for real estate additions, including $ 3 and $ 33 for development fees due to Vornado in 2022 and 2021, respectively $ 1,232 $ 2,913 Write-off of fully depreciated assets — 5,628 See notes to consolidated financial statements (unaudited). 8 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping its properties. All references to “we,” “us,” “our,” “Company” and “Alexander’s” refer to Alexander’s, Inc. and its consolidated subsidiaries. We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE: VNO). We have six properties in the New York City metropolitan area. 2. Basis of Presentation The accompanying consolidated financial statements are unaudited and include the accounts of Alexander’s and its consolidated subsidiaries. All adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. We have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full year. We operate in one reportable segment. 3. Recently Issued Accounting Literature In March 2020, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2020-04”) establishing Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. We have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. 4. Revenue Recognition The following is a summary of revenue sources for the three months ended March 31, 2022 and 2021. Three Months Ended March 31, (Amounts in thousands) 2022 2021 Lease revenues $ 46,808 $ 54,411 Parking revenue 1,228 796 Tenant services 1,179 946 Rental revenues $ 49,215 $ 56,153 The components of lease revenues for the three months ended March 31, 2022 and 2021 are as follows: Three Months Ended March 31, (Amounts in thousands) 2022 2021 Fixed lease revenues $ 32,203 $ 33,810 Variable lease revenues 14,605 20,601 Lease revenues $ 46,808 $ 54,411 9 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. Revenue Recognition - continued Bloomberg L.P. (“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. If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition. In order to assist us in our continuing assessment of Bloomberg’s creditworthiness, we receive certain confidential financial information and metrics from Bloomberg. In addition, we access and evaluate financial information regarding Bloomberg from other private sources, as well as publicly available data. 5. Related Party Transactions Vornado As of March 31, 2022, Vornado owned 32.4 % of our outstanding common stock. We are managed by, and our properties are leased and developed by, Vornado, pursuant to the agreements described below, which expire in March of each year and are automatically renewable. Management and Development Agreements We pay Vornado an annual management fee equal to the sum of (i) $ 2,800,000 , (ii) 2 % of gross revenue from the Rego Park II shopping center, (iii) $ 0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue and (iv) $ 344,000 , escalating at 3 % per annum, for managing the common area of 731 Lexington Avenue. Vornado is also entitled to a development fee equal to 6 % of development costs, as defined. Leasing and Other Agreements Vornado also provides us with leasing services for a fee of 3 % of rent for the first ten years of a lease term, 2 % of rent for the eleventh through the twentieth year of a lease term, and 1 % of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by tenants. In the event third-party real estate brokers are used, the fees to Vornado increase by 1 % and Vornado is responsible for the fees to the third-party real estate brokers. Vornado is also entitled to a commission upon the sale of any of our assets equal to 3 % of gross proceeds, as defined, for asset sales less than $ 50,000,000 and 1 % of gross proceeds, as defined, for asset sales of $ 50,000,000 or more. We also have agreements with Building Maintenance Services LLC, a wholly owned subsidiary of Vornado, to supervise (i) cleaning, engineering and security services at our 731 Lexington Avenue property and (ii) security services at our Rego Park I and Rego Park II properties and The Alexander apartment tower. The following is a summary of fees incurred to Vornado under the various agreements discussed above. Three Months Ended March 31, (Amounts in thousands) 2022 2021 Company management fees $ 700 $ 700 Development fees 3 33 Leasing fees 1,318 411 Property management, cleaning, engineering and security fees 1,269 1,432 $ 3,290 $ 2,576 As of March 31, 2022, the amounts due to Vornado were $ 1,328,000 for leasing fees; $ 606,000 for management, property management, cleaning, engineering and security fees; and $ 144,000 for development fees. As of December 31, 2021, the amounts due to Vornado were $ 669,000 for management, property management, cleaning, engineering and security fees; $ 141,000 for development fees; and $ 69,000 for leasing fees. 10 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. Mortgages Payable The following is a summary of our outstanding mortgages payable as of March 31, 2022 and December 31, 2021. We may refinance our maturing debt as it comes due or choose to pay it down. Interest Rate at March 31, 2022 Balance at (Amounts in thousands) Maturity March 31, 2022 December 31, 2021 First mortgages secured by: 731 Lexington Avenue, office condominium (1) Jun. 11, 2024 1.30 % $ 500,000 $ 500,000 731 Lexington Avenue, retail condominium (2) Aug. 05, 2025 1.72 % 300,000 300,000 Rego Park II shopping center (3) Dec. 12, 2025 1.80 % 202,544 202,544 The Alexander apartment tower Nov. 01, 2027 2.63 % 94,000 94,000 Total 1,096,544 1,096,544 Deferred debt issuance costs, net of accumulated amortization of $ 14,928 and $ 14,551 , respectively ( 6,554 ) ( 6,931 ) $ 1,089,990 $ 1,089,613 (1) Interest at LIBOR plus 0.90 %. Maturity represents the extended maturity based on our unilateral right to extend. (2) Interest at LIBOR plus 1.40 % which was swapped to a fixed rate of 1.72 %. (3) Interest at LIBOR plus 1.35 %. 7. Fair Value Measurements ASC Topic 820, Fair Value Measurement (“ASC 820”) defines fair value and establishes a framework for measuring fair value. ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as consider counterparty credit risk in our assessment of fair value. Financial Assets and Liabilities Measured at Fair Value Financial assets measured at fair value on our consolidated balance sheet as of March 31, 2022 and December 31, 2021 consist of an interest rate swap which is presented in the tables below based on its level in the fair value hierarchy, and an interest rate cap, the fair value of which was insignificant as of March 31, 2022 and December 31, 2021. There were no financial liabilities measured at fair value as of March 31, 2022 and December 31, 2021. As of March 31, 2022 Total Level 1 Level 2 Level 3 (Amounts in thousands) Interest rate swap (included in other assets) $ 19,253 $ — $ 19,253 $ — As of December 31, 2021 (Amounts in thousands) Total Level 1 Level 2 Level 3 Interest rate swap (included in other assets) $ 7,545 $ — $ 7,545 $ — 11 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. Fair Value Measurements - continued Financial Assets and Liabilities not Measured at Fair Value Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents and mortgages payable. Cash equivalents are carried at cost, which approximates fair value due to their short-term maturities and are classified as Level 1. The fair value of our mortgages payable is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings, which are provided by a third-party specialist, and is classified as Level 2. The table below summarizes the carrying amounts and fair values of these financial instruments as of March 31, 2022 and December 31, 2021. As of March 31, 2022 As of December 31, 2021 (Amounts in thousands) Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash equivalents $ 436,616 $ 436,616 $ 427,601 $ 427,601 Liabilities: Mortgages payable (excluding deferred debt issuance costs, net) $ 1,096,544 $ 1,060,157 $ 1,096,544 $ 1,064,122 8. Commitments and Contingencies Insurance We maintain general liability insurance with limits of $ 300,000,000 per occurrence and per property, of which the first $ 30,000,000 includes communicable disease coverage, and all-risk property and rental value insurance coverage with limits of $ 1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties and excluding communicable disease coverage. Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Act of 2002, as amended to date and which has been extended through December 2027. Coverage for acts of terrorism (including NBCR acts) is up to $ 1.7 billion per occurrence and in the aggregate. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $ 293,580 deductible and 20 % of the balance of a covered loss, and the Federal government is responsible for the remaining 80 % of a covered loss. We are ultimately responsible for any loss incurred by FNSIC. We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism or other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material. Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties. 12 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. Commitments and Contingencies - continued Letters of Credit Approximately $ 900,000 of standby letters of credit were issued and outstanding as of March 31, 2022. Other 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. 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. 9. Earnings Per Share The following table sets forth the computation of basic and diluted income per share. Basic income per share is determined using the weighted average shares of common stock outstanding during the period. Diluted income per share is determined using the weighted average shares of common stock outstanding during the period, and assumes all potentially dilutive securities were converted into common shares at the earliest date possible. There were no potentially dilutive securities outstanding during the three months ended March 31, 2022 and 2021. Three Months Ended March 31, (Amounts in thousands, except share and per share amounts) 2022 2021 Net income $ 14,532 $ 17,882 Weighted average shares outstanding – basic and diluted 5,124,478 5,122,206 Net income per common share – basic and diluted $ 2.84 $ 3.49 13 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Alexander’s, Inc. Results of Review of Interim Financial Information We have reviewed the accompanying consolidated balance sheet of Alexander’s, Inc. and subsidiaries (the “Company”) as of March 31, 2022, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the three-month periods ended March 31, 2022 and 2021, and the related notes (collectively referred to as the “interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2021, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Basis for Review Results This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. /s/ DELOITTE & TOUCHE LLP New York, New York May 2, 2022 14