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Item 2. Management’s Discussion and Analysis

2022-08-01 compared with 2022-05-02 · 80 added, 43 removed, 92 unchanged (57% of the section changed)

17 unchanged sentences

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three months ended March 31, 2022 and 2021.

Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three and six months ended June 30, 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 months ended March 31, 2022 are not necessarily indicative of the operating results for the full year.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results for the full year.

Critical Accounting Estimates and Significant Accounting Policies

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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.

For the six months ended June 30, 2022, there were no material changes to these policies.

Alexander’s, Inc.

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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.

Quarter Ended June 30, 2022 Financial Results Summary

Net income for the quarter ended June 30, 2022 was $14,814,000, or $2.89 per diluted share, compared to $25,898,000, or $5.05 per diluted share in the prior year’s quarter.

Net income for the prior year’s quarter included $9,124,000, or $1.78 per diluted share, of income as a result of a net gain on the sale of a parcel of land in the Bronx, New York (“Bronx Land Parcel”).

Funds from operations (“FFO”) (non-GAAP) for the quarter ended June 30, 2022 was $22,122,000, or $4.32 per diluted share, compared to $21,133,000 or $4.12 per diluted share in the prior year’s quarter.

Six Months Ended June 30, 2022 Financial Results Summary

Net income for the six months ended June 30, 2022 was $29,346,000, or $5.73 per diluted share, compared to $43,780,000, or $8.55 per diluted share in the prior year’s six months.

Net income for the prior year’s six months included $9,124,000, or $1.78 per diluted share, of income as a result of a net gain on the sale of the Bronx Land Parcel.

Funds from operations (“FFO”) (non-GAAP) for the six months ended June 30, 2022 was $43,907,000, or $8.57 per diluted share, compared to $46,914,000 or $9.16 per diluted share in the prior year’s six months.

Square Footage, Occupancy and Leasing Activity

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.

As of June 30, 2022, our portfolio was comprised of six properties aggregating 2,454,000 square feet, of which 2,241,000 square feet was in service and 213,000 square feet (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 June 30, 2022.

The in service residential square feet was 99% occupied as of June 30, 2022.

Significant Tenant

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.

(“Bloomberg”) accounted for revenue of $55,909,000 and $57,513,000 for the six months ended June 30, 2022 and 2021, respectively, representing approximately 56% and 53% of our total revenues in each period, respectively.

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

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

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

Results of Operations – Three Months Ended June 30, 2022, compared to June 30, 2021

Rental Revenues

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.

Rental revenues were $49,824,000 in the quarter ended June 30, 2022, compared to $51,388,000 in the prior year’s quarter, a decrease of $1,564,000.

This was primarily due to (i) $1,770,000 of lower revenue due to the sale of our Paramus property in October 2021 and (ii) $1,725,000 of lower real estate tax reimbursements due to lower real estate tax expense, partially offset by (iii) $964,000 of higher revenue due to leasing activity and (iv) $728,000 of higher revenue due to higher occupancy at The Alexander apartment tower.

Operating Expenses

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.

Operating expenses were $21,372,000 in the quarter ended June 30, 2022, compared to $23,422,000 in the prior year’s quarter, a decrease of $2,050,000.

This was primarily due to lower operating expenses subject to recovery, including lower real estate taxes resulting from reductions to assessed property values.

Depreciation and Amortization

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.

Depreciation and amortization was $7,413,000 in the quarter ended June 30, 2022, compared to $8,132,000 in the prior year’s quarter, a decrease of $719,000.

This was primarily due to the acceleration of amortization of the deferred leasing commission at our Paramus property in the prior year’s quarter.

General and Administrative Expenses

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.

General and administrative expenses were $1,916,000 in the quarter ended June 30, 2022, compared to $1,823,000 in the prior year’s quarter, an increase of $93,000.

This was primarily due to higher professional fees.

Interest and Other Income, net

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 other income, net was $1,173,000 in the quarter ended June 30, 2022, compared to $151,000 in the prior year’s quarter, an increase of $1,022,000.

This was primarily due to $611,000 of higher interest income from our investments in U.S.

Treasury bills and $358,000 of higher interest income primarily due to an increase in average interest rates.

Interest and Debt Expense

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.

Interest and debt expense was $5,482,000 in the quarter ended June 30, 2022, compared to $5,086,000 in the prior year’s quarter, an increase of $396,000.

This was primarily due to $1,196,000 of higher interest expense due to an increase in LIBOR, partially offset by $812,000 of 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 $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.

Change in fair value of marketable securities was income of $3,698,000 in the quarter ended June 30, 2021.

This was due to the change in The Macerich Company’s (“Macerich”) common share price through the quarter ended June 30, 2021.

We sold our Macerich common shares in December 2021.

Net Gain on Sale of Real Estate

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

Results of Operations – Six Months Ended June 30, 2022, compared to June 30, 2021

Rental Revenues

Rental revenues were $99,039,000 in the six months ended June 30, 2022, compared to $107,541,000 in the prior year’s six months, a decrease of $8,502,000.

This was primarily due to (i) $3,922,000 of lower real estate tax reimbursements due to lower real estate tax expense, (ii) $3,531,000 of lower revenue due to the sale of our Paramus property in October 2021 and (iii) $2,750,000 of lease termination fee income received in the prior year from a retail tenant at our 731 Lexington Avenue property, partially offset by (iv) $1,192,000 of higher revenue due to higher occupancy at The Alexander apartment tower.

Operating Expenses

Operating expenses were $42,914,000 in the six months ended June 30, 2022, compared to $47,222,000 in the prior year’s six months, a decrease of $4,308,000.

This was primarily due to lower operating expenses subject to recovery, including lower real estate taxes resulting from reductions to assessed property values.

Depreciation and Amortization

Depreciation and amortization was $14,764,000 in the six months ended June 30, 2022, compared to $16,674,000 in the prior year’s six months, a decrease of $1,910,000.

This was primarily due to the acceleration of amortization of the deferred leasing commission at our Paramus property in the prior year’s six months.

General and Administrative Expenses

General and administrative expenses were $3,385,000 in the six months ended June 30, 2022, compared to $3,366,000 in the prior year’s six months, an increase of $19,000.

Interest and Other Income, net

Interest and other income, net was $1,267,000 in the six months ended June 30, 2022, compared to $323,000 in the prior year’s six months, an increase of $944,000.

This was primarily due to $611,000 of higher interest income from our investments in U.S.

Treasury bills and $345,000 of higher interest income primarily due to an increase in average interest rates.

Interest and Debt Expense

Interest and debt expense was $9,897,000 in the six months ended June 30, 2022, compared to $10,226,000 in the prior year’s six months, a decrease of $329,000.

This was primarily due $1,614,000 of lower interest expense resulting from the sale of our Paramus property and related debt payoff in October 2021, partially offset by $1,282,000 of higher interest expense due to an increase in LIBOR.

Change in Fair Value of Marketable Securities

Change in fair value of marketable securities was income of $4,280,000 in the six months ended June 30, 2021.

This was due to the change in Macerich’s common share price through the six months ended June 30, 2021.

We sold our Macerich common shares in December 2021.

Net Gain on Sale of Real Estate

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

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 March 31, 2022, we had $491,472,000 of liquidity comprised of cash and cash equivalents and restricted cash.

As of June 30, 2022, we had $526,867,000 of liquidity comprised of $329,498,000 of cash and cash equivalents and restricted cash and $197,369,000 of investments in U.S.

Treasury bills.

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.

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.

For the Six Months Ended June 30, 2022

Cash and cash equivalents and restricted cash were $329,498,000 as of June 30, 2022, compared to $483,505,000 as of December 31, 2021, a decrease of $154,007,000.

This decrease resulted from (i) $201,207,000 of net cash used in investing activities, (ii) $46,128,000 of net cash used in financing activities, partially offset by (iii) $93,328,000 of net cash provided by operating activities.

Net cash used in investing activities was comprised of the purchase of U.S.

Treasury bills of $197,407,000 and construction in progress and real estate additions of $3,800,000.

Net cash used in financing activities was primarily comprised of dividends paid of $46,120,000.

Net cash provided by operating activities of $93,328,000 was comprised of (i) net income of $29,346,000, (ii) adjustments for non-cash items of $19,374,000 and (iii) the net change in operating assets and liabilities of $44,608,000.

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.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $15,587,000, (ii) straight-lining of rental income of $3,948,000 and (iii) stock-based compensation of $450,000, partially offset by (iv) other non-cash adjustments of $611,000.

For the Six Months Ended June 30, 2021

Cash and cash equivalents and restricted cash were $469,056,000 as of June 30, 2021, compared to $449,877,000 as of December 31, 2020, an increase of $19,179,000.

This increase resulted from (i) $62,519,000 of net cash provided by operating activities and (ii) $2,805,000 of net cash provided by investing activities, partially offset by (iii) $46,145,000 of net cash used in financing activities.

Net cash provided by operating activities of $62,519,000 was comprised of (i) net income of $43,780,000, (ii) adjustments for non-cash items of $9,568,000 and (iii) the net change in operating assets and liabilities of $9,171,000.

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.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $17,503,000, (ii) straight-lining of rental income of $5,019,000 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 $4,280,000.

Net cash provided by investing activities was comprised of (i) proceeds from the sale of real estate of $9,291,000 and (ii) the return of short-term investments of $3,600,000, partially offset by (iii) construction in progress and real estate additions of $10,086,000.

Net cash used in financing activities of $46,145,000 was primarily comprised of dividends paid of $46,100,000.

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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Letters of Credit

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

Approximately $900,000 of standby letters of credit were issued and outstanding as of June 30, 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.

There are various legal actions pending 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.

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

FFO (non-GAAP) for the three months ended March 31, 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.

FFO (non-GAAP) for the three and six months ended June 30, 2022 and 2021

FFO (non-GAAP) for the quarter ended June 30, 2022 was $22,122,000, or $4.32 per diluted share, compared to $21,133,000, or $4.12 per diluted share in the prior year’s quarter.

FFO (non-GAAP) for the six months ended June 30, 2022 was $43,907,000, or $8.57 per diluted share, compared to $46,914,000 or $9.16 per diluted share in the prior year’s six months.

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

Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

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

1 unchanged sentence

Depreciation and amortization of real property 7,308 8,057 14,561 16,538

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

Change in fair value of marketable securities — (3,698) — (4,280)

3 unchanged sentences

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