ALEXANDERS INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page Number Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 38 Consolidated Balance Sheets as of December 31, 2022 and 2021 40 Consolidated Statements of Income for the Years Ended December 31, 2022, 2021 and 2020 41 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021 and 2020 42 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2022, 2021 and 2020 43 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 44 Notes to Consolidated Financial Statements 46 37 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Alexander’s, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Alexander’s, Inc. and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in I nternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Real Estate Impairment – Refer to Note 2 to the financial statements Critical Audit Matter Description The Company’s real estate assets are individually evaluated for impairment when events or changes in circumstances indicate the carrying amount may not be recoverable. The Company’s evaluation of the recoverability of real estate assets consists of the comparison of undiscounted future cash flows expected to be generated by each real estate asset over the Company’s estimated holding period to the respective carrying amount. The Company’s undiscounted future cash flow analyses require management to make significant estimates, including estimated terminal values determined using appropriate capitalization rates. 38 Given the Company’s estimated capitalization rates used in the evaluation of impairment of real estate assets is a significant assumption made by management, performing audit procedures to evaluate the reasonableness of management’s undiscounted future cash flow analyses required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s estimated capitalization rates used in the evaluation of impairment of real estate assets included the following, among others: • We tested the effectiveness of controls over management’s evaluation of the recoverability of real estate, including controls over management’s determination of the reasonableness of the applicable capitalization rates. • Inquired with management regarding their determination of the capitalization rates, and evaluating the consistency of the capitalization rates used with evidence obtained in other areas of the audit. • With the assistance of our fair value specialists, we evaluated the reasonableness of the Company’s estimated capitalization rates by: • Testing the source information underlying the determination of the capitalization rates by evaluating the reasonableness of the capitalization rates used by management with independent market data, focusing on key factors, including geographical location, tenant composition, and property type. • Developing a range of independent estimates of capitalization rates and comparing those to the capitalization rates utilized by management. /s/ DELOITTE & TOUCHE LLP New York, New York February 13, 2023 We have served as the Company’s auditor since 1969. 39 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts) December 31, ASSETS 2022 2021 Real estate, at cost: Land $ 33,050 $ 33,050 Buildings and leasehold improvements 1,029,504 1,014,525 Development and construction in progress 22,044 21,851 Total 1,084,598 1,069,426 Accumulated depreciation and amortization ( 396,268 ) ( 370,557 ) Real estate, net 688,330 698,869 Cash and cash equivalents 194,933 463,539 Restricted cash 19,545 19,966 Investments in U.S. Treasury bills 266,963 — Tenant and other receivables 4,705 6,385 Receivable arising from the straight-lining of rents 127,497 135,457 Deferred lease costs, net, including unamortized leasing fees to Vornado of $ 22,174 and $ 23,943 , respectively 28,490 31,312 Other assets 67,313 36,437 $ 1,397,776 $ 1,391,965 LIABILITIES AND EQUITY Mortgages payable, net of deferred debt issuance costs $ 1,091,051 $ 1,089,613 Amounts due to Vornado 801 879 Accounts payable and accrued expenses 48,785 44,681 Other liabilities 20,640 4,203 Total liabilities 1,161,277 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 33,865 33,415 Retained earnings 172,243 206,875 Accumulated other comprehensive income 25,586 7,494 236,867 252,957 Treasury stock: 66,160 shares, at cost ( 368 ) ( 368 ) Total equity 236,499 252,589 $ 1,397,776 $ 1,391,965 See notes to consolidated financial statements. 40 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except share and per share amounts) Year Ended December 31, 2022 2021 2020 REVENUES Rental revenues $ 205,814 $ 206,148 $ 199,142 EXPENSES Operating, including fees to Vornado of $ 6,037 , $ 5,952 and $ 5,429 , respectively ( 90,446 ) ( 91,089 ) ( 88,403 ) Depreciation and amortization ( 29,797 ) ( 32,938 ) ( 32,357 ) General and administrative, including management fees to Vornado of $ 2,440 , $ 2,380 and $ 2,380 , respectively ( 6,106 ) ( 5,924 ) ( 6,307 ) Total expenses ( 126,349 ) ( 129,951 ) ( 127,067 ) Interest and other income, net 6,769 639 2,667 Interest and debt expense ( 28,602 ) ( 19,686 ) ( 24,204 ) Change in fair value of marketable securities — 3,482 ( 8,599 ) Net gains on sale of real estate — 69,950 — Income from continuing operations 57,632 130,582 41,939 Income from discontinued operations (see Note 7) — 2,348 — Net income $ 57,632 $ 132,930 $ 41,939 Income per common share - basic and diluted: Income from continuing operations $ 11.24 $ 25.48 $ 8.19 Income from discontinued operations (see Note 7) — 0.46 — Net income per common share $ 11.24 $ 25.94 $ 8.19 Weighted average shares outstanding - basic and diluted 5,126,100 5,123,613 5,120,922 See notes to consolidated financial statements. 41 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Year Ended December 31, 2022 2021 2020 Net income $ 57,632 $ 132,930 $ 41,939 Other comprehensive income (loss): Change in fair value of interest rate derivatives and other 18,092 8,201 ( 658 ) Comprehensive income $ 75,724 $ 141,131 $ 41,281 See notes to consolidated financial statements. 42 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Amounts in thousands) Accumulated Other Comprehensive (Loss) Income Common Stock Additional Capital Retained Earnings Treasury Stock Total Equity Shares Amount Balance, December 31, 2019 5,173 $ 5,173 $ 32,365 $ 216,394 $ ( 49 ) $ ( 368 ) $ 253,515 Net income — — — 41,939 — — 41,939 Dividends paid ($ 18.00 per common share) — — — ( 92,168 ) — — ( 92,168 ) Change in fair value of interest rate derivatives — — — — ( 658 ) — ( 658 ) Deferred stock unit grants — — 600 — — — 600 Balance, December 31, 2020 5,173 5,173 32,965 166,165 ( 707 ) ( 368 ) 203,228 Net income — — — 132,930 — — 132,930 Dividends paid ($ 18.00 per common share) — — — ( 92,220 ) — — ( 92,220 ) Change in fair value of interest rate derivatives — — — — 8,201 — 8,201 Deferred stock unit grants — — 450 — — — 450 Balance, December 31, 2021 5,173 5,173 33,415 206,875 7,494 ( 368 ) 252,589 Net income — — — 57,632 — — 57,632 Dividends paid ($ 18.00 per common share) — — — ( 92,264 ) — — ( 92,264 ) Change in fair value of interest rate derivatives and other — — — — 18,092 — 18,092 Deferred stock unit grants — — 450 — — — 450 Balance, December 31, 2022 5,173 $ 5,173 $ 33,865 $ 172,243 $ 25,586 $ ( 368 ) $ 236,499 See notes to consolidated financial statements. 43 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 57,632 $ 132,930 $ 41,939 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including amortization of debt issuance costs 31,454 34,592 35,121 Straight-lining of rents 7,960 9,817 21,102 Write-off of tenant receivables — — 4,122 Stock-based compensation expense 450 450 600 Net gains on sale of real estate (2021 includes $ 2,348 from discontinued operations) — ( 72,298 ) — Change in fair value of marketable securities — ( 3,482 ) 8,599 Dividends received in stock — — ( 214 ) Other non-cash adjustments ( 2,928 ) — — Change in operating assets and liabilities: Tenant and other receivables, net 1,680 1,731 ( 6,146 ) Other assets 2,782 3,099 ( 28,378 ) Amounts due to Vornado 40 ( 211 ) ( 402 ) Accounts payable and accrued expenses 3,141 12,501 2,361 Other liabilities 338 ( 664 ) ( 638 ) Net cash provided by operating activities 102,549 118,465 78,066 CASH FLOWS FROM INVESTING ACTIVITIES Construction in progress and real estate additions ( 14,386 ) ( 19,520 ) ( 32,460 ) Purchase of U.S. Treasury bills ( 364,238 ) — — Proceeds from maturities of U.S. Treasury bills 99,358 — — Proceeds from sales of real estate — 81,871 — Return of short-term investment — 3,600 — Proceeds from sale of marketable securities — 9,506 — Net cash (used in) provided by investing activities ( 279,266 ) 75,457 ( 32,460 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ( 92,264 ) ( 92,220 ) ( 92,168 ) Debt issuance costs ( 46 ) ( 74 ) ( 7,246 ) Debt repayments — ( 68,000 ) ( 50,000 ) Proceeds from borrowings — — 239,708 Net cash (used in) provided by financing activities ( 92,310 ) ( 160,294 ) 90,294 Net (decrease) increase in cash and cash equivalents and restricted cash ( 269,027 ) 33,628 135,900 Cash and cash equivalents and restricted cash at beginning of year 483,505 449,877 313,977 Cash and cash equivalents and restricted cash at end of year $ 214,478 $ 483,505 $ 449,877 RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH Cash and cash equivalents at beginning of year $ 463,539 $ 428,710 $ 298,063 Restricted cash at beginning of year 19,966 21,167 15,914 Cash and cash equivalents and restricted cash at beginning of year $ 483,505 $ 449,877 $ 313,977 Cash and cash equivalents at end of year $ 194,933 $ 463,539 $ 428,710 Restricted cash at end of year 19,545 19,966 21,167 Cash and cash equivalents and restricted cash at end of year $ 214,478 $ 483,505 $ 449,877 See notes to consolidated financial statements. 44 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Amounts in thousands) Year Ended December 31, 2022 2021 2020 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments for interest, net of amounts capitalized $ 25,934 $ 18,568 $ 22,476 NON-CASH TRANSACTIONS Additional estimated lease liability arising from the recognition of right-of-use asset $ 16,099 $ — $ — Liability for real estate additions, including $ 141 and $ 489 for development fees due to Vornado in 2021 and 2020, respectively 2,254 1,445 4,955 Write-off of fully amortized and/or depreciated assets 23 5,628 876 See notes to consolidated financial statements. 45 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 New York City consisting of: Operating properties • 731 Lexington Avenue, a 1,079,000 square foot multi-use building, comprising the entire block bounded by Lexington Avenue, East 59 th Street, Third Avenue and East 58 th Street in Manhattan. The building contains 939,000 and 140,000 of net rentable square feet of office and retail space, respectively. Bloomberg L.P. (“Bloomberg”) occupies all of the office space. The Home Depot ( 83,000 square feet) is the principal retail tenant; • Rego Park I, a 338,000 square foot shopping center, is located on Queens Boulevard and 63 rd Road in Queens. The center is anchored by a 112,000 square foot IKEA, a 50,000 square foot Burlington, a 46,000 square foot Bed Bath & Beyond and a 36,000 square foot Marshalls. On December 3, 2022, IKEA closed its store at the property. IKEA remains obligated under its lease which expires in December 2030. The lease includes a right to terminate effective no earlier than March 2026, subject to payment of rent through the termination date and an additional termination payment equal to the lesser of $ 10,000,000 or the amount of rent due under the remaining term; • Rego Park II, a 615,000 square foot shopping center, is located adjacent to the Rego Park I shopping center in Queens. The center is anchored by a 145,000 square foot Costco and a 133,000 square foot Kohl’s, which has been subleased; • The Alexander apartment tower, located above our Rego Park II shopping center, contains 312 units aggregating 255,000 square feet; and • Flushing, a 167,000 square foot building, located on Roosevelt Avenue and Main Street in Queens, that is sub-leased to New World Mall LLC. The property is ground leased through January 2027 with one 10 -year extension option. Property to be developed • Rego Park III, a 140,000 square foot land parcel adjacent to the Rego Park II shopping center in Queens, at the intersection of Junction Boulevard and the Horace Harding Service Road. We have determined that our properties have similar economic characteristics and meet the criteria that permit the properties to be aggregated into one reportable segment (the leasing, management, development and redeveloping of properties in New York City). Our chief operating decision-maker assesses and measures segment operating results based on a performance measure referred to as net operating income at the individual operating segment. Net operating income for each property represents net rental revenues less operating expenses. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation – The accompanying consolidated financial statements include our accounts and those of our consolidated subsidiaries. All intercompany amounts have been eliminated. 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. 46 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued 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 (“ASC 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. In December 2022 the FASB issued accounting standard update 2022-06 that defers the sunset of ASC 848 from December 31, 2022 to December 31, 2024. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. In July 2021, the FASB issued an update ("ASU 2021-05") Lessors - Certain Leases with Variable Lease Payments to ASC Topic 842, Leases ("ASC 842"). ASU 2021-05 provides additional ASC 842 classification guidance as it relates to a lessor's accounting for certain leases with variable lease payments. ASU 2021-05 requires a lessor to classify a lease with variable payments that do not depend on an index or rate as an operating lease if either a sales-type lease or direct financing lease classification would trigger a day-one loss. ASU 2021-05 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. We adopted this update effective January 1, 2022 which did not have an impact on our consolidated financial statements. Real Estate – Real estate is carried at cost, net of accumulated depreciation and amortization. As of December 31, 2022 and 2021, the carrying amount of our real estate, net of accumulated depreciation and amortization, was $ 688,330,000 and $ 698,869,000 , 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. 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. 47 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued 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 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. Cash and Cash Equivalents – Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less when purchased and are carried at cost, which approximates fair value, due to their short-term maturities. The majority of our cash and cash equivalents consist of (i) deposits at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation limit, (ii) money market funds, which invest in U.S. Treasury bills and (iii) certificates of deposit placed through an account registry service (“CDARS”). To date we have not experienced any losses on our invested cash. Restricted Cash – Restricted cash primarily consists of security deposits and other cash escrowed under loan and interest rate derivative agreements, including for debt service, real estate taxes, property insurance and capital improvements. Investments in U.S. Treasury Bills – Treasury bills are short-term debt obligations with maturities of one year or less backed by the U.S. Treasury Department. Treasury bills yield no interest, but are issued at a discount on their redemption prices. We classify our investments in U.S. Treasury bills as available-for-sale debt investments, recorded at fair value with any changes in fair value during the period recorded in other comprehensive income. These investments are considered Level 1 within the fair value hierarchy as they are highly liquid and are traded in an active secondary market. We use quoted market prices to determine the fair value of our investments in U.S. Treasury bills. Deferred Charges – Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest and debt expense. Direct and incremental costs related to successful leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. All other deferred charges are amortized on a straight-line basis, which approximates the effective interest rate method, in accordance with the terms of the agreements to which they relate. Income Taxes – 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. Dividends distributed for the year ended December 31, 2022 were characterized, for federal income tax purpos es, as 100.0 % ordi nary income. Dividends distributed for the year ended December 31, 2021 were characterized, for federal income tax purposes, as 58.3 % ordinary income and 41.7 % of long-term capital gain income. Dividends distributed for the year ended December 31, 2020 were characterized, for federal income tax purposes, as 100.0 % ordinary income. 48 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued The estimated taxable income attributable to our common stockholders (unaudited) for the years ended December 31, 2022, 2021 and 2020 was approximately $ 64,960,000 , $ 101,184,000 , and $ 81,375,000 , respectively. The book to tax differences between net income and estimated taxable income primarily result from differences in the income recognition or deductibility of depreciation and amortization, gains or losses from the sale of real estate and other capital transactions, straight-line rent adjustments, the change in fair value of marketable securities and income from discontinued operations. As of December 31, 2022, the net basis of our assets and liabilities for tax reporting purposes was approximately $ 137,734,000 lower than the amount reported for financial statement purposes. 3. REVENUE RECOGNITION The following is a summary of revenue sources for the years ended December 31, 2022, 2021 and 2020. Year Ended December 31, (Amounts in thousands) 2022 2021 2020 Lease revenues $ 197,230 $ 198,109 $ 191,416 Parking revenue 4,897 4,407 4,207 Tenant services 3,687 3,632 3,519 Rental revenues $ 205,814 $ 206,148 $ 199,142 The components of lease revenues for the years ended December 31, 2022, 2021 and 2020 are as follows: Year Ended December 31, (Amounts in thousands) 2022 2021 2020 Fixed lease revenues $ 135,668 $ 129,509 $ 120,395 Variable lease revenues 61,562 68,600 71,021 Lease revenues $ 197,230 $ 198,109 $ 191,416 4. 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 and the financial statement gain was $ 9,124,000 . On October 4, 2021, we sold 30.3 acres of land located in Paramus, New Jersey (“Paramus Property”) to IKEA Property, Inc., the tenant at the property, for $ 75,000,000 , pursuant to the tenant’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. 5. RELATED PARTY TRANSACTIONS Vornado As of December 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 ren ewable. Steven Roth is the Chairman of our Board of Directors and Chief Executive Officer, the Managing General Partner of Interstate Properties (“Interstate”), a New Jersey general partnership, and the Chairman of the Board of Trustees and Chief Executive Officer of Vornado. As of December 31, 2022, Mr. Roth, Interstate and its other two general partners, David Mandelbaum and Russell B. Wight, Jr. (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 2.3 % th ey indirectly own through Vornado. 49 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. RELATED PARTY TRANSACTIONS - continued 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) $ 354,000 , 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 (the “Sales Agreement”). Pursuant to the Sales Agreement, we paid a $ 300,000 sales commission to Vornado in the second quarter of 2021 related to the sale of the Bronx Land Parcel. In addition, we paid a $ 750,000 sales commission to Vornado in the fourth quarter of 2021 related to the Paramus Property sale. We also have agreements with Building Maintenance Services, a wholly owned subsidiary of Vornado, to supervise (i) cleaning, engineering and security services at our 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 to Vornado under the various agreements discussed above. Year Ended December 31, (Amounts in thousands) 2022 2021 2020 Company management fees $ 2,800 $ 2,800 $ 2,800 Development fees 3 141 489 Leasing fees 1,378 1,800 276 Commission on sales of real estate — 1,050 — Property management, cleaning, engineering and security fees 5,912 5,540 5,051 $ 10,093 $ 11,331 $ 8,616 As of December 31, 2022, the amounts due to Vornado were $ 742,000 for management, property management, cleaning, engineering and security fees and $ 59,000 for leasing 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. 6. MARKETABLE SECURITIES In December 2021, we sold our 564,612 common shares of The Macerich Company (“Macerich”), realizing cash proceeds of $ 9,506,000 . These shares were received in connection with the sale of Kings Plaza Regional Shopping Center (“Kings Plaza”) to Macerich in 2012. The gains and losses resulting from the mark-to-market of these securities during 2021 and 2020 were presented as “change in fair value of marketable securities” on our consolidated statements of income. 7. DISCONTINUED OPERATIONS In 2012, when we sold Kings Plaza to Macerich, $ 2,348,000 of the financial statement gain was deferred since a portion of the sales price was received in Macerich common shares. In December 2021, we recognized the $ 2,348,000 gain upon the disposition of our Macerich common shares. As the results related to Kings Plaza were previously classified as discontinued operations, we have classified the gain as “income from discontinued operations” on our consolidated statement of income for the year ended December 31, 2021 in accordance with the provisions of ASC Topic 360, Property, Plant and Equipment . 50 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. MORTGAGES PAYABLE The following is a summary of our outstanding mortgages payable. We may refinance our maturing debt as it comes due or choose to repay it. Interest Rate at December 31, 2022 Balance at December 31, (Amounts in thousands) Maturity 2022 2021 First mortgages secured by: 731 Lexington Avenue, office condominium (1)(2) Jun. 11, 2024 5.22 % $ 500,000 $ 500,000 731 Lexington Avenue, retail condominium (1)(3) Aug. 05, 2025 1.76 % 300,000 300,000 Rego Park II shopping center (1)(4) Dec. 12, 2025 5.60 % 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 $ 16,071 and $ 14,551 , respectively ( 5,493 ) ( 6,931 ) $ 1,091,051 $ 1,089,613 (1) Interest rate listed represents the rate in effect as of December 31, 2022 based on LIBOR or SOFR as of contractual reset date plus contractual spread, adjusted for hedging instruments as applicable. (2) Interest at LIBOR plus 0.90 % (LIBOR capped at a rate of 6.00 % through June 2023). Maturity date represents the extended maturity based on our as-of right to extend. (3) Interest at SOFR plus 1.51 % which was swapped to a fixed rate of 1.76 % through May 2025. (4) Interest at SOFR plus 1.45 % (SOFR is capped at a rate of 4.15 % through November 2024). All of our debt is secured by mortgages and/or pledges of the stock of the subsidiaries holding the properties. The net carrying value of real estate collateralizing the debt amounted t o $ 614,245,000 a s of December 31, 2022. Our existing financing documents contain covenants that limit our ability to incur additional indebtedness on these properties, and in certain circumstances, provide for lender approval of tenants’ leases and yield maintenance to prepay them. As of December 31, 2022, the principal repayments (based on the extended loan maturity dates) for the next five years and thereafter are as follows: (Amounts in thousands) Year Ending December 31, Amount 2023 $ — 2024 500,000 2025 502,544 2026 — 2027 94,000 Thereafter — 9. 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 as well as certain U.S. Treasury securities that are highly liquid and are actively traded in secondary markets; 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. 51 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. FAIR VALUE MEASUREMENTS - continued Financial Assets and Liabilities Measured at Fair Value Financial assets measured at fair value on our consolidated balance sheets as of December 31, 2022 consist of U.S. Treasury bills (classified as available for-sale) and interest rate derivatives which are presented in the table below based on their level in the fair value hierarchy. There were no financial liabilities measured at fair value as of December 31, 2022. As of December 31, 2022 (Amounts in thousands) Total Level 1 Level 2 Level 3 Assets: Investments in U.S. Treasury bills (1) $ 266,963 $ 266,963 $ — $ — Interest rate derivatives (included in other assets) 29,351 — 29,351 — $ 296,314 $ 266,963 $ 29,351 $ — (1) During the year ended December 31, 2022, we purchased $ 364,238 in U.S. Treasury bills with an aggregate par value of $ 370,000 and realized proceeds of $ 100,000 from maturing U.S. Treasury bills. As of December 31, 2022 our investments in U.S. Treasury bills have an aggregate accreted value of $ 267,809 prior to being marked to fair value and have remaining maturities of less than one year. Financial assets measured at fair value on our consolidated balance sheet as of December 31, 2021 consist of interest rate derivatives which are presented in the table below based on their level in the fair value hierarchy. There were no financial liabilities measured at fair value as of December 31, 2021. As of December 31, 2021 (Amounts in thousands) Total Level 1 Level 2 Level 3 Assets: Interest rate derivatives (included in other assets) $ 7,545 $ — $ 7,545 $ — Interest Rate Derivatives We recognize the fair value of all interest rate derivatives in “other assets” or “other liabilities” on our consolidated balance sheets and since all of our interest rate derivatives have been designated as cash flow hedges, changes in the fair value are recognized in other comprehensive income. The table below summarizes our interest rate derivatives, all of which hedge the interest rate risk attributable to the variable rate debt noted as of December 31, 2022 and 2021, respectively. Fair Value Asset as of December 31, As of December 31, 2022 (Amounts in thousands) 2022 2021 Notional Amount Swapped Rate Expiration Date Interest rate swap related to: 731 Lexington Avenue mortgage loan, retail condominium $ 26,718 $ 7,545 $ 300,000 1.76 % 05/25 Interest rate caps related to: Rego Park II shopping center mortgage loan 2,622 — 202,544 (1) 11/24 731 Lexington Avenue mortgage loan, office condominium 11 — 500,000 (2) 06/23 Included in other assets $ 29,351 $ 7,545 (1) SOFR cap strike rate of 4.15 % (2) LIBOR cap strike rate of 6.00 % 52 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. 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 amount and fair value of these financial instruments as of December 31, 2022 and 2021. As of December 31, 2022 As of December 31, 2021 Carrying Fair Carrying Fair (Amounts in thousands) Amount Value Amount Value Assets: Cash equivalents $ 47,852 $ 47,852 $ 427,601 $ 427,601 Liabilities: Mortgages payable (excluding deferred debt issuance costs, net) $ 1,096,544 $ 1,061,221 $ 1,096,544 $ 1,064,122 10. LEASES As Lessor We lease space to tenants under operating leases in an office building and in retail centers. The rental terms range from approximately 5 to 25 years. The leases provide for the payment of fixed base rents payable monthly in advance as well as reimbursements of real estate taxes, insurance and maintenance costs. Retail leases may also provide for the payment by the lessee of additional rents based on a percentage of their sales. We also lease residential space at The Alexander apartment tower with 1 or 2 year lease terms. Future undiscounted cash flows under our contractual non-cancelable operating leases are as follows: (Amounts in thousands) As of December 31, 2022 For the year ending December 31, 2023 $ 141,156 2024 142,956 2025 131,631 2026 128,522 2027 125,138 Thereafter 317,099 These amounts do not include reimbursements or additional rents based on a percentage of retail tenants’ sales. Bloomberg accounted for revenue of $ 115,129,000 , $ 113,140,000 , and $ 109,066,000 in the years ended December 31, 2022, 2021 and 2020, respectively, representing approximately 56 %, 55 % and 55 % of our rental revenues in each year, respectively. No other tenant accounted for more than 10% of o ur 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. 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. 53 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. LEASES - continued As Lessee We are the lessee under a ground lease at our Flushing property, classified as an operating lease, which expires in 2027 and has one 10 -year extension option. In January 2022, New World Mall LLC, the sub-tenant at the property, exercised its one remaining 10 -year extension option through January 2037. As a result of the sub-tenant exercising its extension option, we were required by GAAP to remeasure our ground lease liability based upon an estimate of lease payments to be made during the 10 -year extension period of our ground lease resulting in an incremental right-of-use asset and lease liability of approximately $ 16,000,000 . The discount rate applied in the remeasurement of the lease liability was based on the incremental borrowing rate (“IBR”) of 5.86 % at the time of the remeasurement. We considered the general economic environment and factored in various Company specific adjustments to arrive at the IBR. As of December 31, 2022, the remaining right-of-use asset of $ 18,497,000 and lease liability of $ 20,066,000 , are included in “ other assets ” and “ other liabilities ,” respectively, on our consolidated balance sheet. Future lease payments under this operating lease, including our estimated payments during the extension period, are as follows: (Amounts in thousands) As of December 31, 2022 For the year ending December 31, 2023 $ 800 2024 800 2025 800 2026 800 2027 2,707 Thereafter 26,160 Total undiscounted cash flows 32,067 Present value discount ( 12,001 ) Lease liability as of December 31, 2022 $ 20,066 We recognize rent expense as a component of “operating” expenses on our consolidated statements of income on a straight-line basis. Rent expense was $ 2,161,000 , $ 746,000 and $ 746,000 in each of the years ended December 31, 2022, 2021 and 2020, respectively. Cash paid for rent expense was $ 800,000 in each of the years ended December 31, 2022, 2021 and 2020, respectively. 11. STOCK-BASED COMPENSATION We account for stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). Our 2016 Omnibus Stock Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, deferred stock units (“DSUs”) and performance shares, as defined, to the directors, officers and employees of the Company and Vornado. In May 2022, we granted each of the members of our Board of Directors 326 DSUs with a market value of $ 75,000 per grant. The grant date fair value of these awards was $ 56,250 per grant, or $ 450,000 in the aggregate, in accordance with ASC 718. The DSUs entitle the holders to receive shares of the Company’s common stock without the payment of any consideration. The DSUs vested immediately and accordingly, were expensed on the date of grant, but the shares of common stock underlying the DSUs are not deliverable to the grantee until the grantee is no longer serving on the Company’s Board of Directors. As of December 31, 2022, there were 19,796 DSUs outstanding and 485,991 shares were available for future grant under the Plan. 54 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. 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 $ 298,000 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. The principal amounts of our mortgage loans are non-recourse to us and the loans 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. Letters of Credit Approximat ely $ 900,000 of standby letters of credit were issued and outstanding as of December 31, 2022. Other There are various legal actions brought against us from time-to-time in the ordinary course of business. In our opinion, the outcome of such pending matters in the aggregate will not have a material effect on our financial position, results of operations or cash flows. 13. MULTIEMPLOYER BENEFIT PLANS Our subsidiaries make contributions to certain multiemployer defined benefit plans (“Multiemployer Pension Plans”) and health plans (“Multiemployer Health Plans”) for our union represented employees, pursuant to the respective collective bargaining agreements. Multiemployer Pension Plans Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other participating employers and (ii) if other participating employers fail to make their contributions, each of our subsidiaries may be required to bear their pro rata share of unfunded obligations. If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability. As of December 31, 2022, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements. In the years ended December 31, 2022, 2021 and 2020 our subsidiaries contributed $ 178,000 , $ 217,000 and $ 191,000 , respectively, towards Multiemployer Pension Plans. Our subsidiaries’ contributions did not represent more than 5% of total employer contributions in any of these plans for the years ended December 31, 2022, 2021 and 2020 . Multiemployer Health Plans Multiemployer Health Plans in which our subsidiaries participate provide health benefits to eligible active and retired employees. In the years ended December 31, 2022, 2021 and 2020 our subsidiaries contributed $ 839,000 , $ 748,000 and $ 672,000 , respectively, towards these plans. 55 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted income per share, including a reconciliation of net income and the number of shares used in computing basic and diluted income per share. Basic income per share is determined using the weighted average shares of common stock (including DSUs) outstanding during the period. Diluted income per share is determined using the weighted average shares of common stock (including DSUs) 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 years ended December 31, 2022, 2021 and 2020. Year Ended December 31, (Amounts in thousands, except share and per share amounts) 2022 2021 2020 Income from continuing operations $ 57,632 $ 130,582 $ 41,939 Income from discontinued operations (see Note 7) — 2,348 — Net income $ 57,632 $ 132,930 $ 41,939 Weighted average shares outstanding – basic and diluted 5,126,100 5,123,613 5,120,922 Income from continuing operations $ 11.24 $ 25.48 $ 8.19 Income from discontinued operations (see Note 7) — 0.46 — Net income per common share – basic and diluted $ 11.24 $ 25.94 $ 8.19 56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.