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Item 2. Management’s Discussion and Analysis

2023-10-30 compared with 2023-07-31 · 56 added, 54 removed, 105 unchanged (51% of the section changed)

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three and six months ended June 30, 2023 and 2022.

Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three and nine months ended September 30, 2023 and 2022.

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

Actual results could differ from those estimates.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full year.

The results of operations for the three and nine months ended September 30, 2023 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 six months ended June 30, 2023, there were no material changes to these policies.

For the nine months ended September 30, 2023, there were no material changes to these policies.

Alexander’s, Inc.

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These factors could have a material impact on our business, financial condition, results of operations and cash flows.

Quarter Ended June 30, 2023 Financial Results Summary

Net income for the quarter ended June 30, 2023 was $64,147,000 , or $12.51 pe r diluted share, compared to $14,814,000, or $2.89 per diluted share for the prior year’s quarter.

Net income for the quarter ended June 30, 2023 included $53,952,000, or $10.52 per diluted share, of income as a result of a net gain from the sale of the Rego Park III land parcel.

Funds from operations (“FFO”) (non-GAAP) for the quarter ended June 30, 2023 wa s $18,208,000, or $3.55 per diluted share, compared to $22,122,000 or $4.32 per diluted share for the prior year’s quarter.

Six Months Ended June 30, 2023 Financial Results Summary

Net income for the six months ended June 30, 2023 was $75,373,000, or $14.70 p er diluted share, compared to $29,346,000, or $5.73 per diluted share for the prior year’s six months.

Net income for the six months ended June 30, 2023 included $53,952,000, or $10.52 per diluted share, of income as a result of a net gain from the sale of the Rego Park III land parcel.

FFO (non-GAAP) for the six months ended June 30, 2023 was $3 6,841,000, or $7.18 per diluted share, compared to $43,907,000 or $8.57 per diluted share for the prior year’s six months.

Quarter Ended September 30, 2023 Financial Results Summary

Net income for the quarter ended September 30, 2023 was $10,754,000, or $2.10 per diluted share, compared to $15,109,000, or $2.95 per diluted share for the prior year’s quarter.

Funds from operations (“FFO”) (non-GAAP) for the quarter ended September 30, 2023 was $18,623,000, or $3.63 per diluted share, compared to $22,544,000 or $4.40 per diluted share for the prior year’s quarter.

Nine Months Ended September 30, 2023 Financial Results Summary

Net income for the nine months ended September 30, 2023 was $86,127,000, or $16.79 per diluted share, compared to $44,455,000, or $8.67 per diluted share for the prior year’s nine months.

Net income for the nine months ended September 30, 2023 included $53,952,000, or $10.52 per diluted share, of income as a result of a net gain from the sale of the Rego Park III land parcel.

FFO (non-GAAP) for the nine months ended September 30, 2023 was $55,464,000, or $10.81 per diluted share, compared to $66,451,000 or $12.96 per diluted share for the prior year’s nine months.

Real Estate Sale

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On June 9, 2023, we exercised our remaining one-year extension option on the $500,000,000 interest-only mortgage loan on the office condominium of our 731 Lexington Avenue property.

The interest rate on the loan remained at LIBOR plus 0.90% through July 15, 2023 and then is at the Prime Rate through loan maturity on June 11, 2024.

In addition, in June 2023, we purchased an interest rate cap for $11,258,000, which capped LIBOR at 6.00% through July 15, 2023 and then the Prime Rate (8.25% as of June 30, 2023) at 6.00% through loan maturity.

The interest rate on the loan remained at LIBOR plus 0.90% through July 15, 2023 and thereafter at the Prime Rate through loan maturity on June 11, 2024.

In June 2023, we purchased an interest rate cap for $11,258,000, which capped LIBOR at 6.00% through July 15, 2023 and caps the Prime Rate (8.50% as of September 30, 2023) at 6.00% through loan maturity.

Square Footage, Occupancy and Leasing Activity

As a result of the sale of our Rego Park III land parcel, our portfolio is now comprised of five properties aggregating 2,455,000 square feet.

As of June 30, 2023, the commercial occupancy rate was 87.3 % and residential occupancy rate was 97.1%.

Our portfolio is comprised of five properties aggregating 2,455,000 square feet.

As of September 30, 2023, the commercial occupancy rate was 87.3% and the residential occupancy rate was 93.6%.

Overview - continued

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Bloomberg L.P.

(“Bloomberg”) accounted for revenue of $59,177,000 and $55,909,000 for the six months ended June 30, 2023 and 2022, respectively, representing approximately 56% of our rental revenues in each period.

(“Bloomberg”) accounted for revenue of $89,863,000 and $81,536,000 for the nine months ended September 30, 2023 and 2022, respectively, representing approximately 55% and 53% of our rental revenues in each period, respectively.

No other tenant accounted for more than 10% of our rental 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 June 30, 2023, compared to June 30, 2022

Tenant Activity

On December 3, 2022, IKEA closed its 112,000 square foot store at our Rego Park I property under a lease that was set to expire in December 2030.

The lease included a right to terminate effective no earlier than March 16, 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.

On September 27, 2023, we entered into a lease modification agreement with IKEA which accelerates its lease termination date to April 1, 2024.

Under the lease modification agreement, IKEA will pay its remaining rent due through March 16, 2026 and the $10,000,000 termination payment over the modified lease term.

Results of Operations – Three Months Ended September 30, 2023, compared to September 30, 2022

Rental Revenues

Rental revenues wer e $53,673,000 for t he three months ended June 30, 2023, compared to $49,824,000 for the prior year’s three months, an increase of $3,849,000.

This was primarily due to (i) $1,756,000 of higher real estate tax reimbursements due to higher real estate tax expense, (ii) $1,099,000 of higher revenue due to leasing activity and (iii) $572,000 of higher lease termination fee income.

Rental revenues were $55,413,000 for the three months ended September 30, 2023, compared to $53,729,000 for the prior year’s three months, an increase of $1,684,000.

This was primarily due to (i) $2,215,000 of higher reimbursable operating expenses and capital expenditures, (ii) $966,000 of higher revenue due to leasing activity and (iii) $556,000 of higher real estate tax reimbursements, partially offset by (iv) $2,039,000 of lower lease termination fee income.

Operating Expenses

Operating expenses we re $24,818,000 for the three months ended June 30, 2023, compared to $21,372,000 for the prior year’s three months, an increase of $3,446,000.

This was primarily due to higher real estate tax expense.

Operating expenses were $25,593,000 for the three months ended September 30, 2023, compared to $23,731,000 for the prior year’s three months, an increase of $1,862,000.

This was primarily due to higher reimbursable operating expenses and higher real estate tax expense.

Depreciation and Amortization

Depreciation and amortization was $8,081,000 for the three months ended June 30, 2023, compared to $7,413,000 for the prior year’s three months, an increase of $668,000.

Depreciation and amortization was $7,933,000 for the three months ended September 30, 2023, compared to $7,508,000 for the prior year’s three months, an increase of $425,000.

This was primarily due to higher depreciation expense on capital projects at Rego Park I placed into service during the second quarter of 2023.

General and Administrative Expenses

General and administrative expenses were $1,906,000 for the three months ended June 30, 2023, compared to $1,916,000 for the prior year’s three months, a decrease of $10,000.

General and administrative expenses were $1,580,000 for the three months ended September 30, 2023, compared to $1,370,000 for the prior year’s three months, an increase of $210,000.

This was primarily due to higher professional fees.

Interest and Other Income

Interest and other income was $4,523,000 for the three months ended June 30, 2023, compared to $1,173,000 for the prior year’s thr ee months, an increase of $3,350,000.

Interest and other income was $6,622,000 for the three months ended September 30, 2023, compared to $2,017,000 for the prior year’s three months, an increase of $4,605,000.

This was primarily due to an increase in average interest rates.

Interest and Debt Expense

Interest and debt expense wa s $13,196,000 for the three months ended June 30, 2023, compared to $5,482,000 for the prior year’s three months, an increase of $7,714,000.

This was primarily due to increases in LIBOR and SOFR rates.

Net Gain on Sale of Real Estate

Net gain on sale of real estate wa s $53,952,000 fo r the three months ended June 30, 2023, resulting from the sale of the Rego Park III land parcel in Queens, New York.

Results of Operations – Six Months Ended June 30, 2023, compared to June 30, 2022

Interest and debt expense was $16,175,000 for the three months ended September 30, 2023, compared to $8,028,000 for the prior year’s three months, an increase of $8,147,000.

This was primarily due to $4,826,000 of higher interest expense resulting from increases in rates and $3,227,000 of higher interest rate cap premium amortization.

Results of Operations – Nine Months Ended September 30, 2023, compared to September 30, 2022

Rental Revenues

Rental revenues wer e $106,614,000 for the six months ended June 30, 2023, compared to $99,039,000 for the prior year’s six months, an increase of $7,575,000.

This was primarily due to (i) $3,291,000 of higher real estate tax reimbursements due to higher real estate tax expense, (ii) $2,843,000 of higher revenue due to leasing activity, (iii) $572,000 of higher lease termination fee income and (iv) $242,000 of higher revenue due to an increase in average monthly rents at The Alexander apartment tower.

Rental revenues were $162,027,000 for the nine months ended September 30, 2023, compared to $152,768,000 for the prior year’s nine months, an increase of $9,259,000.

This was primarily due to (i) $3,847,000 of higher real estate tax reimbursements due to higher real estate tax expense, (ii) $3,809,000 of higher revenue due to leasing activity and (iii) $2,657,000 of higher reimbursable operating expenses and capital expenditures, partially offset by (iv) $1,467,000 of lower lease termination fee income.

Operating Expenses

Operating expenses were $49,762,000 for the six months ended June 30, 2023, compared to $42,914,000 for the prior year’s six months, an increase of $6,848,000.

Operating expenses were $75,355,000 for the nine months ended September 30, 2023, compared to $66,645,000 for the prior year’s nine months, an increase of $8,710,000.

This was primarily due to higher real estate tax expense.

Depreciation and Amortization

Depreciation and amortization w as $15,559,000 for the six months ended June 30, 2023, compared to $14,764,000 for the prior year’s six months, an increase of $795,000.

Depreciation and amortization was $23,492,000 for the nine months ended September 30, 2023, compared to $22,272,000 for the prior year’s nine months, an increase of $1,220,000.

This was primarily due to higher depreciation expense on capital projects at Rego Park I placed into service during the second quarter of 2023.

General and Administrative Expenses

General and administrati ve expenses were $3,265,000 for the six months ended June 30, 2023, compared to $3,385,000 for the prior year’s six months, a decrease of $120,000.

This was primarily due to lower professional fees.

General and administrative expenses were $4,845,000 for the nine months ended September 30, 2023, compared to $4,755,000 for the prior year’s nine months, an increase of $90,000.

Interest and Other Income

Interest and other income wa s $8,842,000 for the six months ended June 30, 2023, compared to $1,267,000 for the prior year’s six months, an increase of $7,575,000.

Interest and other income was $15,464,000 for the nine months ended September 30, 2023, compared to $3,284,000 for the prior year’s nine months, an increase of $12,180,000.

This was primarily due to an increase in average interest rates.

Interest and Debt Expense

Interest and debt expense was $25,449,000 for the six months ended June 30, 2023, compared to $9,897,000 for the prior year’s six month s, an increase of $15,552,000.

This was primarily due to increases in LIBOR and SOFR rates.

Interest and debt expense was $41,624,000 for the nine months ended September 30, 2023, compared to $17,925,000 for the prior year’s nine months, an increase of $23,699,000.

This was primarily due to $19,453,000 of higher interest expense resulting from increases in rates and $4,049,000 of higher interest rate cap premium amortization.

Net Gain on Sale of Real Estate

Net gain on sale of real estate w as $53,952,000 for the s ix months ended June 30, 2023, resulting from the sale of the Rego Park III land parcel in Queens, New York.

Net gain on sale of real estate was $53,952,000 for the nine months ended September 30, 2023, resulting from the sale of the Rego Park III land parcel in Queens, New York.

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 June 30, 2023, we had $552,755,000 of l iquidity comprised of cash and cash equivalents and restricted cash.

As of September 30, 2023, we had $529,081,000 of liquidity comprised of cash and cash equivalents and restricted cash.

The ongoing challenges posed by the increase in interest rates and inflation could adversely affect our cash flow from continuing operations but we anticipate that cash flow 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 service and capital expenditures.

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However, there can be no assurance that additional financing or capital will be available to refinance our debt, or that the terms will be acceptable or advantageous to us.

For the Six Months Ended June 30, 2023

Cash and cash equi valents and restricted cash were $552,755,000 as of June 30, 2023, compared to $214,478,000 as of December 31, 2022, an increase of $338,277,000.

For the Nine Months Ended September 30, 2023

Cash and cash equivalents and restricted cash were $529,081,000 as of September 30, 2023, compared to $214,478,000 as of December 31, 2022, an increase of $314,603,000.

This increase resulted from (i) $319,537,000 of net cash provided by investing activities and (ii) $64,367,000 of net cash provided by operating activities, partially offset by (iii) $69,301,000 of net cash used in financing activities.

Net cash provided by investing activities of $319,537,000 was comprised of (i) $264,881,000 of proceeds from maturities of U.S.

Treasury bills and (ii) $67,821,000 of proceeds from sale of real estate, partially offset by (iii) the purchase of an interest rate cap of $11,258,000 and (iv) construction in progress and real estate additions of $2,894,000.

Net cash provided by operating activities of $65,909,000 was comprised of (i) net income of $75,373,000, (ii) the net change in operating assets and liabilities of $19,039,000, partially offset by (iii) adjustments for non-cash items of $28,503,000.

The adjustments for non-cash items were comprised of (i) net gain on sale of real estate of $53,952,000, partially offset by (ii) depreciation and amortization (including amortization of debt issuance costs) of $16,399,000, (iii) other non-cash adjustments of $4,431,000, (iv) straight-lining of rents of $4,169,000, and (v) stock-based compensation expense of $450,000.

Treasury bills, (ii) $67,821,000 of proceeds from sale of real estate and (iii) $1,889,000 of proceeds from interest rate cap, partially offset by (iv) the purchase of interest rate cap of $11,258,000 and (v) construction in progress and real estate additions of $3,796,000.

Net cash provided by operating activities of $64,367,000 was comprised of (i) net income of $86,127,000, partially offset by (ii) the net change in operating assets and liabilities of $4,322,000 and (iii) adjustments for non-cash items of $17,438,000.

The adjustments for non-cash items were comprised of (i) net gain on sale of real estate of $53,952,000, partially offset by (ii) depreciation and amortization (including amortization of debt issuance costs) of $24,771,000, (iii) straight-lining of rents of $5,949,000, (iv) interest rate cap premium amortization of $4,049,000, (v) other non-cash adjustments of $1,295,000 and (vi) stock-based compensation expense of $450,000.

Net cash used in financing activities of $69,301,000 was comprised of dividends paid of $69,232,000 and debt issuance costs of $69,000.

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.

For the Nine Months Ended September 30, 2022

Cash and cash equivalents and restricted cash were $284,391,000 as of September 30, 2022, compared to $483,505,000 as of December 31, 2021, a decrease of $199,114,000.

This decrease resulted from (i) $206,117,000 of net cash used in investing activities, (ii) $69,200,000 of net cash used in financing activities, partially offset by (iii) $76,203,000 of net cash provided by operating activities.

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

Net cash used in investing activities of $206,117,000 was comprised of the purchase of U.S.

Treasury bills of $197,407,000 and construction in progress and real estate additions of $8,710,000.

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

Net cash used in financing activities of $69,200,000 was primarily comprised of dividends paid of $69,192,000.

Net cash provided by operating activities of $76,203,000 was comprised of (i) net income of $44,455,000, (ii) adjustments for non-cash items of $28,568,000 and (iii) the net change in operating assets and liabilities of $3,180,000.

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Letters of Credit

Approximately $900,000 of standby letters of credit were issued and outstanding as of June 30, 2023.

Approximately $900,000 of standby letters of credit were issued and outstanding as of September 30, 2023.

There are various legal actions brought against us from time-to-time in the ordinary course of business.

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

FFO (non-GAAP) for the three and six months ended June 30, 2023 and 2022

FFO (non-GAAP) for the three months ended June 30, 2023 was $18,208,000, or $3.55 per diluted share, compared to $22,122,000, or $4.32 per diluted share for the prior year’s three months.

FFO (non-GAAP) for the six months ended June 30, 2023 was $36,841,000, or $7.18 per diluted share, compared to $43,907,000 or $8.57 per diluted share for the prior year’s six months.

FFO (non-GAAP) for the three and nine months ended September 30, 2023 and 2022

FFO (non-GAAP) for the three months ended September 30, 2023 was $18,623,000, or $3.63 per diluted share, compared to $22,544,000, or $4.40 per diluted share for the prior year’s three months.

FFO (non-GAAP) for the nine months ended September 30, 2023 was $55,464,000, or $10.81 per diluted share, compared to $66,451,000 or $12.96 per diluted share for the prior year’s nine months.

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

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(Amounts in thousands, except share and per share amounts) 2023 2022 2023 2022

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis