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 ) 36 Consolidated Balance Sheets as of December 31, 2023 and 2022 38 Consolidated Statements of Income for the Years Ended December 31, 2023, 2022 and 2021 39 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022 and 2021 40 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2023, 2022 and 2021 41 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 42 Notes to Consolidated Financial Statements 44 35 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, 2023, and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 2024, 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. 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. 36 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 evaluated 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 Februa ry 12, 2024 We have served as the Company’s auditor since 1969. 37 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts) December 31, ASSETS 2023 2022 Real estate, at cost: Land $ 32,271 $ 33,050 Buildings and leasehold improvements 1,034,068 1,029,504 Development and construction in progress 281 22,044 Total 1,066,620 1,084,598 Accumulated depreciation and amortization ( 415,903 ) ( 396,268 ) Real estate, net 650,717 688,330 Cash and cash equivalents 531,855 194,933 Restricted cash 21,122 19,545 Investments in U.S. Treasury bills — 266,963 Tenant and other receivables 6,076 4,705 Receivable arising from the straight-lining of rents 124,866 127,497 Deferred leasing costs, net, including unamortized leasing fees to Vornado of $ 19,540 and $ 22,174 , respectively 24,888 28,490 Other assets 44,156 67,313 $ 1,403,680 $ 1,397,776 LIABILITIES AND EQUITY Mortgages payable, net of deferred debt issuance costs $ 1,092,551 $ 1,091,051 Amounts due to Vornado 715 801 Accounts payable and accrued expenses 51,750 48,785 Other liabilities 21,007 20,640 Total liabilities 1,166,023 1,161,277 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 34,315 33,865 Retained earnings 182,336 172,243 Accumulated other comprehensive income 16,201 25,586 238,025 236,867 Treasury stock: 66,160 shares, at cost ( 368 ) ( 368 ) Total equity 237,657 236,499 $ 1,403,680 $ 1,397,776 See notes to consolidated financial statements. 38 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except share and per share amounts) Year Ended December 31, 2023 2022 2021 REVENUES Rental revenues $ 224,962 $ 205,814 $ 206,148 EXPENSES Operating, including fees to Vornado of $ 6,480 , $ 6,037 and $ 5,952 , respectively ( 101,210 ) ( 90,446 ) ( 91,089 ) Depreciation and amortization ( 32,898 ) ( 29,797 ) ( 32,938 ) General and administrative, including management fees to Vornado of $ 2,440 , $ 2,440 and $ 2,380 , respectively ( 6,341 ) ( 6,106 ) ( 5,924 ) Total expenses ( 140,449 ) ( 126,349 ) ( 129,951 ) Interest and other income 22,245 6,769 639 Interest and debt expense ( 58,297 ) ( 28,602 ) ( 19,686 ) Change in fair value of marketable securities — — 3,482 Net gains on sale of real estate 53,952 — 69,950 Income from continuing operations 102,413 57,632 130,582 Income from discontinued operations (see Note 8) — — 2,348 Net income $ 102,413 $ 57,632 $ 132,930 Income per common share - basic and diluted: Income from continuing operations $ 19.97 $ 11.24 $ 25.48 Income from discontinued operations (see Note 8) — — 0.46 Net income per common share $ 19.97 $ 11.24 $ 25.94 Weighted average shares outstanding - basic and diluted 5,129,330 5,126,100 5,123,613 See notes to consolidated financial statements. 39 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Year Ended December 31, 2023 2022 2021 Net income $ 102,413 $ 57,632 $ 132,930 Other comprehensive (loss) income: Change in fair value of interest rate derivatives and other ( 9,385 ) 18,092 8,201 Comprehensive income $ 93,028 $ 75,724 $ 141,131 See notes to consolidated financial statements. 40 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, 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 Net income — — — 102,413 — — 102,413 Dividends paid ($ 18.00 per common share) — — — ( 92,320 ) — — ( 92,320 ) Change in fair value of interest rate derivatives and other — — — — ( 9,385 ) — ( 9,385 ) Deferred stock unit grants — — 450 — — — 450 Balance, December 31, 2023 5,173 $ 5,173 $ 34,315 $ 182,336 $ 16,201 $ ( 368 ) $ 237,657 See notes to consolidated financial statements. 41 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 102,413 $ 57,632 $ 132,930 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including amortization of debt issuance costs 34,605 31,454 34,592 Net gains on sale of real estate (2021 includes $ 2,348 from discontinued operations) ( 53,952 ) — ( 72,298 ) Straight-lining of rents 2,631 7,960 9,817 Stock-based compensation expense 450 450 450 Change in fair value of marketable securities — — ( 3,482 ) Interest rate cap premium amortization 7,770 — — Other non-cash adjustments ( 1,559 ) ( 2,928 ) — Change in operating assets and liabilities: Tenant and other receivables ( 572 ) 1,680 1,731 Other assets 14,141 2,782 3,099 Amounts due to Vornado ( 60 ) 40 ( 211 ) Accounts payable and accrued expenses 3,263 3,141 12,501 Other liabilities ( 19 ) 338 ( 664 ) Net cash provided by operating activities 109,111 102,549 118,465 CASH FLOWS FROM INVESTING ACTIVITIES Construction in progress and real estate additions ( 4,681 ) ( 14,386 ) ( 19,520 ) Purchase of U.S. Treasury bills — ( 364,238 ) — Proceeds from maturities of U.S. Treasury bills 264,881 99,358 — Proceeds from sales of real estate 67,821 — 81,871 Purchase of interest rate cap ( 11,258 ) — — Proceeds from interest rate cap 5,049 — — Return of short-term investment — — 3,600 Proceeds from sale of marketable securities — — 9,506 Net cash provided by (used in) investing activities 321,812 ( 279,266 ) 75,457 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ( 92,320 ) ( 92,264 ) ( 92,220 ) Debt issuance costs ( 104 ) ( 46 ) ( 74 ) Debt repayments — — ( 68,000 ) Net cash used in financing activities ( 92,424 ) ( 92,310 ) ( 160,294 ) Net increase (decrease) in cash and cash equivalents and restricted cash 338,499 ( 269,027 ) 33,628 Cash and cash equivalents and restricted cash at beginning of year 214,478 483,505 449,877 Cash and cash equivalents and restricted cash at end of year $ 552,977 $ 214,478 $ 483,505 RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH Cash and cash equivalents at beginning of year $ 194,933 $ 463,539 $ 428,710 Restricted cash at beginning of year 19,545 19,966 21,167 Cash and cash equivalents and restricted cash at beginning of year $ 214,478 $ 483,505 $ 449,877 Cash and cash equivalents at end of year $ 531,855 $ 194,933 $ 463,539 Restricted cash at end of year 21,122 19,545 19,966 Cash and cash equivalents and restricted cash at end of year $ 552,977 $ 214,478 $ 483,505 See notes to consolidated financial statements. 42 ALEXANDER’S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Amounts in thousands) Year Ended December 31, 2023 2022 2021 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments for interest (net of amounts capitalized) $ 53,975 $ 25,934 $ 18,568 NON-CASH TRANSACTIONS Write-off of fully depreciated assets $ 8,097 $ 23 $ 5,628 Liability for real estate additions, including $ 141 for development fees due to Vornado in 2021 1,969 2,254 1,445 Additional estimated lease liability arising from the recognition of right-of-use asset — 16,099 — See notes to consolidated financial statements. 43 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 five 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 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 50,000 square foot Burlington and a 36,000 square foot Marshalls. 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; • Rego Park II, a 616,000 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; • Flushing, a 167,000 square foot building, located on Roosevelt Avenue and Main Street in Queens, that is subleased to New World Mall LLC. The property is ground leased through January 2027 with one 10-year extension option; and • The Alexander apartment tower, located above our Rego Park II shopping center, contains 312 units aggregating 255,000 square feet. 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. 44 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 Accounting Standards Update (“ASU”) 2020-04 establishing Accounting Standards Codification (“ASC”) Topic 848, Reference Rate Reform, and in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) : Scope (collectively, “ASC 848”). ASC 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASC 848 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 ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”), which was issued to defer the sunset date of ASC 848 to December 31, 2024. ASU 2022-06 is effective immediately for all companies. As of December 31, 2023, we have transitioned all of our LIBOR-indexed debt and derivatives and, for our derivatives in hedge accounting relationships, utilized the elective relief in ASC 848, allowing for the continuation of hedge accounting through the transition process. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. The update also requires disclosure regarding the chief operating decision maker and expands the interim segment disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of ASU 2023-07 on our consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires entities to disclose additional information with respect to the effective tax rate reconciliation and to disclose the disaggregation by jurisdiction of income tax expense and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of ASU 2023-09 on our consolidated financial statements. Real Estate – Real estate is carried at cost, net of accumulated depreciation and amortization. As of December 31, 2023 and 2022, the carrying amount of our real estate, net of accumulated depreciation and amortization, was $ 650,717,000 a nd $ 688,330,000 , 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 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. 45 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Revenue Recognition – Rental revenues include revenues from the leasing of space at our properties to tenants, tenant services and parking garage revenues.We have the following revenue recognition policies: • Revenues from the leasing of space at our properties to tenants include (i) lease components, including fixed and variable lease payments, and nonlease components which include reimbursement of common area maintenance expenses, and (ii) reimbursement of real estate taxes and insurance expenses. As lessor, we have elected to combine the lease and nonlease components of our operating lease agreements and account for the components as a single lease component in accordance with ASC Topic 842, Leases (“ASC 842”). ◦ Revenues from fixed lease payments for operating leases are recognized on a straight-line basis over the non-cancelable term of the lease, together with renewal options that are reasonably certain of being exercised. We commence revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. ◦ 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. • Revenues derived from sub-metered electric, elevator, trash removal and other services provided to our tenants at their request are recognized as the services are transferred in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). • Revenues derived from the operations of our parking facilities, which charge hourly or monthly fees to provide parking services to customers, are recognized as the services are transferred in accordance with ASC 606. We evaluate on an individual lease basis whether it is probable that we will collect substantially all amounts due from our tenants and recognize changes in the collectability assessment of our operating leases as adjustments to rental revenue. Management exercises judgment in assessing collectability of tenant receivables and considers payment history, current credit status and publicly available information about the financial condition of the tenant, and other factors. Tenant receivables, including receivables arising from the straight-lining of rents, are written off when management deems that the collectability of substantially all future lease payments from a specific lease is not probable of collection, at which point, the Company will limit future rental revenues to cash received. 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. 46 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued 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, 2023 were characterized, for federal income tax purposes, as 41.5 % ordinary income and 58.5 % of long-term capital gain income. Dividends distributed for the year ended December 31, 2022 were characterized, for federal income tax purposes, as 100 % ordinary 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. The estimated taxable income attributable to our common stockholders (unaudited) for the years ended December 31, 2023, 2022 and 2021 was approximately $ 98,555,000 , $ 64,960,000 , and $ 101,184,000 , 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 Dec ember 31, 2023, the net basis of our assets and liabilities for tax reporting purposes was approximately $ 145,246,000 low er 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, 2023, 2022 and 2021. Year Ended December 31, (Amounts in thousands) 2023 2022 2021 Lease revenues $ 216,468 $ 197,230 $ 198,109 Parking revenue 4,456 4,897 4,407 Tenant services 4,038 3,687 3,632 Rental revenues $ 224,962 $ 205,814 $ 206,148 The components of lease revenues for the years ended December 31, 2023, 2022 and 2021 are as follows: Year Ended December 31, (Amounts in thousands) 2023 2022 2021 Fixed lease revenues $ 147,569 $ 135,668 $ 129,509 Variable lease revenues 68,899 61,562 68,600 Lease revenues $ 216,468 $ 197,230 $ 198,109 4. REAL ESTATE SALES On May 19, 2023, we sold the Rego Park III land parcel in Queens, New York, for $ 71,060,000 inclusive of consideration for Brownfield tax benefits and reimbursement of costs for plans, specifications and improvements to date. Net proceeds from the sale were $ 67,821,000 after closing costs and the financial statement gain was $ 53,952,000 . On June 4, 2021, we sold a parcel of land in the Bronx, New York 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 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 . 47 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. RELATED PARTY TRANSACTIONS Vornado As of December 31, 2023, Vornado owne d 32.4 % of our outstanding common stock. We are managed by, and our properties are leased and developed by, Vornado, pursuant to the agreements described below, which expire in March of each year and are automatically renewable. 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, 2023, 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 % they indirectly own through Vornado. 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) $ 365,000 , escalating at 3 % per annum, for managing the common area of 731 Lexington Avenue. Vornado is also entitled to a development fee equal to 6 % of development costs, as defined. Leasing and Other Agreements Vornado also provides us with leasing services for a fee of 3 % of rent for the first ten years of a lease term, 2 % of rent for the eleventh through the twentieth year of a lease term, and 1 % of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by tenants. In the event third-party real estate brokers are used, the fees to Vornado increase by 1 % and Vornado is responsible for the fees to the third-party real estate brokers. Vornado is also entitled to a commission upon the sale of any of our assets equal to 3 % of gross proceeds, as defined, for asset sales less than $ 50,000,000 and 1 % of gross proceeds, as defined, for asset sales of $ 50,000,000 or more. We also have agreements with Building Maintenance Services, 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. In addition, we have an agreement with a wholly owned subsidiary of Vornado to manage the parking garages at our Rego Park I and Rego Park II properties. The following is a summary of fees earned by Vornado under the various agreements discussed above. Year Ended December 31, (Amounts in thousands) 2023 2022 2021 Company management fees $ 2,800 $ 2,800 $ 2,800 Development fees — 3 141 Leasing fees 1,213 1,378 1,800 Commissions on sales of real estate 711 — 1,050 Property management, cleaning, engineering, parking and security fees 6,005 5,912 5,540 $ 10,729 $ 10,093 $ 11,331 As of December 31, 2023 , the amounts due to Vornado were $ 646,000 for management, property management, cleaning, engineering and security fees and $ 69,000 for leasing fees. 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. 6. MORTGAGES PAYABLE 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 currently bears interest at the Prime Rate ( 8.50 % as of December 31, 2023) 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 at 6.00 % through loan maturity. 48 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. MORTGAGES PAYABLE - continued 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, 2023 Balance at December 31, (Amounts in thousands) Maturity 2023 2022 First mortgages secured by: 731 Lexington Avenue, office condominium (1) Jun. 11, 2024 6.00 % $ 500,000 $ 500,000 731 Lexington Avenue, retail condominium (2)(3) Aug. 05, 2025 1.76 % 300,000 300,000 Rego Park II shopping center (2)(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 $ 17,639 and $ 16,071 , respectively ( 3,993 ) ( 5,493 ) $ 1,092,551 $ 1,091,051 (1) Interest at the Prime Rate (capped at 6.00 % through loan maturity). (2) Interest rate listed represents the rate in effect as of December 31, 2023 based on SOFR as of contractual reset date plus contractual spread, adjusted for hedging instruments as applicable. (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). The net carrying value of real estate collateralizing the debt amou nted to $ 594,681,000 as of December 31, 2023. 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, 2023, 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 2024 $ 500,000 2025 502,544 2026 — 2027 94,000 2028 — Thereafter — 7. 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 were presented as “change in fair value of marketable securities” on our consolidated statement of income. 8. 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. 49 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. Financial Assets and Liabilities Measured at Fair Value Financial assets measured at fair value on our consolidated balance sheet as of December 31, 2023 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, 2023. As of December 31, 2023 (Amounts in thousands) Total Level 1 Level 2 Level 3 Interest rate derivatives (included in other assets) $ 22,608 $ — $ 22,608 $ — Financial assets measured at fair value on our consolidated balance sheet 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 Investments in U.S. Treasury bills $ 266,963 $ 266,963 $ — $ — Interest rate derivatives (included in other assets) 29,351 — 29,351 — $ 296,314 $ 266,963 $ 29,351 $ — 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, 2023 and 2022, respectively. Fair Value Asset as of December 31, As of December 31, 2023 (Amounts in thousands) 2023 2022 Notional Amount Swapped Rate Expiration Date Interest rate swap related to: 731 Lexington Avenue mortgage loan, retail condominium $ 16,315 $ 26,718 $ 300,000 1.76 % 5/25 Interest rate caps related to: Rego Park II shopping center mortgage loan 1,370 2,622 202,544 (1) 11/24 731 Lexington Avenue mortgage loan, office condominium 4,923 11 500,000 (2) 06/24 Included in other assets $ 22,608 $ 29,351 (1) SOFR cap strike rate of 4.15 %. (2) In June 2023, we purchased an interest rate cap for $ 11,258 , which capped LIBOR at 6.00 % through July 15, 2023 and caps the Prime Rate ( 8.50 % as of December 31, 2023) at 6.00 % through loan maturity. See Note 6 - Mortgages Payable for further information. 50 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, 2023 and 2022. As of December 31, 2023 As of December 31, 2022 Carrying Fair Carrying Fair (Amounts in thousands) Amount Value Amount Value Assets: Cash equivalents $ 363,535 $ 363,535 $ 47,852 $ 47,852 Liabilities: Mortgages payable (excluding deferred debt issuance costs, net) $ 1,096,544 $ 1,071,887 $ 1,096,544 $ 1,061,221 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 which generally have a 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, 2023 For the year ending December 31, 2024 $ 157,833 2025 129,407 2026 125,014 2027 122,495 2028 130,203 Thereafter 190,503 These amounts do not include reimbursements or additional rents based on a percentage of retail tenants’ sales. Bloomberg accounted for reve nue of $ 120,351,000 , $ 115,129,000 , and $ 113,140,000 in the years ended December 31, 2023, 2022 and 2021, respectively, representing approximately 54 %, 56 % 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. 51 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 subtenant at the property, exercised its one remaining 10 -year extension option through January 2037. As a result of the subtenant 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, 2023, the remaining right-of-use asset of $ 17,522,000 and lease liability of $ 20,452,000 , 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, 2023 For the year ending December 31, 2024 $ 800 2025 800 2026 800 2027 2,707 2028 2,880 Thereafter 23,280 Total undiscounted cash flows 31,267 Present value discount ( 10,815 ) Lease liability as of December 31, 2023 $ 20,452 We recognize rent exp ense as a component of “operating” expenses on our consolidated statements of income on a straight-line basis. Rent expense was $ 2,161,000 , $ 2,161,000 and $ 746,000 in each of the years ended December 31, 2023, 2022 and 2021, respectively. Cash paid for rent expense was $ 800,000 in each of the years ended December 31, 2023, 2022 and 2021, 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 2023, we granted each of the members of our Board of Directors 449 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, 2023, there were 23,388 DSUs outstanding and 482,399 shares were available for future grant under the Plan. 52 ALEXANDER’S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. COMMITMENTS AND CONTINGENCIES Insurance W e 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 $ 316,000 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. Our 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 Approximately $ 900,000 of standby letters of credit were issued and outstanding as of December 31, 2023. 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, 2023, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements. In the years ended December 31, 2023, 2022 and 2021 our subsidiaries contributed $ 215,000 , $ 178,000 and $ 217,000 , 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, 2023, 2022 and 2021. 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, 2023, 2022 and 2021 our subsidiaries contributed $ 1,005,000 , $ 839,000 and $ 748,000 , respectively, towards these plans. 53 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, 2023, 2022 and 2021. Year Ended December 31, (Amounts in thousands, except share and per share amounts) 2023 2022 2021 Income from continuing operations $ 102,413 $ 57,632 $ 130,582 Income from discontinued operations (see Note 8) — — 2,348 Net income $ 102,413 $ 57,632 $ 132,930 Weighted average shares outstanding – basic and diluted 5,129,330 5,126,100 5,123,613 Income from continuing operations $ 19.97 $ 11.24 $ 25.48 Income from discontinued operations (see Note 8) — — 0.46 Net income per common share – basic and diluted $ 19.97 $ 11.24 $ 25.94 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.