What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2023-10-30 · 59 added, 92 removed, 69 unchanged (69% of the section changed)

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They represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties.

Our future results, financial condition, results of operations and business may differ materially from those expressed in these forward-looking statements.

Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements.

You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10-Q.

Many of the factors that will determine these items are beyond our ability to control or predict.

For a further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A - Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Currently, some of these factors are the impacts of the increase in interest rates and inflation on our business, financial condition, results of operations, cash flows, operating performance and the effect that these factors have had and may continue to have on our tenants, the global, national, regional and local economies and financial markets and the real estate market in general.

Many of the factors that will determine the outcome of these and our other forward-looking statements are beyond our ability to control or predict.

For a further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A.

Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference.

You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

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 nine months ended September 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 months ended March 31, 2024 and 2023.

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 nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full year.

The results of operations for the three months ended March 31, 2024 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 nine months ended September 30, 2023, there were no material changes to these policies.

For the three months ended March 31, 2024, there were no material changes to these estimates or policies.

Alexander’s, Inc.

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We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE:

We have five properties in New York City.

We compete with a large number of property owners and developers.

We hav e five properties in New York City.

We compete with a large number of real estate investors, property owners and developers, some of whom may be willing to accept lower returns on their investments.

Our success depends upon, among other factors, trends of the global, national and local economies, the financial condition and operating results of current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels.

Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.

Our business has been, and may continue to be, affected by the increase in inflation and interest rates, and other uncertainties including the potential for an economic downturn.

Additionally, our business has been, and may continue to be, affected by the increase in inflation and interest rates and other uncertainties including the potential for an economic downturn.

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

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

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 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 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.

See “Item 1A.

Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information regarding these and other factors that may materially affect our results.

Quarter Ended March 31, 2024 Financial Results Summary

Net income for the quarter ended March 31, 2024 was $16,109,000, or $3.14 per diluted share, compared to $11,226,000 or $2.19 per diluted share in the prior year’s quarter.

Funds from operations (“FFO”) (non-GAAP) for the quarter ended March 31, 2024 was $25,532,000, or $4.98 per diluted share, compared to $18,633,000 or $3.63 per diluted share in the prior year’s quarter.

Square Footage, Occupancy and Leasing Activity

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

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

As of March 31, 2024, the commercial occupancy rate was 92.5% and the residential occupancy rate was 96.8%.

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 accelerated its lease termination date to April 1, 2024.

During the fourth quarter of 2023 and the first quarter of 2024, IKEA paid its remaining rent obligation through March 16, 2026 and the $10,000,000 termination payment.

Significant Tenant

Bloomberg L.P.

(“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.

(“Bloomberg”) accounted for revenue of $29,963,000 and $29,516,000 for the three months ended March 31, 2024 and 2023, respectively, representing approximately 49% and 56% 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.

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.

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

In May 2024, Alexander’s and Bloomberg reached an agreement to extend the leases covering approximately 947,000 square feet at our 731 Lexington Avenue property that were scheduled to expire in February 2029 for a term of eleven years to February 2040.

Results of Operations – Three Months Ended March 31, 2024, compared to March 31, 2023

Rental Revenues

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.

Rental revenues were $61,397,000 for the three months ended March 31, 2024, compared to $52,941,000 for the prior year’s three months, an increase of $8,456,000.

This wa s primarily due to higher rental revenue from IKEA’s lease modification.

Operating Expenses

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.

Operating expenses were $25,263,000 for the three months ended March 31, 2024, compared to $24,944,000 for the prior year’s three months, an increase of $319,000 .

This was primarily due to higher non-reimbursable operating expenses.

Depreciation and Amortization

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.

Depreciation and amortization was $9,477,000 for the three months ended March 31, 2024, compared to $7,478,000 for the prior year’s three months, an increase of $1,999,000.

This was due to $1,031,000 of accelerated depreciation and amortization that was related to IKEA’s lease modification at Rego Park I and $968,000 of higher depreciation expense on capital projects placed into service.

General and Administrative Expenses

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.

General and administrative expenses were $1,476,000 for the three months ended March 31, 2024, compared to $1,359,000 for the prior year’s three months, an increase of $117,000 .

This was primarily due to higher professional fees.

Interest and Other Income

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 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 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 $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 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 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 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 other income was $7,162 ,000 for the three months ended March 31, 2024, compared to $4,319,000 for the prior year’s three months, an increase of $2,843,000.

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

Interest and Debt Expense

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 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.

Interest and debt exp ense was $16,234,000 for the three months ended March 31, 2024, compared to $12,253,000 for the prior year’s three months, an increase of $3,981,000.

This was primarily due to $3,096,000 of higher interest rate cap premium amortization and $871,000 of higher interest expense resulting from increases in rates.

Liquidity and Capital Resources

Rental revenue is our primary source of cash flow and is dependent on a number of factors, including the occupancy level and rental rates of our properties, as well as our tenants’ ability to pay their rents.

Our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses, interest expense, recurring capital expenditures and cash dividends to stockholders.

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 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.

Our cash requirements include property operating expenses, capital improvements, tenant improvements, debt service, leasing commissions, dividends to stockholders as well as development costs.

The sources of liquidity to fund these cash requirements include rental revenue, which is our primary source of cash flow and is dependent upon the occupancy and rental rates of our properties, as well as our existing cash, proceeds from financings, including mortgage or construction loans secured by our properties and proceeds from asset sales.

As of March 31, 2024, we had $547,399,000 of liquidity comprised of cash and cash equivalents and restricted cash.

Recent increases 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.

We may refinance our maturing debt as it comes due or choose to pay it down.

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 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.

For the Three Months Ended March 31, 2024

Cash and cash equivalents and restricted cash were $547,399,000 as of March 31, 2024, compared to $552,977,000 as of December 31, 2023, a decr ease of $5,578,000.

This decrease resulted from (i) $23,088,000 of net cash used in financing activities, partially offset by (ii) $16,825,000 of net cash provided by operating activities and (iii) $685,000 of net cash provided by investing activities.

Net cash used in financing activities of $23,088,000 was comprised of dividends paid.

Net cash provided by operating activit ies of $16,825,000 was comprised of (i) net income of $16,109,000 and (ii) adjustments for non-cash items of $19,853,000, partially offset by (iii) the net change in operating assets and liabilities of $19,137,000 .

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $9,917,000, (ii) straight-lining of rents of $9,355,000 and (iii) interest rate cap premium amortization of $3,401,000, partially offset by (iv) other non-cash adjustments of $2,820,000.

Net cash provided by investing activities of $685,000 was comprised of $3,160,000 of proceeds from interest rate cap, partially offset by construction in progress and real estate additions of $2,475,000.

For the Three Months Ended March 31, 2023

Cash and cash equivalents and restricted cash were $376,876,000 as of March 31, 2023, compared to $214,478,000 as of December 31, 2022, an incr ease of $162,398,000.

This increase resulted from (i) $164,772,000 of net cash provided by investing activities and (ii) $20,736,000 of net cash provided by operating activities, partially offset by (iii) $23,110,000 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, (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 provided by investing activities of $164,772,000 was comprised of $166,832,000 of proceeds from maturities of U.S.

Treasury bills, partially offset by construction in progress and real estate additions of $2,060,000.

Net cash provided by operating activities of $20,736,000 was comprised of (i) net income of $11,226,000 and (ii) adjustments for non-cash items of $11,707,000, partially offset by (iii) the net change in operating assets and liabilities of $2,197,000 .

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $7,899,000, (ii) straight-lining of rents of $2,067,000 and (iii) other non-cash adjustments of $1,741,000.

Net cash used in financing activities of $23,110,000 was comprised of dividends paid of $23,072,000 and debt issuance costs of $38,000.

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 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 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.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $23,510,000, (ii) straight-lining of rents of $6,028,000 and (iii) stock-based compensation expense of $450,000, partially offset by (iv) other non-cash adjustments of $1,420,000.

Liquidity and Capital Resources - continued

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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.

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.

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Letters of Credit

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

Approximately $900,000 of standby letters of credit were issued and outstanding as of March 31, 2024.

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

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NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of certain real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries.

FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.

FFO and FFO per diluted share are non-GAAP financial measures used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.

FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure.

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

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.

FFO (non-GAAP) for the quarters ended March 31, 2024 and 2023

FFO (non-GAAP) for the quarter ended March 31, 2024 was $25,532,000, or $4.98 per diluted share, compared to $18,633,000, or $3.63 per diluted share in the prior year’s quarter.

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

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

For the Quarter Ended March 31,

(Amounts in thousands, except share and per share amounts) 2024 2023

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Depreciation and amortization of real property 9,423 7,407

Net gain on sale of real estate — — (53,952) —

FFO (non-GAAP) $ 25,532 $ 18,633

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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