What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-10 compared with 2024-02-12 · 32 added, 45 removed, 131 unchanged (37% of the section changed)

14 unchanged sentences

Risk Factors” in this Annual Report on Form 10-K for additional information regarding these factors.

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.

Our business has been, and may continue to be, affected by interest rate fluctuations, the effects of inflation 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.

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The commercial occupancy rate was 99.1% and the residential occupancy rate was 94.2%.

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.

On April 23, 2023, Bed Bath & Beyond ($1,533,000 of annual revenue) filed for Chapter 11 bankruptcy and its 46,000 square foot lease at our Rego Park I property was rejected in the bankruptcy proceedings on July 31, 2023.

In May 2024, Alexander’s and Bloomberg entered into 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.

Significant Tenant

Bloomberg accounted for revenu e 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.

Bloomberg accounted for reve nue of $125,349,000, $120,351,000, and $115,129,000 in the years ended December 31, 2024, 2023 and 2022, respectively, representing approximately 55%, 54% and 56% of our rental revenues in each year, 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.

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 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.

On September 30, 2024, we entered into a new $400,000,000 mortgage loan on the office condominium portion of 731 Lexington Avenue.

The interest-only loan has a fixed rate of 5.04% and matures in October 2028.

The loan is prepayable, at the Company’s option, with no penalty, beginning in October 2026.

The new loan replaces the previous $490,000,000 loan that bore interest at the Prime Rate and was scheduled to mature in October 2024.

Critical Accounting Estimate

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Assessing impairment can be complex and involves a high degree of subjectivity in determining if impairment indicators are present and in estimating the future undiscounted cash flows or the fair value of an asset.

In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions.

In particular, these estimates are sensitive to significant assumptions, including the estimation of future rental revenues, operating expenses, capital expenditures, discount and capitalization rates and our intent and ability to hold the related asset, all of which could be affected by our expectations about future market or economic conditions.

These estimates can have a significant impact on the undiscounted cash flows or estimated fair value of an asset and could thereby affect the value of our real estate on our consolidated balance sheets as well as any potential impairment losses recognized on our consolidated statements of income.

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Rental revenues were $226,374,000 in the year ended December 31, 2024, compared to $224,962,000 in the prior year, an increase of $1,412,000.

This was primarily due to (i) $8,065,000 of higher straight-line rental revenue from IKEA’s lease modification, (ii) $4,184,000 of higher reimbursable operating expenses and capital expenditures, (iii) $3,750,000 of higher real estate tax reimbursements due to higher real estate tax expense, and (iv) $3,359,000 of higher revenue due to leasing activity, partially offset by (v) $1,467,000 of lower lease termination fee income.

This was primarily due to (i) $4,583,000 of higher rental revenue from Bloomberg’s lease extension, and (ii) $2,322,000 of higher real estate tax reimbursements due to higher real estate tax expense, partially offset by (iii) $3,785,000 of lower rental revenue from IKEA’s lease expiration at Rego Park I, (iv) $875,000 of lower rental revenue from Bed Bath & Beyond’s lease rejection at Rego Park I, and (v) $781,000 of lower rental revenue from Old Navy’s lease termination at Rego Park I.

Operating Expenses

Operating expenses were $103,240,000 in the year ended December 31, 2024, compared to $101,210,000 in the prior year, an increase of $2,030,000.

This was primarily due to higher real estate tax expense and operating expenses, including the impact of lower capitalized expenses during the current year.

This was primarily due to higher real estate tax expense and non reimbursable operating expenses, partially offset by higher capitalized expenses during the current year.

Depreciation and Amortization

Depreciation and amortization was $34,782,000 in the year ended December 31, 2024, compared to $32,898,000 in the prior year, an increase of $1,884,000.

This was primarily due to higher depreciation expense on capital projects placed into service during the current year.

This was primarily due to higher depreciation expense on capital projects placed into service.

General and Administrative Expenses

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Interest and debt expense was $62,818,000 in the year ended December 31, 2024, compared to $58,297,000 in the prior year, an increase of $4,521,000.

This was primarily due to $21,614,000 of higher interest expense resulting from increases in rates and $7,770,000 of higher interest rate cap premium amortization.

Net Gains on Sale of Real Estate

Net gains on the sale of real estate were $53,952,000 in the year ended December 31, 2023, resulting from the sale of the Rego Park III land parcel in Queens, New York in May 2023.

This was primarily due to higher interest rates, additional costs associated with the refinancing of our office condominium at 731 Lexington Avenue, and higher deferred debt issuance cost amortization, partially offset by lower interest rate cap premium amortization.

Net Gain on Sale of Real Estate

Net gain on the sale of real estate was $53,952,000 in the year ended December 31, 2023, resulting from the sale of the Rego Park III land parcel in Queens, New York in May 2023.

Related Party Transactions

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Cash Flows for the Year Ended December 31, 2024

Cash and cash equivalents and restricted cash were $393,836,000 at December 31, 2024, compared to $552,977,000 at December 31, 2023, a decrease of $159,141,000.

This resulted from (i) $200,025,000 of net cash used in financing activities and (ii) $13,222,000 of net cash used in investing activities, partially offset by (iii) $54,106,000 of net cash provided by operating activities.

Net cash used in financing activities of $200,025,000 was comprised of (i) debt repayments of $500,000,000, (ii) dividends paid of $92,378,000 and (iii) debt issuance costs of $7,647,000, partially offset by (iv) proceeds from borrowings of $400,000,000.

Net cash used in investing activities of $13,222,000 was comprised of construction in progress and real estate additions of $19,785,000, partially offset by proceeds from an interest rate cap of $6,563,000.

Net cash provided by operating activities of $54,106,000 was comprised of (i) net income of $43,444,000 and (ii) adjustments for non-cash items of $58,440,000, partially offset by (iii) the net change in operating assets and liabilities of $47,778,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $37,897,000, (ii) straight-lining of rents of $13,116,000, (iii) interest rate cap premium amortization of $6,483,000, (iv) other non-cash adjustments of $494,000 and (v) stock-based compensation expense of $450,000.

Liquidity and Capital Resources - continued

Cash Flows for the Year Ended December 31, 2023

Cash and cash equivalents and restricted cash were $552,977,000 at December 31, 2023, compared to $214,478,000 at December 31, 2022, an increase of $338,499,000.

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Net cash provided by investing activities of $321,812,000 was comprised of (i) proceeds from maturities of U.S.

Treasury bills of $264,881,000, (ii) proceeds from sale of real estate of $67,821,000 and (iii) proceeds from interest rate cap of $5,049,000, partially offset by (iv) the purchase of interest rate cap of $11,258,000 and (v) construction in progress and real estate additions of $4,681,000.

Treasury bills of $264,881,000, (ii) proceeds from sale of real estate of $67,821,000 and (iii) proceeds from an interest rate cap of $5,049,000, partially offset by (iv) the purchase of an interest rate cap of $11,258,000 and (v) construction in progress and real estate additions of $4,681,000.

Net cash provided by operating activities of $109,111,000 was comprised of (i) net income of $102,413,000 and (ii) the net change in operating assets and liabilities of $16,753,000, partially offset by (iii) adjustments for non-cash items of $10,055,000.

1 unchanged sentence

Net cash used in financing activities of $92,424,000 was comprised of dividends paid of $92,320,000 and debt issuance costs of $104,000.

Liquidity and Capital Resources - continued

Cash Flows for the Year Ended December 31, 2022

Cash and cash equivalents and restricted cash were $214,478,000 at December 31, 2022, compared to $483,505,000 at December 31, 2021, a decrease of $269,027,000.

This resulted from (i) $279,266,000 of net cash used in investing activities and (ii) $92,310,000 of net cash used in financing activities, partially offset by (iii) $102,549,000 of net cash provided by operating activities.

Net cash provided by operating activities of $102,549,000 was comprised of (i) net income of $57,632,000, (ii) adjustments for non-cash items of $36,936,000 and (iii) the net change in operating assets and liabilities of $7,981,000.

The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $31,454,000, (ii) straight-lining of rental income of $7,960,000 and (iii) stock-based compensation expense of $450,000, partially offset by (iv) other non-cash adjustments of $2,928,000.

Net cash used in investing activities of $279,266,000 was comprised of (i) the purchase of U.S.

Treasury bills of $364,238,000 and (ii) $14,386,000 of construction in progress and real estate additions, partially offset by (iii) $99,358,000 of proceeds from maturities of U.S.

Treasury bills.

Net cash used in financing activities of $92,310,000 was primarily comprised of dividends paid of $92,264,000.

On February 5, 2025, our Board of Directors declared a regular quarterly dividend of $4.50 per share (an indicated annual rate of $18.00 per share).

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

Balance Interest Rate Maturity

(Amounts in thousands)

731 Lexington Avenue, office condominium (1)

$ 500,000 6.00 % Jun.

(Amounts in thousands) Balance Interest Rate Maturity

731 Lexington Avenue, office condominium $ 400,000 5.04 % Oct.

731 Lexington Avenue, retail condominium (1)(2)

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Total, net $ 988,019

(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.

(1) Interest rate listed represents the rate in effect as of December 31, 2024 based on SOFR as of contractual reset date plus contractual spread, adjusted for hedging instruments as applicable.

(2) 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).

(3) Interest at SOFR plus 1.45% (SOFR is capped at a rate of 4.15% through December 2025).

Below is a summary of our principal and interest repayments scheduled as of December 31, 2024.

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Capital Expenditures

Capital expenditures consist of expenditures to maintain and improve assets, tenant improvement allowances and leasing commissions.

During 2024, we expect to incur approximately $29,000,000 of capital expenditures at our properties.

Capital expenditures consist of expenditures to maintain and improve assets, tenant improvement allowances, lease incentives and leasing commissions.

During 2025, we expect to spend approximately $125,000,000 of capital expenditures at our properties.

We plan to fund these capital expenditures from operating cash flow, existing liquidity, and/or borrowings.

Commitments and Contingencies

We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, of which the first $30,000,000 includes communicable disease coverage, and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties and excluding communicable disease coverage.

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.

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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.

For NBCR acts, FNSIC is responsible for a deductible of $338,000 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.

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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.

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

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For the Year Ended

(Amounts in thousands, except share and per share amounts) December 31,

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

Net income $ 43,444 $ 102,413

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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-K

Item 7. Management’s Discussion and Analysis