ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. Recently Issued Accounting Literature
- continued
In February 2016, the FASB issued (“ASU 2016-02”)
Leases
, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of the adoption of ASU 2016-02 on our consolidated financial statements.
In March 2016, the FASB issued an update (“ASU 2016-09”)
Improvements to Employee Share-Based Payment Accounting
to ASC Topic 718,
Compensation—Stock Compensation
. ASU 2016-09 amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We are currently evaluating the impact of the adoption of ASU 2016-09 on our consolidated financial statements.
5. Related Party Transactions
Vornado
As of March 31, 2016, Vornado owned 32.4% of our outstanding common stock. We are managed by, and our properties are leased and developed by, Vornado, pursuant to the agreements described below, which expire in March of each year and are automatically renewable.
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) $289,000, 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. Accordingly, in March 2016 we paid Vornado a development fee of $5,784,000 related to The Alexander apartment tower.
Leasing 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.
Other Agreements
We also have agreements with Building Maintenance Services, a wholly owned subsidiary of Vornado, to supervise (i) cleaning, engineering and security services at our 731 Lexington Avenue property and (ii) security services at our Rego Park I and Rego Park II properties.
The following is a summary of fees to Vornado under the various agreements discussed above.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
|
|
|
|
|
|
|
|
5.
|
Related Party Transactions - continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
(Amounts in thousands)
|
|
2016
|
|
2015
|
Company management fees
|
|
$
|
700
|
|
$
|
700
|
Development fees
|
|
|
44
|
|
|
764
|
Leasing fees
|
|
|
6,458
|
|
|
382
|
Property management fees and payments for cleaning, engineering
|
|
|
|
|
|
|
|
and security services
|
|
|
1,115
|
|
|
930
|
|
|
|
$
|
8,317
|
|
$
|
2,776
|
As of March 31, 2016, the amounts due to Vornado were $36,000 for development fees; $434,000 for management, property management, cleaning and security fees; and $4,000 for leasing fees. As of December 31, 2015, the amounts due to Vornado were $5,795,000 for development fees; $283,000 for management, property management and cleaning fees; and $2,473,000 for leasing fees.
Toys “R” Us (“Toys”)
As of March 31, 2016, our affiliate, Vornado owned 32.5% of Toys. Toys leases approximately 47,000 square feet of retail space at our Rego Park II shopping center. Joseph Macnow, our Executive Vice President and Chief Financial Officer, and Vornado’s Executive Vice President - Finance and Chief Administrative Officer and Wendy A. Silverstein, a member of our Board of Directors, represent Vornado as members of Toys’ Board of Directors. During the quarter ended March 31, 2016, we recognized $713,000 of revenue related to the space leased by Toys.
6. Marketable Securities
As of March 31, 2016 and December 31, 2015, we owned 535,265 common shares of The Macerich Company (“Macerich”) (NYSE: MAC), which were received in connection with the sale of the Kings Plaza Regional Shopping Center (“Kings Plaza”) to Macerich in November 2012. These shares have an economic cost of $56.05 per share, or $30,000,000 in the aggregate. As of March 31, 2016 and December 31, 2015, the fair value of these shares was $42,414,000 and $43,191,000, respectively, based on Macerich’s closing share price of $79.24 per share and $80.69 per share, respectively. These shares are included in “marketable securities” on our consolidated balance sheets and are classified as available-for-sale. Available-for-sale securities are presented at fair value and unrealized gains and losses resulting from the mark-to-market of these securities are included in “other comprehensive income.”
7. Significant Tenants
Bloomberg L.P. (“Bloomberg”) accounted for revenue of $26,506,000 and $23,402,000, representing approximately 48% and 45% of our total revenues for the three-month periods ended March 31, 2016 and 2015, respectively. No other tenant accounted for more than 10% of our total 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.
In October 2014, Bloomberg exercised its option to extend leases that were scheduled to expire in December 2015 for a term of five years covering 192,000 square feet of office space at our 731 Lexington Avenue property. In January 2016, we entered into a lease amendment with Bloomberg which extends the lease term related to this space to be coterminous with the other 697,000 square feet of office space leased by Bloomberg through February 2029, with a ten-year extension option. In connection with the lease amendment, Bloomberg provided a $200,000,000 letter of credit, which amount may be reduced in certain circumstances. We may draw on this letter of credit subject to certain terms of the lease amendment, including an event of default by Bloomberg. Upon execution of the lease amendment in January 2016, we paid an $8,916,000 leasing commission of which $7,200,000 was to a third party broker and $1,716,000 was to Vornado.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. Commitments and Contingencies – continued
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 Program Reauthorization Act, which expires in December 2020. 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 with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $348,000 deductible and 16% of the balance of a covered loss, and the Federal government is responsible for the remaining 84% 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. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.
Our mortgage loans are non-recourse to us and 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 our properties.
Rego Park I Litigation
On June 24, 2014, Sears Roebuck and Co. (“Sears”) filed a lawsuit in the Supreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to space that Sears leases at our Rego Park I property alleging that the defendants are liable for harm that Sears has suffered as a result of (a) water intrusions into the premises, (b) two fires in February 2014 that caused damages to those premises, and (c) alleged violations of the Americans with Disabilities Act in the premises’ parking garage. Sears asserted various causes of actions for damages and sought to compel compliance with landlord’s obligations to repair the premises and to provide security, and to compel us to abate a nuisance that Sears claims was a cause of the water intrusions into its premises.
In addition to injunctive relief, Sears sought, among other things, damages of not less than $4 million and future damages it estimated would not be less than $25 million. In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $650,000 based on information provided by Sears. We intend to defend the remaining claim vigorously. The amount or range of reasonably possible losses, if any, is not expected to be greater than $650,000.
Paramus
In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 2.90%, which matures in October 2018. The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.
Letters of Credit
Approximately $2,074,000 of standby letters of credit were outstanding as of March 31, 2016.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this Quarterly Report constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results, financial condition, results of operations 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. These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. 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, 2015. 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. 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 months ended March 31, 2016 and 2015. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 months ended March 31, 2016 are not necessarily indicative of the operating results for the full year.
Critical Accounting Policies
A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2015 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 2 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein. There have been no significant changes to these policies during 2016.
Overview
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 seven properties in the greater New York City metropolitan area.
We compete with a large number of property owners and developers. Our success depends upon, among other factors, trends of the world, 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 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.
Quarter Ended March 31, 2016 Financial Results Summary
Net income for the quarter ended March 31, 2016 was $22,019,000, or $4.31 per diluted share, compared to $17,822,000, or $3.49 per diluted share for the quarter ended March 31, 2015. Funds from operations (“FFO”) for the quarter ended March 31, 2016 was $30,250,000, or $5.92 per diluted share, compared to $25,136,000, or $4.92 per diluted share for the quarter ended March 31, 2015.
Square Footage, Occupancy and Leasing Activity
As of March 31, 2016, our portfolio was comprised of seven properties aggregating 2,437,000 square feet. As of March 31, 2016, our office and retail properties had an occupancy rate of 99.7% and The Alexander apartment tower had an occupancy rate of 42.1%.
Financing
In March 2016, we completed a two-year extension of the 100% cash collateralized loan on Rego Park I. The interest-only loan has a fixed rate of 0.35%.
Significant Tenants
Bloomberg L.P. (“Bloomberg”) accounted for revenue of $26,506,000 and $23,402,000, representing approximately 48% and 45% of our total revenues for the three-month periods ended March 31, 2016 and 2015, respectively. No other tenant accounted for more than 10% of our total 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.
In October 2014, Bloomberg exercised its option to extend leases that were scheduled to expire in December 2015 for a term of five years covering 192,000 square feet of office space at our 731 Lexington Avenue property. In January 2016, we entered into a lease amendment with Bloomberg which extends the lease term related to this space to be coterminous with the other 697,000 square feet of office space leased by Bloomberg through February 2029, with a ten-year extension option. In connection with the lease amendment, Bloomberg provided a $200,000,000 letter of credit, which amount may be reduced in certain circumstances. We may draw on this letter of credit subject to certain terms of the lease amendment, including an event of default by Bloomberg. Upon execution of the lease amendment in January 2016, we paid an $8,916,000 leasing commission of which $7,200,000 was to a third party broker and $1,716,000 was to Vornado.
Results of Operations – Three Months Ended March 31, 2016, compared to March 31, 2015
Property Rentals
Property rentals were $36,653,000 in the quarter ended March 31, 2016, compared to $34,501,000 in the prior year’s quarter, an increase of $2,152,000. This increase is primarily due to (i) higher rental income of $1,072,000 from the lease amendment with Bloomberg at 731 Lexington Avenue in January 2016 and (ii) rental income of $784,000 from The Alexander apartment tower, which was placed in service in phases beginning July 2015.
Expense Reimbursements
Tenant expense reimbursements were $18,905,000 in the quarter ended March 31, 2016, compared to $17,535,000 in the prior year’s quarter, an increase of $1,370,000. This increase is primarily due to $1,711,000 of higher recoveries of real estate taxes and operating expenses from Bloomberg at 731 Lexington Avenue, as a result of the lease amendment in January 2016, which converted 192,000 square feet from a gross rent basis to a net rent basis, partially offset by lower operating expense reimbursements during the current quarter.
Operating Expenses
Operating expenses were $19,654,000 in the quarter ended March 31, 2016, compared to $19,046,000 in the prior year’s quarter, an increase of $608,000. This increase was primarily comprised of (i) higher reimbursable real estate taxes of $638,000 and (ii) higher operating expenses of $867,000 related to The Alexander apartment tower; partially offset by (iii) lower utility expenses of $479,000 and (iv) lower insurance expenses of $261,000.
Depreciation and Amortization
Depreciation and amortization was $8,333,000 in the quarter ended March 31, 2016, compared to $7,350,000 in the prior year’s quarter, an increase of $983,000. This increase was primarily due to depreciation related to The Alexander apartment tower which was not in service during the prior year’s quarter.
General and Administrative Expenses
General and administrative expenses were $1,235,000 in the quarter ended March 31, 2016, compared to $1,270,000 in the prior year’s quarter, a decrease of $35,000.
Interest and Other Income, net
Interest and other income, net was $1,091,000 in the quarter ended March 31, 2016, compared to $400,000 in the prior year’s quarter, an increase of $691,000. This increase was primarily due to income in connection with a settlement agreement with a former tenant that went bankrupt at our Rego Park I property and a cost reimbursement settlement with a retail tenant at our 731 Lexington Avenue property.
Interest and Debt Expense
Interest and debt expense was $5,406,000 in the quarter ended March 31, 2016, compared to $6,945,000 in the prior year’s quarter, a decrease of $1,539,000. This decrease was primarily due to (i) savings of $2,330,000 resulting from the refinancing of the retail portion of 731 Lexington Avenue on August 5, 2015 at LIBOR plus 1.40% (1.84% as of March 31, 2016); as compared to the 4.93% fixed rate on the previous loan, partially offset by (ii) lower capitalized interest of $459,000 (The Alexander apartment tower) and (iii) an increase in LIBOR.
Income Taxes
Income tax expense was $2,000 in the quarter ended March 31, 2016 compared to $3,000 in the prior year’s quarter.
Liquidity and Capital Resources
Cash Flows
Property rental income 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. We anticipate that cash flows 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 amortization and capital expenditures.
Three Months Ended March 31, 2016
Cash and cash equivalents were $276,234,000 as of March 31, 2016, compared to $259,349,000 as of December 31, 2015, an increase of $16,885,000. This increase resulted from (i) $45,376,000 of net cash provided by operating activities partially offset by (ii) $21,304,000 of net cash used in financing activities and (iii) $7,187,000 of net cash used in investing activities.
Net cash provided by operating activities of $45,376,000 was comprised of net income of $22,019,000, adjustments for non-cash items of $8,930,000 and the net change in operating assets and liabilities of $14,427,000. The adjustments for non-cash items were comprised of depreciation and amortization (including amortization of debt issuance costs) of $8,974,000, partially offset by straight-lining of rental income of $44,000.
Net cash used in investing activities of $7,187,000 was comprised of construction in progress and real estate additions of $8,853,000 primarily related to The Alexander apartment tower, including the payment of a development fee to Vornado of $5,784,000, partially offset by the change in restricted cash of $1,666,000 related to tenant deposits.
Net cash used in financing activities of $21,304,000 was primarily comprised of dividends paid of $20,452,000.
Liquidity and Capital Resources – continued
Three Months Ended March 31, 2015
Net cash provided by operating activities of $45,093,000 was comprised of net income of $17,822,000, adjustments for non-cash items of $7,493,000 and the net change in operating assets and liabilities of $19,778,000. The adjustments for non-cash items were comprised of depreciation and amortization of $8,044,000, partially offset by straight-lining of rental income of $551,000.
Net cash used in investing activities of $14,921,000 was primarily comprised of construction in progress and real estate additions of $14,908,000 (primarily The Alexander apartment tower).
Net cash used in financing activities of $18,675,000 was primarily comprised of dividends paid of $17,890,000.
Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, 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.
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 Program Reauthorization Act, which expires in December 2020. 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 with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $348,000 deductible and 16% of the balance of a covered loss, and the Federal government is responsible for the remaining 84% 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. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.
Our mortgage loans are non-recourse to us and 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 our properties.
Liquidity and Capital Resources – continued
Rego Park I Litigation
On June 24, 2014, Sears Roebuck and Co. (“Sears”) filed a lawsuit in the Supreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to space that Sears leases at our Rego Park I property alleging that the defendants are liable for harm that Sears has suffered as a result of (a) water intrusions into the premises, (b) two fires in February 2014 that caused damages to those premises, and (c) alleged violations of the Americans with Disabilities Act in the premises’ parking garage. Sears asserted various causes of actions for damages and sought to compel compliance with landlord’s obligations to repair the premises and to provide security, and to compel us to abate a nuisance that Sears claims was a cause of the water intrusions into its premises. In addition to injunctive relief, Sears sought, among other things, damages of not less than $4 million and future damages it estimated would not be less than $25 million. In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $650,000 based on information provided by Sears. We intend to defend the remaining claim vigorously. The amount or range of reasonably possible losses, if any, is not expected to be greater than $650,000.
Paramus
In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 2.90%, which matures in October 2018. The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.
Letters of Credit
Approximately $2,074,000 of standby letters of credit were outstanding as of March 31, 2016.
Other
On October 15, 2015, the New York City Department of Finance (“NYC DOF”) issued a Notice of Determination to us assessing an additional $20,100,000 of transfer taxes (including interest and penalties) in connection with the sale of Kings Plaza in November 2012. We believe that the NYC DOF’s claim is without merit and intend to vigorously contest this assessment. We have determined that the likelihood of a loss related to this issue is not probable and, after consultation with legal counsel, that the outcome of this assessment is not expected to have a material adverse effect on our financial position, results of operations or cash flows.
There are various other legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial position, results of operations or cash flows.
Funds from Operations (“FFO”)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified non-cash 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 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. FFO may not be comparable to similarly titled measures employed by other companies. A reconciliation of our net income to FFO is provided below.
FFO for the Three Months Ended March 31, 2016 and 2015
FFO for the quarter ended March 31, 2016 was $30,250,000, or $5.92 per diluted share, compared to $25,136,000, or $4.92 per diluted share for the prior year’s quarter.
The following table reconciles our net income to FFO:
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
(Amounts in thousands, except share and per share amounts)
|
2016
|
|
2015
|
Net income
|
$
|
22,019
|
|
$
|
17,822
|
Depreciation and amortization of real property
|
|
8,231
|
|
|
7,314
|
FFO
|
$
|
30,250
|
|
$
|
25,136
|
|
|
|
|
|
|
|
|
|
FFO per diluted share
|
$
|
5.92
|
|
$
|
4.92
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing FFO per diluted share
|
|
5,113,077
|
|
|
5,111,201
|