ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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.
Year Ended December 31, 2018 Financial Results Summary
Net income for the year ended
December 31, 2018
was $32,844,000 or $6.42 per diluted share, compared to $80,509,000, or $15.74 per diluted share for the year ended
December 31, 2017
. Net income for the year ended December 31, 2018 included (i) $23,797,000, or $4.65 per diluted share, of expense for potential additional New York City real property transfer taxes on the 2012 sale of Kings Plaza Regional Shopping Center (“Kings Plaza”) which is being contested and (ii) $11,990,000, or $2.34 per diluted share, from the decrease in the fair value of marketable securities resulting from a new GAAP accounting standard effective January 1, 2018. Previously, changes in the fair value of marketable securities were recognized through “accumulated other comprehensive (loss) income” on our consolidated balance sheets and did not impact our consolidated statements of income.
Funds from operations (“FFO”) (non-GAAP) for the year ended
December 31, 2018
was $77,429,000, or $15.13 per diluted share, compared to $114,908,000, or $22.46 per diluted share for the year ended
December 31, 2017
. FFO (non-GAAP) for the year ended December 31, 2018 included $23,797,000, or $4.65 per diluted share, of expense for the contested Kings Plaza transfer taxes.
Quarter Ended December 31, 2018 Financial Results Summary
Net income for the quarter ended
December 31, 2018
was $9,971,000, or $1.95 per diluted share, compared to $17,883,000, or $3.50 per diluted share for the quarter ended
December 31, 2017
. Net income for the quarter ended December 31, 2018 included $6,429,000, or $1.26 per diluted share, from the decrease in the fair value of marketable securities.
FFO (non-GAAP) for the quarter ended
December 31, 2018
was $24,158,000, or $4.72 per diluted share, compared to $28,062,000, or $5.49 per diluted share for the quarter ended
December 31, 2017
.
Square Footage, Occupancy and Leasing Activity
As of
December 31, 2018
, our portfolio was comprised of seven properties aggregating 2,437,000 square feet. As of
December 31, 2018
, our properties had an occupancy rate of 91.4%.
Overview - continued
Real Property Transfer Tax Litigation
In 2012, we sold Kings Plaza and paid real property transfer taxes to New York City in connection with the sale. In 2015, the New York City Department of Finance (“NYC DOF”) issued a Notice of Determination to us assessing an additional New York City real property transfer tax amount, including interest, which we are contesting.
In 2014, in a case with similar facts, the NYC DOF issued a Notice of Determination to a Vornado joint venture assessing an additional New York City real property transfer tax amount, including interest. In January 2017, a New York City administrative law judge made a determination upholding the Vornado joint venture’s position that such additional real property transfer taxes were not due. On February 16, 2018, the New York City Tax Appeals Tribunal (the “Tribunal”) overturned the January 2017 determination. The Vornado joint venture is appealing the Tribunal’s decision to the Appellate Division of the Supreme Court of the State of New York which is scheduled to be heard in the first half of 2019.
In 2018, based on the precedent of the Tribunal’s decision, we recorded an expense for the potential additional real property transfer taxes of $23,797,000 ($15,874,000 of real property transfer tax and $7,923,000 of interest) and paid this amount in order to stop the interest from accruing. Our case is on hold pending the outcome of the Vornado joint venture’s appeal.
Tenant Matters
On April 4, 2017, Sears closed its 195,000 square foot store at our Rego Park I shopping center ($10,300,000 of annual revenue). On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief and rejected its lease. Consequently, we wrote off the remaining balance of the Sears receivable arising from the straight-lining of rent of $2,973,000 during the year ended December 31, 2018. In addition, we accelerated depreciation and amortization of the remaining balance of $312,000 of deferred leasing costs during the year ended
December 31, 2018
.
On September 18, 2017, Toys filed for Chapter 11 bankruptcy relief. On June 30, 2018, Toys rejected its 47,000 square foot lease at our Rego Park II shopping center ($2,600,000 of annual revenue) and possession of the space was returned to us. Consequently, we accelerated depreciation and amortization of the remaining balances of $588,000 of tenant improvements and $215,000 of deferred leasing costs during the year ended December 31, 2018. We also wrote off the Toys receivable arising from the straight-lining of rent of $500,000 during the year ended
December 31, 2018
.
On January 10, 2019, Kohl’s announced that it plans to close and sublease its 133,000 square foot store at our Rego Park II shopping center; Kohl’s remains obligated to us under its lease which expires in January 2031.
Financing
On October 3, 2018, we extended our mortgage loan on our Paramus property. The $68,000,000 interest-only loan has a fixed rate of 4.72% and matures in October 2021. Previously the loan bore interest at a fixed rate of 2.90%. The tenant pays all of the interest on this mortgage loan as part of its rent.
On December 12, 2018, we completed a $252,544,000 refinancing of our Rego Park II shopping center. The interest-only loan is at LIBOR plus 1.35% (3.87% as of December 31, 2018) and matures in December 2025. The previous loan bore interest at LIBOR plus 1.85% and was scheduled to mature in January 2019. As of December 31, 2018, we hold a $195,708,000 participation in the mortgage loan, earning interest at LIBOR plus 1.35%. The participation in the previous mortgage loan earned interest at LIBOR plus 1.60%.
Significant Tenant
Bloomberg accounted for revenue of $107,356,000, $105,224,000 and $104,590,000 in the years ended December 31, 2018, 2017 and 2016, respectively, representing approximately 46% of our total revenues in each year. 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.
Critical Accounting Policies and Estimates
Our 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 financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements. This summary should be read in conjunction with a more complete discussion of our accounting policies included in Note 2 –
Summary of Significant
Accounting Policies,
to the consolidated financial statements in this Annual Report on Form 10-K.
Real Estate
Real estate is carried at cost, net of accumulated depreciation and amortization. As of December 31, 2018 and 2017, the carrying amount of our real estate, net of accumulated depreciation and amortization, was $730,270,000 and $754,324,000, respectively. Maintenance and repairs are 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. If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated. 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 and related intangible assets, including properties to be developed in the future, 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. 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.
Allowance for Doubtful Accounts
We periodically evaluate the collectibility of amounts due from tenants, including the receivable arising from the straight-lining of rents, and maintain an allowance for doubtful accounts ($671,000 and $1,501,000 as of December 31, 2018 and 2017, respectively) for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We exercise judgment in establishing these allowances and consider payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our consolidated financial statements.
Critical Accounting Policies and Estimates - continued
Revenue Recognition
Our revenues consist of property rentals and expense reimbursements. We have the following revenue sources and revenue recognition policies:
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Base Rent is revenue arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis, which includes the effects of rent steps and rent abatements. We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.
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Percentage Rent is revenue arising from retail tenant leases that is contingent upon the sales of tenants exceeding defined thresholds. These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been achieved).
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Parking Revenue arising from the rental of parking space at our properties. This income is recognized as the services are provided.
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Operating Expense Reimbursements is revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of our properties. Revenue is recognized in the same period as the related expenses are incurred.
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•
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Tenant Services is revenue arising from sub-metered electric, elevator and other services provided to tenants at their request. This revenue is recognized as the services are transferred.
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Before we recognize revenue, we assess, among other things, its collectibility. If our assessment of the collectibility of revenue changes, the impact on our consolidated financial statements could be material.
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. If we fail to distribute the required amount of income to our stockholders, or fail to meet other REIT requirements, we may fail to qualify as a REIT, which may result in substantial adverse tax consequences.
Results of Operations – Year Ended
December 31, 2018
compared to
December 31, 2017
Property Rentals
Property rentals were $152,795,000 in the year ended
December 31, 2018
, compared to $152,857,000 in the prior year, a decrease of $62,000. This decrease was primarily due to lower revenue from Sears at our Rego Park I property and Toys at our Rego Park II property, partially offset by higher revenue from a new restaurant tenant at our 731 Lexington Avenue property.
Expense Reimbursements
Tenant expense reimbursements were $80,030,000 in the year ended
December 31, 2018
, compared to $77,717,000 in the prior year, an increase of $2,313,000. This increase was primarily due to higher real estate taxes and higher operating expenses.
Operating Expenses
Operating expenses were $93,775,000 in the year ended
December 31, 2018
, compared to $85,127,000 in the prior year, an increase of $8,648,000. This increase was primarily due to (i) higher bad debt expense of $4,406,000, (ii) higher real estate taxes of $2,180,000 and (iii) higher operating expenses of $1,664,000.
Depreciation and Amortization
Depreciation and amortization was $33,089,000 in the year ended
December 31, 2018
, compared to $34,925,000 in the prior year, a decrease of $1,836,000. This decrease was primarily due to additional depreciation and amortization of tenant improvements and deferred leasing costs of $2,444,000 related to a tenant lease termination at our 731 Lexington Avenue property in 2017.
General and Administrative Expenses
General and administrative expenses were $5,339,000 in the year ended
December 31, 2018
, compared to $5,252,000 in the prior year, an increase of $87,000.
Interest and Other Income, net
Interest and other income, net was $12,546,000 in the year ended
December 31, 2018
, compared to $6,716,000 in the prior year, an increase of $5,830,000. This increase was primarily due to (i) $4,673,000 of higher interest income from the Rego Park II loan participation entered into in July 2017 and (ii) $3,693,000 of higher interest income due to an increase in average interest rates, partially offset by (iii) $1,600,000 of expense from a litigation settlement and (iv) $760,000 of lower interest income due to lower average investment balances.
Interest and Debt Expense
Interest and debt expense was $44,533,000 in the year ended
December 31, 2018
, compared to $31,474,000 in the prior year, an increase of $13,059,000. This increase was primarily due to (i) $8,482,000 resulting from an increase in average LIBOR, (ii) $2,620,000 resulting from the refinancing of the office portion of 731 Lexington Avenue on June 1, 2017 for $500,000,000 at LIBOR plus 0.90% (previously a $300,000,000 loan at LIBOR plus 0.95%) and (iii) $1,641,000 of higher amortization of debt issuance costs.
Change in Fair Value of Marketable Securities
Change in fair value of marketable securities was an expense of $11,990,000 in the year ended December 31, 2018, resulting from Macerich’s closing share prices of $43.28 and $65.68 as of December 31, 2018 and 2017, respectively, on 535,265 shares owned. See Note 5 –
Marketable Securities
, to our consolidated financial statements in this Annual Report on Form 10-K.
Income Taxes
Income tax expense was $4,000 in the year ended
December 31, 2018
, compared to $3,000 in the prior year.
Loss from Discontinued Operations
Loss from discontinued operations was $23,797,000 in the year ended December 31, 2018. The loss was due to a payment of potential additional real property transfer taxes from the 2012 sale of Kings Plaza which is being contested. See Note 6 –
Discontinued Operations
, to our consolidated financial statements in this Annual Report on Form 10-K.
Results of Operations – Year Ended
December 31, 2017 compared to December 31, 2016
Property Rentals
Property rentals were $152,857,000 in the year ended December 31, 2017, compared to $151,444,000 in the prior year, an increase of $1,413,000. This increase was primarily due to higher rental income of $3,730,000 from The Alexander apartment tower, which was placed in service in phases beginning July 2015 and leased up to stabilization in September 2016, partially offset by income of $2,257,000 in 2016 resulting from a tenant lease termination at our Rego Park II property.
Expense Reimbursements
Tenant expense reimbursements were $77,717,000 in the year ended December 31, 2017, compared to $75,492,000 in the prior year, an increase of $2,225,000. This increase was primarily due to higher real estate taxes and higher operating expenses.
Operating Expenses
Operating expenses were $85,127,000 in the year ended December 31, 2017, compared to $82,232,000 in the prior year, an increase of $2,895,000. This increase was primarily due to (i) higher real estate taxes of $3,267,000 and (ii) higher operating expenses of $903,000, partially offset by (iii) lower marketing costs for The Alexander apartment tower of $1,098,000 and (iv) lower bad debt expense of $504,000.
Depreciation and Amortization
Depreciation and amortization was $34,925,000 in the year ended December 31, 2017, compared to $33,807,000 in the prior year, an increase of $1,118,000. This increase was primarily due to additional depreciation and amortization of tenant improvements and deferred leasing costs of $2,444,000 related to a tenant lease termination at our 731 Lexington Avenue property in 2017, partially offset by additional depreciation and amortization of tenant improvements and deferred leasing costs of $1,077,000 in 2016 related to a tenant lease termination at our Rego Park II property.
General and Administrative Expenses
General and administrative expenses were $5,252,000 in the year ended December 31, 2017, compared to $5,436,000 in the prior year, a decrease of $184,000. This decrease was primarily due to lower director’s fees and stock-based compensation expense as a result of having one less member on our Board of Directors in 2017.
Interest and Other Income, net
Interest and other income, net was $6,716,000 in the year ended December 31, 2017, compared to $3,305,000 in the prior year, an increase of $3,411,000. This increase was primarily due to higher interest income of (i) $2,453,000 from the Rego Park II loan participation, (ii) $1,418,000 from an increase in the average interest rates and (iii) $216,000 from an increase in the average investment balances, partially offset by (iv) lower income of $429,000 in connection with bankruptcy recoveries and (v) income of $367,000 in 2016 from a cost reimbursement settlement with a retail tenant at our 731 Lexington Avenue property.
Interest and Debt Expense
Interest and debt expense was $31,474,000 in the year ended December 31, 2017, compared to $22,241,000 in the prior year, an increase of $9,233,000. This increase was primarily due to (i) $5,289,000 resulting from an increase in average LIBOR, (ii) $2,658,000 resulting from the refinancing of the office portion of 731 Lexington Avenue on June 1, 2017 for $500,000,000 at LIBOR plus 0.90% (previously a $300,000,000 loan at LIBOR plus 0.95%) and (iii) $1,188,000 of higher amortization of debt issuance costs.
Income Taxes
Income tax expense was $3,000 in the year ended December 31, 2017, compared to $48,000 in the prior year.
Related Party Transactions
Vornado
As of
December 31, 2018
, Vornado owned 32.4% of our outstanding common stock. We are managed by, and our properties are leased and developed by, Vornado, pursuant to various agreements, which expire in March of each year and are automatically renewable. These agreements are described in Note 4 –
Related Party Transactions
, to our consolidated financial statements in this Annual Report on Form 10-K.
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, 2018
, 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, 26.2% of our outstanding common stock, in addition to the 2.3% they indirectly own through Vornado. Joseph Macnow, our Treasurer, is the Executive Vice President - Chief Financial Officer and Chief Administrative Officer of Vornado. Matthew Iocco, our Chief Financial Officer, is the Executive Vice President - Chief Accounting Officer of Vornado.
Toys
Our affiliate, Vornado, owned 32.5% of Toys as of December 31, 2018. On February 1, 2019, in connection with the Toys Chapter 11 bankruptcy, the plan of reorganization for Toys was declared effective and Vornado’s ownership in Toys was canceled and Toys’ Board of Directors was dissolved. Joseph Macnow, Vornado’s Executive Vice President and Chief Financial Officer and Wendy A. Silverstein, a member of our Board of Directors, represented Vornado as members of Toys’ Board of Directors. Also in connection with the Toys Chapter 11 bankruptcy, Toys rejected its 47,000 square foot lease at our Rego Park II shopping center ($2,600,000 of annual revenue) effective June 30, 2018 and possession of the space was returned to us. Consequently, we accelerated depreciation and amortization of the remaining balances of $588,000 of tenant improvements and $215,000 of deferred leasing costs during the year ended
December 31, 2018
. We also wrote off the Toys receivable arising from the straight-lining of rent of $500,000 during the year ended
December 31, 2018
.
Liquidity and Capital Resources
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.
Dividends
On January 16, 2019, we set our regular quarterly dividend to $4.50 per share (an indicated annual rate of $18.00 per share). The dividend, when declared by the Board of Directors for all of 2019, will require us to pay out approximately $92,100,000.
Financing Activities and Contractual Obligations
On June 1, 2017, we completed a $500,000,000 refinancing of the office portion of 731 Lexington Avenue. The interest-only loan is at LIBOR plus 0.90% (3.36% as of December 31, 2018) and matures in June 2020, with four one-year extension options. In connection therewith, we purchased an interest rate cap with a notional amount of $500,000,000 that caps LIBOR at a rate of 6.0%. The property was previously encumbered by a $300,000,000 interest-only mortgage at LIBOR plus 0.95% which was scheduled to mature in March 2021.
On October 3, 2018, we extended our mortgage loan on our Paramus property. The $68,000,000 interest-only loan has a fixed rate of 4.72% and matures in October 2021. Previously the loan bore interest at a fixed rate of 2.90%. The tenant pays all of the interest on this mortgage loan as part of its rent.
Liquidity and Capital Resources - continued
On December 12, 2018, we completed a $252,544,000 refinancing of our Rego Park II shopping center. The interest-only loan is at LIBOR plus 1.35% (3.87% as of December 31, 2018) and matures in December 2025. The previous loan bore interest at LIBOR plus 1.85% and was scheduled to mature in January 2019. As of December 31, 2018, we hold a $195,708,000 participation in the mortgage loan, earning interest at LIBOR plus 1.35%. The participation in the previous mortgage loan earned interest at LIBOR plus 1.60%.
Below is a summary of our outstanding debt and maturities as of
December 31, 2018
. We may refinance our maturing debt as it comes due or choose to repay it.
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Balance
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Interest Rate
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Maturity
(1)
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(Amounts in thousands)
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Paramus
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$
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68,000
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4.72
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%
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Oct. 2021
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731 Lexington Avenue, retail space
(2)
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350,000
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3.78
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%
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Aug. 2022
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731 Lexington Avenue, office space
(3)
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500,000
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3.36
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%
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Jun. 2024
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Rego Park II shopping center
(4)
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252,544
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3.87
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%
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Dec. 2025
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Total
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1,170,544
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Deferred debt issuance costs, net of accumulated amortization of $9,212
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(9,010
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)
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Total, net
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$
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1,161,534
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(1) Represents the extended maturity where we have the unilateral right to extend.
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(2) Interest at LIBOR plus 1.40%.
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(3) Interest at LIBOR plus 0.90%.
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(4) Interest at LIBOR plus 1.35%. See above for details of our Rego Park II loan participation.
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Below is a summary of our contractual obligations and commitments as of
December 31, 2018
.
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Less than
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One to
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Three to
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More than
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(Amounts in thousands)
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Total
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One Year
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Three Years
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Five Years
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Five Years
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Contractual obligations (principal and interest)
(1)
:
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Long-term debt obligations
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$
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1,388,931
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$
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43,602
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$
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154,502
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$
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411,860
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$
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778,967
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Operating lease obligations
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6,467
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800
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1,600
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1,600
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2,467
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$
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1,395,398
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$
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44,402
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$
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156,102
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$
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413,460
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$
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781,434
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Commitments:
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Standby letters of credit
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$
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1,030
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$
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1,020
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$
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10
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$
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—
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$
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—
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(1)
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Interest on variable rate debt is computed using rates in effect as of
December 31, 2018
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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 and the Federal government with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $323,000 deductible and 19% of the balance of a covered loss, and the Federal government is responsible for the remaining 81% of a covered loss. We are ultimately responsible for any loss incurred by FNSIC.
Liquidity and Capital Resources - continued
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 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. Further, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.
Rego Park I Litigation
In June 2014, 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 leased 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 reasonable possible losses, if any, is not expected to be greater than $650,000. On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief resulting in an automatic stay of this case.
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 4.72%, which matures in October 2021. The annual triple-net rent is the sum of $700,000 plus the amount of interest 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 $1,030,000 of standby letters of credit were outstanding as of
December 31, 2018
.
Other
We received $165,000, $396,000 and $825,000 from bankruptcy recoveries during the years ended December 31, 2018, 2017 and 2016, respectively, which is included as “interest and other income, net” in our consolidated statements of income.
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.
Liquidity and Capital Resources - continued
Cash Flows for the Year Ended
December 31, 2018
Cash and cash equivalents and restricted cash were $289,495,000 at
December 31, 2018
, compared to $393,279,000 at
December 31, 2017
, a decrease of $103,784,000. This decrease resulted from (i) $176,185,000 of net cash used in financing activities and (ii) $1,137,000 of net cash used in investing activities, partially offset by (iii) $73,538,000 of net cash provided by operating activities.
Net cash used in financing activities of $176,185,000 was primarily comprised of net debt repayments of $81,896,000 (primarily the refinancing and subsequent repayment of the mortgage loan on our Rego Park I shopping center) and dividends paid of $92,100,000.
Net cash used in investing activities of $1,137,000 was comprised of construction in progress and real estate additions of $3,966,000, partially offset by repayment of Rego Park II loan participation of $2,829,000.
Net cash provided by operating activities of $73,538,000 was comprised of (i) net income of $32,844,000 and (ii) adjustments for non-cash items of $56,807,000, partially offset by (iii) the net change in operating assets and liabilities of $16,113,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $38,499,000, (ii) the change in fair value of marketable securities of $11,990,000, (iii) straight-lining of rental income of $5,924,000 and (iv) stock-based compensation expense of $394,000.
Cash Flows for the Year Ended
December 31, 2017
Cash and cash equivalents and restricted cash were $393,279,000 at December 31, 2017, compared to $374,678,000 at December 31, 2016, an increase of $18,601,000. This increase resulted from (i) $123,426,000 of net cash provided by operating activities and (ii) $97,146,000 of net cash provided by financing activities, partially offset by (iii) $201,971,000 of net cash used in investing activities.
Net cash provided by operating activities of $123,426,000 was comprised of (i) net income of $80,509,000 and (ii) adjustments for non-cash items of $43,372,000, partially offset by (iii) the net change in operating assets and liabilities of $455,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $38,681,000, (ii) straight-lining of rental income of $4,297,000 and (iii) stock-based compensation expense of $394,000.
Net cash provided by financing activities of $97,146,000 was primarily comprised of (i) $500,000,000 of proceeds from the refinancing of the office portion of 731 Lexington Avenue, partially offset by (ii) debt repayments of $303,707,000 (primarily the repayment of the former loan on the office portion of 731 Lexington Avenue) and (iii) dividends paid of $86,961,000.
Net cash used in investing activities of $201,971,000 was comprised of (i) Rego Park II loan participation of $200,000,000 and (ii) construction in progress and real estate additions of $3,434,000, partially offset by (iii) principal repayment proceeds from the Rego Park II loan participation of $1,463,000.
Cash Flows for the Year Ended
December 31, 2016
Cash and cash equivalents and restricted cash were $374,678,000 at December 31, 2016, compared to $344,656,000 at December 31, 2015, an increase of $30,022,000. This increase resulted from (i) $130,820,000 of net cash provided by operating activities, partially offset by (ii) $85,292,000 of net cash used in financing activities and (iii) $15,506,000 of net cash used in investing activities.
Net cash provided by operating activities of $130,820,000 was comprised of (i) net income of $86,477,000, (ii) adjustments for non-cash items of $39,171,000, and (iii) the net change in operating assets and liabilities of $5,172,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $36,374,000, (ii) straight-lining of rental income of $2,347,000 and (iii) stock-based compensation expense of $450,000.
Net cash used in financing activities of $85,292,000 was primarily comprised of dividends paid of $81,822,000.
Net cash used in investing activities of $15,506,000 was comprised of construction in progress and real estate additions of $15,506,000 (primarily related to The Alexander apartment tower), including the payment of a development fee to Vornado of $5,784,000.
Funds from Operations (“FFO”) (non-GAAP)
FFO is computed in accordance with the December 2018 restated definition adopted by the Board of Governors of NAREIT. NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciable 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 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.
In accordance with the NAREIT December 2018 restated definition of FFO, we have elected to exclude the mark-to-market adjustments of marketable securities from the calculation of FFO. Our FFO for the nine months ended September 30, 2018 has been adjusted to exclude the $5,561,000, or $1.08 per diluted share, from the decrease in fair value of marketable securities previously reported. Net income for the year and quarter ended December 31, 2018 included $11,990,000, or $2.34 per diluted share, and $6,429,000, or $1.26 per diluted share, respectively, from the decrease in fair value of marketable securities.
FFO (non-GAAP) for the years and quarters ended December 31, 2018 and 2017
FFO (non-GAAP) for the year ended
December 31, 2018
was $77,429,000, or $15.13 per diluted share, compared to $114,908,000, or $22.46 per diluted share for the year ended
December 31, 2017
. FFO (non-GAAP) for the year ended December 31, 2018 included $23,797,000, or $4.65 per diluted share, of expense for the potential additional New York City real property transfer taxes on the 2012 sale of Kings Plaza which is being contested.
FFO (non-GAAP) for the quarter ended
December 31, 2018
was $24,158,000, or $4.72 per diluted share, compared to $28,062,000, or $5.49 per diluted share for the quarter ended
December 31, 2017
.
The following table reconciles our net income to FFO (non-GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
For the Three Months Ended
|
(Amounts in thousands, except share and per share amounts)
|
|
December 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
|
|
$
|
32,844
|
|
|
$
|
80,509
|
|
|
$
|
9,971
|
|
|
$
|
17,883
|
|
Depreciation and amortization of real property
|
|
32,595
|
|
|
34,399
|
|
|
7,758
|
|
|
10,179
|
|
Change in fair value of marketable securities
|
|
11,990
|
|
|
—
|
|
|
6,429
|
|
|
—
|
|
FFO (non-GAAP)
|
|
$
|
77,429
|
|
|
$
|
114,908
|
|
|
$
|
24,158
|
|
|
$
|
28,062
|
|
|
|
|
|
|
|
|
|
|
FFO per diluted share (non-GAAP)
|
|
$
|
15.13
|
|
|
$
|
22.46
|
|
|
$
|
4.72
|
|
|
$
|
5.49
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing FFO per diluted share
|
|
5,116,838
|
|
|
5,115,501
|
|
|
5,117,347
|
|
|
5,115,982
|
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
Index to Consolidated Financial Statements
|
Page
Number
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2018 and 2017
|
|
|
|
|
|
Consolidated Statements of Income for the
|
|
|
Years Ended December 31, 2018, 2017 and 2016
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income for the
|
|
|
Years Ended December 31, 2018, 2017 and 2016
|
|
|
|
|
|
Consolidated Statements of Changes in Equity for the
|
|
|
Years Ended December 31, 2018, 2017 and 2016
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the
|
|
|
Years Ended December 31, 2018, 2017 and 2016
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Alexander’s, Inc.
Paramus, New Jersey
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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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, 2018, 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 11, 2019, 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.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 11, 2019
We have served as the Company’s auditor since 1969.
|
|
|
|
|
|
|
|
|
ALEXANDER’S, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
(Amounts in thousands, except share and per share amounts)
|
|
|
|
December 31,
|
ASSETS
|
2018
|
|
2017
|
Real estate, at cost:
|
|
|
|
|
Land
|
$
|
44,971
|
|
|
$
|
44,971
|
|
Buildings and leasehold improvements
|
978,474
|
|
|
988,846
|
|
Development and construction in progress
|
4,246
|
|
|
3,551
|
|
Total
|
1,027,691
|
|
|
1,037,368
|
|
Accumulated depreciation and amortization
|
(297,421
|
)
|
|
(283,044
|
)
|
Real estate, net
|
730,270
|
|
|
754,324
|
|
Cash and cash equivalents
|
283,056
|
|
|
307,536
|
|
Restricted cash
|
6,439
|
|
|
85,743
|
|
Rego Park II loan participation
|
195,708
|
|
|
198,537
|
|
Marketable securities
|
23,166
|
|
|
35,156
|
|
Tenant and other receivables, net of allowance for doubtful accounts of $671 and $1,501, respectively
|
4,075
|
|
|
2,693
|
|
Receivable arising from the straight-lining of rents
|
168,789
|
|
|
174,713
|
|
Deferred lease and other property costs, net, including unamortized leasing fees to Vornado of
|
|
|
|
$31,039 and $35,152, respectively
|
40,669
|
|
|
45,790
|
|
Other assets
|
29,085
|
|
|
27,903
|
|
|
$
|
1,481,257
|
|
|
$
|
1,632,395
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Mortgages payable, net of deferred debt issuance costs
|
$
|
1,161,534
|
|
|
$
|
1,240,222
|
|
Amounts due to Vornado
|
708
|
|
|
2,490
|
|
Accounts payable and accrued expenses
|
30,889
|
|
|
42,827
|
|
Other liabilities
|
3,034
|
|
|
2,901
|
|
Total liabilities
|
1,196,165
|
|
|
1,288,440
|
|
|
|
|
|
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
|
31,971
|
|
|
31,577
|
|
Retained earnings
|
248,443
|
|
|
302,543
|
|
Accumulated other comprehensive (loss) income
|
(127
|
)
|
|
5,030
|
|
|
285,460
|
|
|
344,323
|
|
Treasury stock: 66,160 shares, at cost
|
(368
|
)
|
|
(368
|
)
|
Total equity
|
285,092
|
|
|
343,955
|
|
|
$
|
1,481,257
|
|
|
$
|
1,632,395
|
|
See notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
ALEXANDER’S, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF INCOME
|
(Amounts in thousands, except share and per share amounts)
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
REVENUES
|
|
|
|
|
|
|
Property rentals
|
$
|
152,795
|
|
|
$
|
152,857
|
|
|
$
|
151,444
|
|
Expense reimbursements
|
80,030
|
|
|
77,717
|
|
|
75,492
|
|
Total revenues
|
232,825
|
|
|
230,574
|
|
|
226,936
|
|
EXPENSES
|
|
|
|
|
|
Operating, including fees to Vornado of $4,700, $4,671 and $4,590, respectively
|
93,775
|
|
|
85,127
|
|
|
82,232
|
|
Depreciation and amortization
|
33,089
|
|
|
34,925
|
|
|
33,807
|
|
General and administrative, including management fees to Vornado of $2,380
|
|
|
|
|
|
in each year
|
5,339
|
|
|
5,252
|
|
|
5,436
|
|
Total expenses
|
132,203
|
|
|
125,304
|
|
|
121,475
|
|
|
|
|
|
|
|
OPERATING INCOME
|
100,622
|
|
|
105,270
|
|
|
105,461
|
|
|
|
|
|
|
|
Interest and other income, net
|
12,546
|
|
|
6,716
|
|
|
3,305
|
|
Interest and debt expense
|
(44,533
|
)
|
|
(31,474
|
)
|
|
(22,241
|
)
|
Change in fair value of marketable securities (see Note 5)
|
(11,990
|
)
|
|
—
|
|
|
—
|
|
Income before income taxes
|
56,645
|
|
|
80,512
|
|
|
86,525
|
|
Income tax expense
|
(4
|
)
|
|
(3
|
)
|
|
(48
|
)
|
Income from continuing operations
|
56,641
|
|
|
80,509
|
|
|
86,477
|
|
Loss from discontinued operations (see Note 6)
|
(23,797
|
)
|
|
—
|
|
|
—
|
|
Net income
|
$
|
32,844
|
|
|
$
|
80,509
|
|
|
$
|
86,477
|
|
|
|
|
|
|
|
Income per common share - basic and diluted:
|
|
|
|
|
|
Income from continuing operations
|
$
|
11.07
|
|
|
$
|
15.74
|
|
|
$
|
16.91
|
|
Loss from discontinued operations (see Note 6)
|
(4.65
|
)
|
|
—
|
|
|
—
|
|
Net income per common share
|
$
|
6.42
|
|
|
$
|
15.74
|
|
|
$
|
16.91
|
|
|
|
|
|
|
|
Weighted average shares outstanding- basic and diluted
|
5,116,838
|
|
|
5,115,501
|
|
|
5,114,084
|
|
See notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
ALEXANDER’S, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
(Amounts in thousands)
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Net income
|
$
|
32,844
|
|
|
$
|
80,509
|
|
|
$
|
86,477
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
Change in fair value of marketable securities (see Note 5)
|
—
|
|
|
(2,762
|
)
|
|
(5,273
|
)
|
Change in value of interest rate cap
|
(1
|
)
|
|
(70
|
)
|
|
133
|
|
Comprehensive income
|
$
|
32,843
|
|
|
$
|
77,677
|
|
|
$
|
81,337
|
|
See notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALEXANDER’S, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
|
Common Stock
|
|
Additional
Capital
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
Total
Equity
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance, December 31, 2015
|
5,173
|
|
|
$
|
5,173
|
|
|
$
|
30,739
|
|
|
$
|
304,340
|
|
|
$
|
13,002
|
|
|
$
|
(374
|
)
|
|
$
|
352,880
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
86,477
|
|
|
—
|
|
|
—
|
|
|
86,477
|
|
Dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(81,822
|
)
|
|
—
|
|
|
—
|
|
|
(81,822
|
)
|
Change in fair value of marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,273
|
)
|
|
—
|
|
|
(5,273
|
)
|
Change in fair value of interest rate cap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
133
|
|
|
—
|
|
|
133
|
|
Deferred stock unit grants
|
—
|
|
|
—
|
|
|
450
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
450
|
|
Balance, December 31, 2016
|
5,173
|
|
|
5,173
|
|
|
31,189
|
|
|
308,995
|
|
|
7,862
|
|
|
(374
|
)
|
|
352,845
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
80,509
|
|
|
—
|
|
|
—
|
|
|
80,509
|
|
Dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(86,961
|
)
|
|
—
|
|
|
—
|
|
|
(86,961
|
)
|
Change in fair value of marketable securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,762
|
)
|
|
—
|
|
|
(2,762
|
)
|
Change in fair value of interest rate cap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(70
|
)
|
|
|
|
(70
|
)
|
Deferred stock unit grants
|
—
|
|
|
—
|
|
|
394
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
394
|
|
Other
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Balance, December 31, 2017
|
5,173
|
|
|
5,173
|
|
|
31,577
|
|
|
302,543
|
|
|
5,030
|
|
|
(368
|
)
|
|
343,955
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
32,844
|
|
|
—
|
|
|
—
|
|
|
32,844
|
|
Dividends paid
|
—
|
|
|
—
|
|
|
—
|
|
|
(92,100
|
)
|
|
—
|
|
|
—
|
|
|
(92,100
|
)
|
Cumulative effect of change in accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principle (see Note 2)
|
—
|
|
|
—
|
|
|
—
|
|
|
5,156
|
|
|
(5,156
|
)
|
|
—
|
|
|
—
|
|
Change in fair value of interest rate cap
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Deferred stock unit grants
|
—
|
|
|
—
|
|
|
394
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
394
|
|
Balance, December 31, 2018
|
5,173
|
|
|
$
|
5,173
|
|
|
$
|
31,971
|
|
|
$
|
248,443
|
|
|
$
|
(127
|
)
|
|
$
|
(368
|
)
|
|
$
|
285,092
|
|
See notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
ALEXANDER’S, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Amounts in thousands)
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income
|
$
|
32,844
|
|
|
$
|
80,509
|
|
|
$
|
86,477
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization, including amortization of debt issuance costs
|
38,499
|
|
|
38,681
|
|
|
36,374
|
|
Straight-lining of rental income
|
5,924
|
|
|
4,297
|
|
|
2,347
|
|
Stock-based compensation expense
|
394
|
|
|
394
|
|
|
450
|
|
Change in fair value of marketable securities (see Note 5)
|
11,990
|
|
|
—
|
|
|
—
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
Tenant and other receivables, net
|
(1,382
|
)
|
|
363
|
|
|
958
|
|
Other assets
|
(1,197
|
)
|
|
(2,627
|
)
|
|
(9,894
|
)
|
Amounts due to Vornado
|
(1,907
|
)
|
|
1,626
|
|
|
(1,913
|
)
|
Accounts payable and accrued expenses
|
(11,760
|
)
|
|
211
|
|
|
16,049
|
|
Other liabilities
|
133
|
|
|
(28
|
)
|
|
(28
|
)
|
Net cash provided by operating activities
|
73,538
|
|
|
123,426
|
|
|
130,820
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
Construction in progress and real estate additions
|
(3,966
|
)
|
|
(3,434
|
)
|
|
(15,506
|
)
|
Rego Park II loan participation
|
—
|
|
|
(200,000
|
)
|
|
—
|
|
Repayment of Rego Park II loan participation
|
2,829
|
|
|
1,463
|
|
|
—
|
|
Net cash used in investing activities
|
(1,137
|
)
|
|
(201,971
|
)
|
|
(15,506
|
)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Debt repayments
|
(160,142
|
)
|
|
(303,707
|
)
|
|
(3,440
|
)
|
Proceeds from borrowing
|
78,246
|
|
|
500,000
|
|
|
—
|
|
Dividends paid
|
(92,100
|
)
|
|
(86,961
|
)
|
|
(81,822
|
)
|
Debt issuance costs
|
(2,189
|
)
|
|
(12,186
|
)
|
|
(30
|
)
|
Net cash (used in) provided by financing activities
|
(176,185
|
)
|
|
97,146
|
|
|
(85,292
|
)
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents and restricted cash
|
(103,784
|
)
|
|
18,601
|
|
|
30,022
|
|
Cash and cash equivalents and restricted cash at beginning of year
|
393,279
|
|
|
374,678
|
|
|
344,656
|
|
Cash and cash equivalents and restricted cash at end of year
|
$
|
289,495
|
|
|
$
|
393,279
|
|
|
$
|
374,678
|
|
|
|
|
|
|
|
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
$
|
307,536
|
|
|
$
|
288,926
|
|
|
$
|
259,349
|
|
Restricted cash at beginning of year
|
85,743
|
|
|
85,752
|
|
|
85,307
|
|
Cash and cash equivalents and restricted cash at beginning of year
|
$
|
393,279
|
|
|
$
|
374,678
|
|
|
$
|
344,656
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
$
|
283,056
|
|
|
$
|
307,536
|
|
|
$
|
288,926
|
|
Restricted cash at end of year
|
6,439
|
|
|
85,743
|
|
|
85,752
|
|
Cash and cash equivalents and restricted cash at end of year
|
$
|
289,495
|
|
|
$
|
393,279
|
|
|
$
|
374,678
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
Cash payments for interest
|
$
|
38,231
|
|
|
$
|
26,994
|
|
|
$
|
19,517
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS
|
|
|
|
|
|
Write-off of fully amortized and/or depreciated assets
|
$
|
16,090
|
|
|
$
|
4,265
|
|
|
$
|
1,691
|
|
Liability for real estate additions, including $125, $21 and $54 for development fees due to
|
|
|
|
|
|
Vornado in 2018, 2017 and 2016, respectively
|
631
|
|
|
705
|
|
|
322
|
|
See notes to consolidated financial statements.
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
seven
properties in the greater New York City metropolitan area consisting of:
Operating properties
|
|
•
|
731 Lexington Avenue, a
1,311,000
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
889,000
and
174,000
of net rentable square feet of office and retail space, respectively, which we own, and
248,000
square feet of residential space consisting of
105
condominium units, which we sold. Bloomberg L.P. (“Bloomberg”) occupies all of the office space. The Home Depot (
83,000
square feet), The Container Store (
34,000
square feet) and Hennes & Mauritz (
27,000
square feet) are the principal retail tenants;
|
|
|
•
|
Rego Park I, a
343,000
square foot shopping center, located on Queens Boulevard and 63
rd
Road in Queens. On April 4, 2017, Sears closed its
195,000
square foot anchor store at the property (
$10,300,000
of annual revenue). On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief and rejected its lease. The center is also anchored by a
50,000
square foot Burlington, a
46,000
square foot Bed Bath & Beyond and a
36,000
square foot Marshalls;
|
|
|
•
|
Rego Park II, a
609,000
square foot shopping center, adjacent to the Rego Park I shopping center in Queens. The center is anchored by a
145,000
square foot Costco, a
135,000
square foot Century 21 and a
133,000
square foot Kohl’s. On January 10, 2019, Kohl’s announced that it plans to close and sublease its store at the property; Kohl’s remains obligated to us under its lease which expires in January 2031. On September 18, 2017, Toys “R” Us, Inc. (“Toys”), a one-third owned affiliate of Vornado as of December 31, 2018, filed for Chapter 11 bankruptcy relief. On June 30, 2018, Toys rejected its
47,000
square foot lease at the property (
$2,600,000
of annual revenue) and possession of the space was returned to us;
|
|
|
•
|
The Alexander apartment tower, located above our Rego Park II shopping center, contains
312
units aggregating
255,000
square feet;
|
|
|
•
|
Paramus, located at the intersection of Routes 4 and 17 in Paramus, New Jersey, consists of
30.3
acres of land that is leased to IKEA Property, Inc.; and
|
|
|
•
|
Flushing, a
167,000
square foot building, located on Roosevelt Avenue and Main Street in Queens, that is sub-leased to New World Mall LLC for the remainder of our ground lease term.
|
Property to be developed
|
|
•
|
Rego Park III, a
140,000
square foot land parcel adjacent to the Rego Park II shopping center in Queens, at the intersection of Junction Boulevard and the Horace Harding Service Road.
|
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 the greater New York City metropolitan area). 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.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Certain prior year balances have been reclassified in order to conform to the current year presentation.
Recently Issued Accounting Literature
– In May 2014, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2014-09”) establishing Accounting Standards Codification (“ASC”) Topic 606,
Revenue from Contracts with Customers
(“ASC 606”). ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. We adopted this standard effective January 1, 2018 using the modified retrospective approach, which allows us to apply the new standard to all existing contracts not yet completed as of the effective date and record a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The adoption of this standard did not have a material impact on our consolidated financial statements.
In January 2016, the FASB issued an update (“ASU 2016-01”)
Recognition and Measurement of Financial Assets and Financial Liabilities
to ASC Topic 825,
Financial Instruments
(“ASC 825”). ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We adopted this update effective January 1, 2018 using the modified retrospective approach. While the adoption of this update requires us to continue to measure “marketable securities” at fair value at each reporting date, the changes in fair value will be recognized in current period earnings as opposed to “other comprehensive (loss) income.” As a result, on January 1, 2018 we recorded an increase to retained earnings of
$5,156,000
to recognize the unrealized gains previously recorded within “accumulated other comprehensive (loss) income.” For the year ended December 31, 2018 we recorded a decrease in the fair value of our marketable securities of
$11,990,000
, resulting from The Macerich Company’s (“Macerich”) closing share price of
$43.28
as of December 31, 2018, compared to
$65.68
as of December 31, 2017.
In February 2016, the FASB issued an update (“ASU 2016-02”) establishing ASC Topic 842,
Leases
(“ASC 842”), as amended by subsequent ASUs on the topic, 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 two-method 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 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 accounting applied by the lessor is largely unchanged from that applied under the existing lease standard. We adopted this standard effective January 1, 2019. We completed our evaluation of the overall impact of the adoption of ASU 2016-02 on our consolidated financial statements and accounting policies. In transitioning to ASC 842, we elected to use the practical expedient package available to us and did not elect to use hindsight. For our Flushing property ground lease, which is classified as an operating lease, we will be required to record a right-of-use asset and lease liability equal to the present value of the remaining minimum lease payments, and will continue to recognize expense on a straight-line basis upon adoption of this standard. On January 1, 2019, we recorded the Flushing right-of-use asset and corresponding lease liability of approximately
$5,400,000
as a result of the adoption of this standard.
In February 2017, the FASB issued an update (“ASU 2017-05”)
Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
to ASC Subtopic 610-20,
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets
. ASU 2017-05 clarifies the scope of recently established guidance on nonfinancial asset derecognition, as well as the accounting for partial sales of nonfinancial assets. This update conforms the derecognition guidance on nonfinancial assets with the model for transactions in ASC 606. ASU 2017-05 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. We adopted this update effective January 1, 2018 using the modified retrospective approach to all contracts not yet completed. The adoption of this update did not have a material impact on our consolidated financial statements.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In August 2017, the FASB issued an update (“ASU 2017-12”)
Targeted Improvements to Accounting for Hedging Activities
to ASC Topic 815,
Derivatives and Hedging
(“ASC 815”). ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815. The update is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting and increase transparency as to the scope and results of hedge programs. The update ASU 2017-12 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We elected to early adopt ASU 2017-12 effective January 1, 2018 using the modified retrospective approach. The adoption of this update did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued an update (“ASU 2018-13”)
Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
to ASC Topic 820,
Fair Value Measurement
(“ASC 820”). ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. ASU 2018-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. An entity is permitted to early adopt by modifying existing disclosures and delay adoption of the additional disclosures until the effective date. The adoption of this update is not expected to have a material impact on our consolidated financial statements and disclosures.
In October 2018, the FASB issued an update (“ASU 2018-16”)
Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
to ASC 815. ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on SOFR as an eligible benchmark interest rate. ASU 2018-16 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted this update effective January 1, 2019. The adoption of this update did not have a material impact on our consolidated financial statements.
Real Estate
– Real estate is carried at cost, net of accumulated depreciation and amortization. As of
December 31, 2018
and
2017
, the carrying amount of our real estate, net of accumulated depreciation and amortization, was
$730,270,000
and
$754,324,000
, respectively. Maintenance and repairs are 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 and related intangible assets, including properties to be developed in the future, 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. 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.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Cash and Cash Equivalents
– Cash and cash equivalents consist of highly liquid investments with original maturities of
three months
or less 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) United States Treasury Bills, (iii) money market funds, which invest in United States Treasury Bills and (iv) 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 agreements for debt service, real estate taxes, property insurance and capital improvements. Prior to repayment in June 2018, restricted cash also consisted of cash held in a non-interest bearing escrow account in connection with our Rego Park I
100%
cash collateralized mortgage.
Marketable Securities
– Our marketable securities consist of common shares of Macerich (NYSE: MAC), which are classified as available-for-sale. Available-for-sale securities are presented at fair value on our consolidated balance sheets. Prior to January 1, 2018, unrealized gains and losses resulting from the mark-to-market of these securities were included in “other comprehensive (loss) income.” Effective January 1, 2018, changes in the fair value of these securities are recognized in current period earnings in accordance with ASC 825 (see Note 5).
Allowance for Doubtful Accounts
– We periodically evaluate the collectibility of amounts due from tenants, including the receivable arising from the straight-lining of rents, and maintain an allowance for doubtful accounts (
$671,000
and
$1,501,000
as of
December 31, 2018
and
2017
, respectively) for estimated losses resulting from the inability of tenants to make required payments under the lease agreements. We exercise judgment in establishing these allowances and consider payment history and current credit status in developing these estimates.
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 costs related to 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.
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, 2018
were characterized, for federal income tax purposes, as
100.0%
ordinary income. Dividends distributed for the year ended
December 31, 2017
were characterized, for federal income tax purposes, as
99.5%
ordinary income and
0.5%
long-term capital gain income. Dividends distributed for the year ended
December 31, 2016
were categorized, for federal income tax purposes, as
97.7%
ordinary income and
2.3%
long-term capital gain income.
The following table reconciles our net income to estimated taxable income for the years ended
December 31, 2018
,
2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited and in thousands)
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Net income
|
$
|
32,844
|
|
|
$
|
80,509
|
|
|
$
|
86,477
|
|
Straight-line rent adjustments
|
5,870
|
|
|
4,250
|
|
|
2,347
|
|
Depreciation and amortization timing differences
|
(6,586
|
)
|
|
3,084
|
|
|
(14,534
|
)
|
Change in fair value of marketable securities (see Note 5)
|
11,990
|
|
|
—
|
|
|
—
|
|
Loss from discontinued operations (see Note 6)
|
23,797
|
|
|
—
|
|
|
—
|
|
Other
|
440
|
|
|
(343
|
)
|
|
2,975
|
|
Estimated taxable income
|
$
|
68,355
|
|
|
$
|
87,500
|
|
|
$
|
77,265
|
|
As of
December 31, 2018
, the net basis of our assets and liabilities for tax purposes is approximately
$186,559,000
lower than the amount reported for financial statement purposes.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REVENUE RECOGNITION
Our revenues consist of property rentals and expense reimbursements. We have the following revenue sources and revenue recognition policies:
|
|
•
|
Base Rent is revenue arising from tenant leases. These rents are recognized over the non-cancelable term of the related leases on a straight-line basis, which includes the effects of rent steps and rent abatements. We commence rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. In addition, in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant, we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease.
|
|
|
•
|
Percentage Rent is revenue arising from retail tenant leases that is contingent upon the sales of tenants exceeding defined thresholds. These rents are recognized only after the contingency has been removed (i.e., when tenant sales thresholds have been achieved).
|
|
|
•
|
Parking Revenue arising from the rental of parking spaces at our properties. This income is recognized as the services are provided.
|
|
|
•
|
Operating Expense Reimbursements is revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of our properties. Revenue is recognized in the same period as the related expenses are incurred.
|
|
|
•
|
Tenant Services is revenue arising from sub-metered electric, elevator and other services provided to tenants at their request. This revenue is recognized as the services are transferred.
|
Parking revenue and tenant services income represent revenue recognized from contracts with customers and are recognized in accordance with ASC 606. Base rent, percentage rent and operating expense reimbursements are recognized in accordance with ASC Topic 840,
Leases
.
The following is a summary of revenue sources for the years ended December 31, 2018, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
(Amounts in thousands)
|
|
2018
|
|
2017
|
|
2016
|
Base rent
|
|
$
|
146,881
|
|
|
$
|
146,833
|
|
|
$
|
145,293
|
|
Percentage rent
|
|
234
|
|
|
174
|
|
|
182
|
|
Parking revenue
|
|
5,680
|
|
|
5,850
|
|
|
5,969
|
|
Property rentals
|
|
152,795
|
|
|
152,857
|
|
|
151,444
|
|
|
|
|
|
|
|
|
Operating expense reimbursements
|
|
76,273
|
|
|
73,757
|
|
|
71,699
|
|
Tenant services
|
|
3,757
|
|
|
3,960
|
|
|
3,793
|
|
Expense reimbursements
|
|
80,030
|
|
|
77,717
|
|
|
75,492
|
|
Total revenues
|
|
$
|
232,825
|
|
|
$
|
230,574
|
|
|
$
|
226,936
|
|
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS
Vornado
As of
December 31, 2018
, 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.
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, 2018
, 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,
26.2%
of our outstanding common stock, in addition to the
2.3%
they indirectly own through Vornado. Joseph Macnow, our Treasurer, is the Executive Vice President - Chief Financial Officer and Chief Administrative Officer of Vornado. Matthew Iocco, our Chief Financial Officer, is the Executive Vice President - Chief Accounting Officer of 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)
$315,000
, 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.
The following is a summary of fees to Vornado under the various agreements discussed above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Amounts in thousands)
|
2018
|
|
2017
|
|
2016
|
Company management fees
|
$
|
2,800
|
|
|
$
|
2,800
|
|
|
$
|
2,800
|
|
Development fees
|
125
|
|
|
29
|
|
|
194
|
|
Leasing fees
|
13
|
|
|
1,829
|
|
|
7,401
|
|
Property management, cleaning, engineering
|
|
|
|
|
|
and security fees
|
4,101
|
|
|
4,114
|
|
|
4,033
|
|
|
$
|
7,039
|
|
|
$
|
8,772
|
|
|
$
|
14,428
|
|
As of
December 31, 2018
, the amounts due to Vornado were
$549,000
for management, property management, cleaning, engineering and security fees;
$146,000
for development fees; and
$13,000
for leasing fees. As of
December 31, 2017
, the amounts due to Vornado were
$1,811,000
for leasing fees;
$658,000
for management, property management, cleaning, engineering and security fees; and
$21,000
for development fees.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS - continued
Toys
Our affiliate, Vornado, owned
32.5%
of Toys as of December 31, 2018. On February 1, 2019, in connection with the Toys Chapter 11 bankruptcy, the plan of reorganization for Toys was declared effective and Vornado’s ownership in Toys was canceled and Toys’ Board of Directors was dissolved. Joseph Macnow, Vornado’s Executive Vice President and Chief Financial Officer and Wendy A. Silverstein, a member of our Board of Directors, represented Vornado as members of Toys’ Board of Directors. Also in connection with the Toys Chapter 11 bankruptcy, Toys rejected its
47,000
square foot lease at our Rego Park II shopping center (
$2,600,000
of annual revenue) effective June 30, 2018 and possession of the space was returned to us. Consequently, we accelerated depreciation and amortization of the remaining balances of
$588,000
of tenant improvements and
$215,000
of deferred leasing costs during the year ended December 31, 2018. We also wrote off the Toys receivable arising from the straight-lining of rent of
$500,000
during the year ended December 31, 2018.
5. MARKETABLE SECURITIES
As of
December 31, 2018
and
2017
, we owned
535,265
common shares of Macerich. These shares have an economic cost of
$56.05
per share, or
$30,000,000
in the aggregate. As of
December 31, 2018
and
2017
, the fair value of these shares was
$23,166,000
and
$35,156,000
, respectively, based on Macerich’s closing share price of
$43.28
per share and
$65.68
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 on our consolidated balance sheets. Prior to January 1, 2018, unrealized gains and losses resulting from the mark-to-market of these securities were included in “other comprehensive (loss) income.” Effective January 1, 2018, changes in the fair value of these securities are recognized in current period earnings in accordance with ASC 825. For the year ended December 31, 2018 we recorded a decrease in the fair value of our marketable securities of
$11,990,000
, resulting from Macerich’s closing share price of
$43.28
as of December 31, 2018, compared to
$65.68
as of December 31, 2017.
6. DISCONTINUED OPERATIONS
In 2012, we sold the Kings Plaza Regional Shopping Center (“Kings Plaza”) and paid real property transfer taxes to New York City in connection with the sale. In 2015, the New York City Department of Finance (“NYC DOF”) issued a Notice of Determination to us assessing an additional New York City real property transfer tax amount, including interest, which we are contesting.
In 2014, in a case with similar facts, the NYC DOF issued a Notice of Determination to a Vornado joint venture assessing an additional New York City real property transfer tax amount, including interest. In January 2017, a New York City administrative law judge made a determination upholding the Vornado joint venture’s position that such additional real property transfer taxes were not due. On February 16, 2018, the New York City Tax Appeals Tribunal (the “Tribunal”) overturned the January 2017 determination. The Vornado joint venture is appealing the Tribunal’s decision to the Appellate Division of the Supreme Court of the State of New York which is scheduled to be heard in the first half of 2019.
In 2018, based on the precedent of the Tribunal’s decision, we recorded an expense for the potential additional real property transfer taxes of
$23,797,000
(
$15,874,000
of real property transfer tax and
$7,923,000
of interest) and paid this amount in order to stop the interest from accruing. Our case is on hold pending the outcome of the Vornado joint venture’s appeal.
As the results related to Kings Plaza were previously classified as discontinued operations, we have classified the expense as “loss from discontinued operations” on our consolidated statement of income for the year ended December 31, 2018 in accordance with the provisions of ASC Topic 360,
Property, Plant and Equipment
.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. MORTGAGES PAYABLE
On October 3, 2018, we extended our mortgage loan on our Paramus property. The
$68,000,000
interest-only loan has a fixed rate of
4.72%
and matures in October 2021. Previously the loan bore interest at a fixed rate of
2.90%
.
On December 12, 2018, we completed a
$252,544,000
refinancing of our Rego Park II shopping center. The interest-only loan is at LIBOR plus
1.35%
(
3.87%
as of December 31, 2018) and matures in December 2025. The previous loan bore interest at LIBOR plus
1.85%
and was scheduled to mature in January 2019.
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, 2018
|
|
Balance at December 31,
|
(Amounts in thousands)
|
Maturity
(1)
|
|
|
2018
|
|
2017
|
First mortgages secured by:
|
|
|
|
|
|
|
|
|
|
Paramus
|
Oct. 2021
|
|
4.72%
|
|
$
|
68,000
|
|
|
$
|
68,000
|
|
|
|
731 Lexington Avenue, retail space
(2)
|
Aug. 2022
|
|
3.78%
|
|
350,000
|
|
|
350,000
|
|
|
|
731 Lexington Avenue, office space
(3)
|
Jun. 2024
|
|
3.36%
|
|
500,000
|
|
|
500,000
|
|
|
|
Rego Park II shopping center
|
Dec. 2025
|
|
3.87%
|
|
252,544
|
|
(4)
|
256,194
|
|
|
|
Rego Park I shopping center (100% cash
|
|
|
|
|
|
|
|
|
|
collateralized)
(5)
|
—
|
|
—
|
|
—
|
|
|
78,246
|
|
|
|
Total
|
|
|
|
|
1,170,544
|
|
|
1,252,440
|
|
|
|
Deferred debt issuance costs, net of accumulated
|
|
|
|
|
|
|
|
|
|
amortization of $9,212 and $6,315, respectively
|
|
|
|
|
(9,010
|
)
|
|
(12,218
|
)
|
|
|
|
|
|
|
|
$
|
1,161,534
|
|
|
$
|
1,240,222
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents the extended maturity where we have the unilateral right to extend.
|
(2)
|
|
Interest at LIBOR plus 1.40%.
|
(3)
|
|
Interest at LIBOR plus 0.90%.
|
(4)
|
|
Interest at LIBOR plus 1.35%. See Note 8 for details of our Rego Park II loan participation.
|
(5)
|
|
Refinanced on May 11, 2018 and repaid on June 6, 2018.
|
All of our debt is secured by mortgages and/or pledges of the stock of the subsidiaries holding the properties. The net carrying value of real estate collateralizing the debt amounted to
$589,492,000
as of
December 31, 2018
. 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, 2018
, the principal repayments for the next five years and thereafter are as follows:
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
Year Ending December 31,
|
|
Amount
|
2019
|
|
$
|
—
|
|
2020
|
|
—
|
|
2021
|
|
68,000
|
|
2022
|
|
350,000
|
|
2023
|
|
—
|
|
Thereafter
|
|
752,544
|
|
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REGO PARK II LOAN PARTICIPATION
We hold a participation in the Rego Park II shopping center loan and are entitled to interest at LIBOR plus
1.35%
(
3.87%
as of December 31, 2018). The participation in the previous loan, which was refinanced on December 12, 2018, earned interest at LIBOR plus
1.60%
. As of December 31, 2018 and 2017, our loan participation balance was
$195,708,000
and
$198,537,000
, respectively, and the investment is presented as “Rego Park II loan participation” on our consolidated balance sheets. Interest earned on the loan participation is recognized as “interest and other income, net” on our consolidated statements of income for the years ended December 31, 2018 and 2017.
9. FAIR VALUE MEASUREMENTS
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; 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 sheets as of
December 31, 2018
and
2017
consist of marketable securities and an interest rate cap, 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, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
(Amounts in thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Marketable securities
|
$
|
23,166
|
|
|
$
|
23,166
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate cap (included in other assets)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
23,166
|
|
|
$
|
23,166
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
(Amounts in thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Marketable securities
|
$
|
35,156
|
|
|
$
|
35,156
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate cap (included in other assets)
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Total assets
|
$
|
35,162
|
|
|
$
|
35,156
|
|
|
$
|
6
|
|
|
$
|
—
|
|
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, the Rego Park II loan participation 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 values of the Rego Park II loan participation and our mortgages payable are 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 are classified as Level 2. The table below summarizes the carrying amount and fair value of these financial instruments as of
December 31, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
As of December 31, 2017
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
(Amounts in thousands)
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
Assets:
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
173,858
|
|
|
$
|
173,858
|
|
|
$
|
273,914
|
|
|
$
|
273,914
|
|
Rego Park II loan participation
|
195,708
|
|
|
196,000
|
|
|
198,537
|
|
|
198,000
|
|
|
$
|
369,566
|
|
|
$
|
369,858
|
|
|
$
|
472,451
|
|
|
$
|
471,914
|
|
Liabilities:
|
|
|
|
|
|
|
|
Mortgages payable (excluding deferred debt issuance costs, net)
|
$
|
1,170,544
|
|
|
$
|
1,165,000
|
|
|
$
|
1,252,440
|
|
|
$
|
1,239,000
|
|
10. LEASES
As Lessor
We lease space to tenants 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 with
1
or
2
year lease terms.
Future base rental revenue under these non-cancelable operating leases is as follows:
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2019
|
|
$
|
138,784
|
|
2020
|
|
131,647
|
|
2021
|
|
120,450
|
|
2022
|
|
111,532
|
|
2023
|
|
111,962
|
|
Thereafter
|
|
671,111
|
|
These future minimum amounts do not include additional rents based on a percentage of retail tenants’ sales. These rents were
$234,000
,
$174,000
and
$182,000
, respectively, for the years ended
December 31, 2018
,
2017
and
2016
.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASES - continued
Bloomberg accounted for revenue of
$107,356,000
,
$105,224,000
and
$104,590,000
in the years ended December 31, 2018, 2017 and 2016, respectively, representing approximately
46%
of our total revenues in each year. 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.
As Lessee
We are a tenant under a long-term ground lease at our Flushing property, which expires in
2027
and has
one
10
-year extension option. In accordance with ASC 842, on January 1, 2019 we recorded a right-of-use asset and lease liability related to this ground lease equal to the present value of the remaining minimum lease payments of approximately
$5,400,000
. Future lease payments under this operating lease, excluding the extension option, are as follows:
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2019
|
|
$
|
800
|
|
2020
|
|
800
|
|
2021
|
|
800
|
|
2022
|
|
800
|
|
2023
|
|
800
|
|
Thereafter
|
|
2,467
|
|
Rent expense was
$746,000
in each of the years ended
December 31, 2018
,
2017
and
2016
.
11. STOCK-BASED COMPENSATION
We account for stock-based compensation in accordance with ASC Topic 718,
Compensation - Stock Compensation
. 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.
On May 17, 2018, we granted each of the members of our Board of Directors
195
DSUs with a grant date fair value of
$56,250
per grant, or
$394,000
in the aggregate. 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, 2018, there were
10,057
DSUs outstanding and
495,730
shares were available for future grant under the Plan.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. 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 and the Federal government with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a
$323,000
deductible and
19%
of the balance of a covered loss, and the Federal government is responsible for the remaining
81%
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 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. Further, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.
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
4.72%
, which matures in October 2021. The annual triple-net rent is the sum of
$700,000
plus the amount of interest 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.
Rego Park I Litigation
In June 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 leased 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
. On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief resulting in an automatic stay of this case.
On April 4, 2017, Sears closed its
195,000
square foot store at the property (
$10,300,000
of annual revenue). On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief and rejected its lease. Consequently, we wrote off the remaining balance of the Sears receivable arising from the straight-lining of rent of
$2,973,000
during the year ended December 31, 2018. In addition, we accelerated depreciation and amortization of the remaining balance of
$312,000
of deferred leasing costs during the year ended December 31, 2018.
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES - continued
Tenant Matter
On January 10, 2019, Kohl’s announced that it plans to close and sublease its
133,000
square foot store at our Rego Park II shopping center; Kohl’s remains obligated to us under its lease which expires in January 2031.
Letters of Credit
Approximately
$1,030,000
of standby letters of credit were issued and outstanding as of
December 31, 2018
.
Other
We received approximately
$165,000
,
$396,000
and
$825,000
from bankruptcy recoveries during the years ended
December 31, 2018
,
2017
and
2016
, respectively, which is included as “interest and other income, net” in our consolidated statements of income.
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.
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, 2018
, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements.
In the years ended
December 31, 2018
,
2017
and
2016
our subsidiaries contributed
$161,000
,
$162,000
and
$147,000
, 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, 2018
,
2017
and
2016
.
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, 2018
,
2017
and
2016
our subsidiaries contributed
$649,000
,
$619,000
and
$539,000
, respectively, towards these plans.
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, 2018
,
2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
(Amounts in thousands, except share and per share amounts)
|
2018
|
|
2017
|
|
2016
|
Income from continuing operations
|
$
|
56,641
|
|
|
$
|
80,509
|
|
|
$
|
86,477
|
|
Loss from discontinued operations (see Note 6)
|
(23,797
|
)
|
|
—
|
|
|
—
|
|
Net income
|
$
|
32,844
|
|
|
$
|
80,509
|
|
|
$
|
86,477
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic and diluted
|
5,116,838
|
|
|
5,115,501
|
|
|
5,114,084
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
11.07
|
|
|
$
|
15.74
|
|
|
$
|
16.91
|
|
Loss from discontinued operations (see Note 6)
|
(4.65
|
)
|
|
—
|
|
|
—
|
|
Net income per common share – basic and diluted
|
$
|
6.42
|
|
|
$
|
15.74
|
|
|
$
|
16.91
|
|
15. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Common Share
(1)
|
|
|
(Amounts in thousands, except per share amounts)
|
Revenues
|
|
Net Income (Loss)
|
|
Basic
|
|
Diluted
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
December 31
|
$
|
57,567
|
|
|
$
|
9,971
|
|
|
$
|
1.95
|
|
|
$
|
1.95
|
|
|
|
September 30
|
59,125
|
|
|
15,003
|
|
|
2.93
|
|
|
2.93
|
|
|
|
June 30
|
58,253
|
|
|
17,570
|
|
|
3.43
|
|
|
3.43
|
|
|
|
March 31
|
57,880
|
|
|
(9,700
|
)
|
(2)
|
(1.90
|
)
|
(2)
|
(1.90
|
)
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
December 31
|
$
|
58,061
|
|
|
$
|
17,883
|
|
|
$
|
3.50
|
|
|
$
|
3.50
|
|
|
|
September 30
|
58,094
|
|
|
20,299
|
|
|
3.97
|
|
|
3.97
|
|
|
|
June 30
|
57,190
|
|
|
20,660
|
|
|
4.04
|
|
|
4.04
|
|
|
|
March 31
|
57,229
|
|
|
21,667
|
|
|
4.24
|
|
|
4.24
|
|
|
_______________________
|
|
|
|
|
|
|
|
|
(1)
|
The total for the year may differ from the sum of the quarters as a result of weighting.
|
(2)
|
Includes $23,797, or $4.65 per common share, of expense for potential additional New York City real property transfer taxes on the 2012 sale of Kings Plaza which is being contested.
|