Certain statements contained in this Quarterly Report constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results, financial condition, results of operations and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or other similar expressions in this Quarterly Report on Form 10-Q. These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. Currently, one of the most significant factors is the ongoing adverse effect of the COVID-19 pandemic on our business, financial condition, results of operations, cash flows, operating performance and the effect it has had and may continue to have on our tenants, the global, national, regional and local economies and financial markets and the real estate market in general. The extent of the impact of the COVID-19 pandemic will depend on future developments, including the duration of the pandemic, current and future variants, the efficacy and durability of vaccines against the variants and the potential for increased government restrictions, which continue to be uncertain at this time but that impact could be material. Moreover, you are cautioned that the COVID-19 pandemic will heighten many of the risks identified in "Item 1A. - Risk Factors" in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . For a further discussion of factors that could materially affect the outcome of our forward-looking statements, see "Item 1A. - Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly, any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q. Management's Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three and six months endedJune 30, 2021 and 2020. The preparation of financial statements in conformity with accounting principles generally accepted inthe United States of America ("GAAP") requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The results of operations for the three and six months endedJune 30, 2021 are not necessarily indicative of the operating results for the full year. Critical Accounting Policies A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Note 3 - Summary of Significant Accounting Policies" to the consolidated financial statements included therein. For the six months endedJune 30, 2021 , there were no material changes to these policies. 17 --------------------------------------------------------------------------------
Overview
Alexander's, Inc. (NYSE: ALX) is a real estate investment trust ("REIT"), incorporated inDelaware , engaged in leasing, managing, developing and redeveloping its properties. All references to "we," "us," "our," "Company" and "Alexander's" refer toAlexander'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 greaterNew York City metropolitan area. We compete with a large number of property owners and developers. Our success depends upon, among other factors, trends of the world, national and local economies, the financial condition and operating results of current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels. Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due. COVID-19 Pandemic Our business has been adversely affected by the ongoing COVID-19 pandemic. Although substantially all our retail tenants are currently open and operating and previous government restrictions have been lifted, there continue to be economic conditions and other factors that adversely affect the financial health of our retail tenants. In limited circumstances, we have agreed to and may continue to agree to rent deferrals and abatements for certain of our tenants. We have made the policy election available to us based on theFinancial Accounting Standards Board's ("FASB") guidance for leases during the COVID-19 pandemic, which allows us to continue recognizing rental revenue for rent deferral agreements and to recognize rent abatements as a reduction to rental revenue in the period granted for qualifying deferrals and abatements. Overall, we have collected approximately 97% of the rent due from our tenants for the quarter endedJune 30, 2021 , including 100% from our office tenant, approximately 93% from our retail tenants, and approximately 98% from our residential tenants. Quarter EndedJune 30, 2021 Financial Results Summary Net income for the quarter endedJune 30, 2021 was$25,898,000 , or$5.05 per diluted share, compared to$12,331,000 , or$2.41 per diluted share in the prior year's quarter. Net income for the quarter endedJune 30, 2021 included$9,124,000 , or$1.78 per diluted share, of income as a result of a net gain on the sale of a parcel of land in theBronx, New York ("Bronx Land Parcel"). Funds from operations ("FFO") (non-GAAP) for the quarter endedJune 30, 2021 was$21,133,000 , or$4.12 per diluted share, compared to$17,995,000 or$3.51 per diluted share in the prior year's quarter. Six Months EndedJune 30, 2021 Financial Results Summary Net income for the six months endedJune 30, 2021 was$43,780,000 , or$8.55 per diluted share, compared to$16,903,000 , or$3.30 per diluted share in the prior year's six months. Net income for the six months endedJune 30, 2021 included$9,124,000 , or$1.78 per diluted share, of income as a result of a net gain on the sale of real estate. Funds from operations ("FFO") (non-GAAP) for the six months endedJune 30, 2021 was$46,914,000 , or$9.16 per diluted share, compared to$41,739,000 or$8.15 per diluted share in the prior year's six months. Square Footage, Occupancy and Leasing Activity As ofJune 30, 2021 , our portfolio was comprised of seven properties aggregating 2,455,000 square feet, of which 2,219,000 square feet was in service and 236,000 square feet (primarily the former Century 21 space at our Rego Park II property and a portion of the former Sears space at ourRego Park I property) was out of service for redevelopment. Excluding residential, the in service square feet was 95% occupied as ofJune 30, 2021 . The in service residential square feet was 83% occupied as ofJune 30, 2021 . 18 -------------------------------------------------------------------------------- Overview - continued Sale of Real Estate OnJune 4, 2021 , we sold the Bronx Land Parcel for$10,000,000 . Net proceeds from the sale were$9,291,000 , the financial statement gain was$9,124,000 and the tax gain was$9,100,000 . We do not expect to pay a special dividend related to this transaction. Significant TenantBloomberg L.P. ("Bloomberg") accounted for revenue of$57,513,000 and$53,180,000 for the six months endedJune 30, 2021 and 2020, respectively, representing approximately 53% of our total revenues in each period. 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. 19
-------------------------------------------------------------------------------- Results of Operations - Three Months EndedJune 30, 2021 , compared toJune 30, 2020 Rental Revenues Rental revenues were$51,388,000 in the quarter endedJune 30, 2021 , compared to$45,478,000 in the prior year's quarter, an increase of$5,910,000 . This was primarily due to (i)$4,247,000 from write-offs in the prior year related to receivables arising from the straight-lining of rents from certain of our retail tenants who were put on a cash basis given the probability of collecting the rent due under the lease agreements, (ii)$1,323,000 of higher revenue from these retail tenants put on a cash basis and (iii)$1,820,000 from higher revenue from new tenants, partially offset by (iv)$2,049,000 from retail tenant vacancies at our731 Lexington Avenue property. Operating Expenses Operating expenses were$23,422,000 in the quarter endedJune 30, 2021 , compared to$19,778,000 in the prior year's quarter, an increase of$3,644,000 . This was primarily due to higher operating expenses subject to recovery, including real estate taxes and common area maintenance. Depreciation and Amortization Depreciation and amortization was$8,132,000 in the quarter endedJune 30, 2021 , compared to$7,633,000 in the prior year's quarter, an increase of$499,000 . This was primarily due to the acceleration of amortization of the deferred leasing commission at ourParamus property. General and Administrative Expenses General and administrative expenses were$1,823,000 in the quarter endedJune 30, 2021 , compared to$2,111,000 in the prior year's quarter, a decrease of$288,000 . This was primarily due to lower stock-based compensation expense related to an initial award of deferred stock units with a fair value of$150,000 granted to a newly appointed member of our Board of Directors in the prior year and lower professional fees. Interest and Other Income, net Interest and other income, net was$151,000 in the quarter endedJune 30, 2021 , compared to$710,000 in the prior year's quarter, a decrease of$559,000 . This was primarily due to$396,000 of lower interest income due to a decrease in average interest rates and$183,000 of lower dividend income from The Macerich Company ("Macerich"). Interest and Debt Expense Interest and debt expense was$5,086,000 in the quarter endedJune 30, 2021 , compared to$6,172,000 in the prior year's quarter, a decrease of$1,086,000 . This was primarily due to$1,102,000 of lower interest expense due to a decrease in LIBOR. Change in Fair Value ofMarketable Securities Change in fair value of marketable securities was income of$3,698,000 in the quarter endedJune 30, 2021 , compared to income of$1,837,000 in the prior year's quarter, an increase of$1,861,000 . This was due to the change in Macerich's share price during the periods.Net Gain on Sale of Real Estate Net gain on sale of real estate was$9,124,000 in the quarter endedJune 30, 2021 , resulting from the sale of the Bronx Land Parcel. 20 -------------------------------------------------------------------------------- Results of Operations - Six Months EndedJune 30, 2021 , compared toJune 30, 2020 Rental Revenues Rental revenues were$107,541,000 in the six months endedJune 30, 2021 , compared to$99,588,000 in the prior year's six months, an increase of$7,953,000 . This was primarily due to$4,247,000 from write-offs in the prior year related to receivables arising from the straight-lining of rents from certain of our retail tenants who were put on a cash basis and$2,750,000 of lease termination fee income from a retail tenant at our731 Lexington Avenue property. Operating Expenses Operating expenses were$47,222,000 in the six months endedJune 30, 2021 , compared to$41,531,000 in the prior year's six months, an increase of$5,691,000 . This was primarily due to higher operating expenses subject to recovery, including real estate taxes and common area maintenance. Depreciation and Amortization Depreciation and amortization was$16,674,000 in the six months endedJune 30, 2021 , compared to$15,542,000 in the prior year's six months, an increase of$1,132,000 . This was primarily due to the acceleration of amortization of the deferred leasing commission at ourParamus property. General and Administrative Expenses General and administrative expenses were$3,366,000 in the six months endedJune 30, 2021 , compared to$3,562,000 in the prior year's six months, a decrease of$196,000 . This was primarily due to lower stock-based compensation expense related to an initial award of deferred stock units with a fair value of$150,000 granted to a newly appointed member of our Board of Directors in the prior year. Interest and Other Income, net Interest and other income, net was$323,000 in the six months endedJune 30, 2021 , compared to$2,253,000 in the prior year's six months, a decrease of$1,930,000 . This was primarily due to$1,435,000 of lower interest income due to a decrease in average interest rates and$499,000 of lower dividend income from Macerich. Interest and Debt Expense Interest and debt expense was$10,226,000 in the six months endedJune 30, 2021 , compared to$14,745,000 in the prior year's six months, a decrease of$4,519,000 . This was primarily due to$4,659,000 of lower interest expense due to a decrease in LIBOR. Change in Fair Value ofMarketable Securities Change in fair value of marketable securities was income of$4,280,000 in the six months endedJune 30, 2021 , compared to an expense of$9,558,000 in the prior year's six months, an increase to income of$13,838,000 . This was due to the change in Macerich's share price during the periods.Net Gain on Sale of Real Estate Net gain on sale of real estate was$9,124,000 in the six months endedJune 30, 2021 , resulting from the sale of the Bronx Land Parcel. 21 -------------------------------------------------------------------------------- Liquidity and Capital Resources Cash Flows Rental revenue is our primary source of cash flow and is dependent on a number of factors, including the occupancy level and rental rates of our properties, as well as our tenants' ability to pay their rents. Our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses, interest expense, recurring capital expenditures and cash dividends to stockholders. As a result of the COVID-19 pandemic, in limited circumstances, we have agreed to and may continue to agree to rent deferrals and abatements for certain of our tenants. Overall, we have collected approximately 97% of the rent due from our tenants for the quarter endedJune 30, 2021 , including 100% from our office tenant, approximately 93% from our retail tenants, and approximately 98% from our residential tenants. Other sources of liquidity to fund cash requirements include our existing cash, proceeds from financings, including mortgage or construction loans secured by our properties and proceeds from asset sales. As ofJune 30, 2021 , we had$479,360,000 of liquidity comprised of$469,056,000 of cash and cash equivalents and restricted cash and$10,304,000 of marketable securities. 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. We may refinance our maturing debt as it comes due or choose to pay it down. However, there can be no assurance that additional financing or capital will be available to refinance our debt, or that the terms will be acceptable or advantageous to us. The challenges posed by the COVID-19 pandemic and the impact on our business and cash flows continue to evolve and cannot be predicted at this time but that impact could be material. Consequently, we will continue to evaluate our liquidity and financial position on an ongoing basis. Six Months EndedJune 30, 2021 Cash and cash equivalents and restricted cash were$469,056,000 as ofJune 30, 2021 , compared to$449,877,000 as ofDecember 31, 2020 , an increase of$19,179,000 . This increase resulted from (i)$62,519,000 of net cash provided by operating activities and (ii)$2,805,000 of net cash provided by investing activities, partially offset by (iii)$46,145,000 of net cash used in financing activities. Net cash provided by operating activities of$62,519,000 was comprised of (i) net income of$43,780,000 , (ii) adjustments for non-cash items of$9,568,000 and (iii) the net change in operating assets and liabilities of$9,171,000 . The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of$17,503,000 , (ii) straight-lining of rental income of$5,019,000 and (iii) stock-based compensation of$450,000 , partially offset by (iv) net gain on sale of real estate of$9,124,000 and (v) the change in fair value of marketable securities of$4,280,000 . Net cash provided by investing activities was comprised of (i) proceeds from the sale of real estate of$9,291,000 and (ii) the return of short-term investments of$3,600,000 , partially offset by (iii) construction in progress and real estate additions of$10,086,000 . Net cash used in financing activities of$46,145,000 was primarily comprised of dividends paid of$46,100,000 . Six Months EndedJune 30, 2020 Cash and cash equivalents and restricted cash were$453,265,000 as ofJune 30, 2020 , compared to$313,977,000 as ofDecember 31, 2019 , an increase of$139,228,000 . This increase resulted from (i)$99,541,000 of net cash provided by financing activities and (ii)$52,756,000 of net cash provided by operating activities, partially offset by (iii)$13,009,000 of net cash used in investing activities. Net cash provided by financing activities of$99,541,000 was primarily comprised of proceeds from the reduction of our participation in our Rego Park II mortgage loan of$145,708,000 , partially offset by dividends paid of$46,068,000 . Net cash provided by operating activities of$52,756,000 was comprised of (i) net income of$16,903,000 and (ii) adjustments for non-cash items of$37,578,000 , partially offset by (iii) the net change in operating assets and liabilities of$1,725,000 . The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of$17,792,000 , (ii) the change in fair value of marketable securities of$9,558,000 , (iii) straight-lining of rental income of$8,820,000 , (iv) write-off of tenant receivables of$1,022,000 and (v) stock based compensation expense of$600,000 , partially offset by (vi)$214,000 of dividends received in stock from Macerich.
Net cash used in investing activities was comprised of construction in progress
and real estate additions of
22 -------------------------------------------------------------------------------- Liquidity and Capital Resources - continued Commitments and Contingencies Insurance We maintain general liability insurance with limits of$300,000,000 per occurrence and per property, of which the first$30,000,000 includes communicable disease coverage, and all-risk property and rental value insurance coverage with limits of$1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties and excluding communicable disease coverage. FiftyNinth Street Insurance Company, LLC ("FNSIC"), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological ("NBCR") acts, as defined by the Terrorism Risk Insurance Act of 2002, as amended to date and which has been extended throughDecember 2027 . Coverage for acts of terrorism (including NBCR acts) is up to$1.7 billion per occurrence and in the aggregate. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a$275,000 deductible and 20% of the balance of a covered loss, and the Federal government is responsible for the remaining 80% of a covered loss. We are ultimately responsible for any loss incurred by FNSIC. We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism or other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material. Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.Paramus In 2001, we leased 30.3 acres of land inParamus, New Jersey toIKEA Property, Inc ("IKEA"). The lease contains a fixed-price purchase option grantingIKEA the right to purchase the property inOctober 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 onOctober 4, 2021 . The annual triple-net rent is the sum of$700,000 plus the amount of interest on the mortgage loan. OnMay 13, 2021 ,IKEA exercised its purchase option. We anticipate closing the sale in the fourth quarter of 2021 and expect to receive net cash proceeds of approximately$4,000,000 after repayment of the mortgage loan and closing costs. We expect to recognize a financial statement gain of approximately$60,000,000 and a tax gain of approximately$63,000,000 . We do not expect to pay a special dividend related to this transaction.Rego Park I Litigation InJune 2014 , Sears Roebuck and Co. ("Sears") filed a lawsuit in theSupreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to the 195,000 square foot store that Sears leased at ourRego 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 inFebruary 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$4,000,000 and future damages it estimated would not be less than$25,000,000 . InMarch 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 . OnOctober 15, 2018 , Sears filed for Chapter 11 bankruptcy relief resulting in an automatic stay of this case. Letters of Credit Approximately$960,000 of standby letters of credit were issued and outstanding as ofJune 30, 2021 . Other 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. 23 --------------------------------------------------------------------------------
Funds from Operations ("FFO") (non-GAAP)
FFO is computed in accordance with the definition adopted by theBoard of Governors of theNational Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of certain real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. A reconciliation of our net income to FFO is provided below. FFO (non-GAAP) for the three and six months endedJune 30, 2021 and 2020 FFO (non-GAAP) for the quarter endedJune 30, 2021 was$21,133,000 , or$4.12 per diluted share, compared to$17,995,000 , or$3.51 per diluted share in the prior year's quarter. FFO (non-GAAP) for the six months endedJune 30, 2021 was$46,914,000 , or$9.16 per diluted share, compared to$41,739,000 , or$8.15 per diluted share in the prior year's six months. The following table reconciles our net income to FFO (non-GAAP): Three Months Ended Six Months Ended June 30, June 30, (Amounts in thousands, except share and per share amounts) 2021 2020 2021 2020 Net income$ 25,898
8,057 7,501 16,538 15,278 Net gain on sale of real estate (9,124) - (9,124) - Change in fair value of marketable securities (3,698) (1,837) (4,280) 9,558 FFO (non-GAAP)$ 21,133
FFO per diluted share (non-GAAP)$ 4.12
Weighted average shares used in computing FFO per diluted share 5,123,255 5,120,548 5,122,733 5,119,623 24
--------------------------------------------------------------------------------
© Edgar Online, source