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ALX > SEC Filings for ALX > Form 10-Q on 1-Nov-2012All Recent SEC Filings

Show all filings for ALEXANDERS INC

Form 10-Q for ALEXANDERS INC


1-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements contained in this Quarterly Report constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results, financial condition, results of operations and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as "approximates," "believes," "expects," "anticipates," "estimates," "intends," "plans," "would," "may" or other similar expressions in this Quarterly Report on Form 10?Q. These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For a further discussion of factors that could materially affect the outcome of our forward-looking statements, see "Item 1A - Risk Factors" in our Annual Report on Form 10?K for the year ended December 31, 2011. 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 nine months ended September 30, 2012 and 2011. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Certain prior year balances have been reclassified in order to conform to current year presentation.

Critical Accounting Policies

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2011 in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Note 2 - Summary of Significant Accounting Policies" to the consolidated financial statements included therein. There have been no significant changes to these policies during 2012.


Overview

Alexander's, Inc. (NYSE: ALX) is a real estate investment trust ("REIT"), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping 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 six 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 national and local economies, the financial condition and operating results of current and prospective tenants, the availability and cost of capital, interest rates, construction and renovation costs, taxes, governmental regulations and 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.

On October 21, 2012, we entered into an agreement to sell the Kings Plaza Regional Shopping Center located in Brooklyn, New York, to The Macerich Company (NYSE: MAC) ("MAC"), for $751,000,000. We may elect to receive up to $30,000,000 of the consideration in MAC common shares. Net proceeds from the sale will be approximately $481,000,000, after repaying the existing loan and closing costs. The sale, which is subject to customary closing conditions, is expected to be completed in the fourth quarter. The financial statement gain will be approximately $602,000,000. The tax gain will be approximately $624,000,000, which is expected to be paid out to stockholders as a special long-term capital gain dividend.

Quarter Ended September 30, 2012 Financial Results Summary

Net income attributable to common stockholders for the quarter ended September 30, 2012 was $18,856,000, or $3.69 per diluted share, compared to $20,425,000, or $4.00 per diluted share for the quarter ended September 30, 2011. The quarter ended September 30, 2012 includes income from continuing operations of $12,410,000, or $2.43 per diluted share, compared to $14,941,000, or $2.93 per diluted share for the quarter ended September 30, 2011.

Funds from operations attributable to common stockholders ("FFO") for the quarter ended September 30, 2012 was $27,461,000, or $5.38 per diluted share, compared to $28,849,000, or $5.65 per diluted share for the prior year's quarter. The quarter ended September 30, 2012 includes FFO from continuing operations of $19,615,000, or $3.84 per diluted share, compared to $21,982,000, or $4.30 per diluted share for the prior year's quarter.

Nine Months Ended September 30, 2012 Financial Results Summary

Net income attributable to common stockholders for the nine months ended September 30, 2012 was $57,230,000, or $11.20 per diluted share, compared to $58,789,000, or $11.51 per diluted share for the nine months ended September 30, 2011. The nine months ended September 30, 2012 includes income from continuing operations of $38,008,000, or $7.44 per diluted share, compared to $41,513,000, or $8.13 per diluted share for the nine months ended September 30, 2011.

FFO for the nine months ended September 30, 2012 was $82,893,000, or $16.23 per diluted share, compared to $83,749,000, or $16.40 per diluted share for the prior year's nine months. The nine months ended September 30, 2012 includes FFO from continuing operations of $59,453,000, or $11.64 per diluted share, compared to $62,318,000, or $12.20 per diluted share for the prior year's nine months.


Overview - continued

Leasing activity, Square Footage and Occupancy

In the nine months ended September 30, 2012 we leased 9,799 square feet at our Rego Park II Shopping Center, that was placed into service, at an average rate of $70.00 per square foot.

The table below reflects the property square footage and occupancy rates of our continuing businesses.

 As of September 30, 2012:
 Total square feet               2,179,000
 Number of properties                    6
 Occupancy rate                       99.1%

 As of December 31, 2011:
 Total square feet               2,179,000
 Number of properties                    6
 Occupancy rate                       98.7%

 As of September 30, 2011:
 Total square feet               2,179,000
 Number of properties                    6
 Occupancy rate                       98.1%

Significant Tenants

Bloomberg L.P. ("Bloomberg") accounted for $64,651,000 and $63,289,000, or 45% and 46% of our Total Revenues in the nine-month periods ended September 30, 2012 and 2011, respectively. No other tenant accounted for more than 10% of our consolidated revenues. If we were to lose Bloomberg as a tenant, or if Bloomberg were to fail or become unable to perform its obligations under its lease, it would adversely affect our results of operations and financial condition. We receive and evaluate certain confidential financial information and metrics from Bloomberg on a semi-annual basis. In addition, we access and evaluate financial information regarding Bloomberg from private sources, as well as publicly available data.

Recently Issued Accounting Literature

In May 2011, the Financial Accounting Standards Board ("FASB") issued Update No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU No. 2011-04"). ASU No. 2011-04 provides a uniform framework for fair value measurements and related disclosures between accounting principles generally accepted in the United States of America ("GAAP") and International Financial Reporting Standards ("IFRS") and requires additional disclosures, including:
(i) quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs, for Level 3 fair value measurements; (ii) fair value of financial instruments not measured at fair value but for which disclosure of fair value is required, based on their levels in the fair value hierarchy; and (iii) transfers between Level 1 and Level 2 of the fair value hierarchy. The adoption of this update on January 1, 2012, did not have a material impact on our consolidated financial statements, but resulted in additional fair value measurement disclosures.


Results of Operations - Three Months Ended September 30, 2012 compared to September 30, 2011

Property Rentals

Property rentals were $33,779,000 in the quarter ended September 30, 2012, compared to $33,514,000 in the prior year's quarter, an increaseof $265,000.

Expense Reimbursements

Tenant expense reimbursements were $14,863,000 in the quarter ended September 30, 2012, compared to $13,435,000 in the prior year's quarter, an increase of $1,428,000. This increase was primarily due to higher real estate taxes and increased occupancy.

Operating Expenses

Operating expenses were $16,445,000 in the quarter ended September 30, 2012, compared to $14,463,000 in the prior year's quarter, an increaseof $1,982,000.
This increase was primarily due to higher real estate taxes of $1,334,000 and higher bad debt and other non-reimbursable operating expenses of $502,000.

Depreciation and Amortization

Depreciation and amortization was $7,225,000 in the quarter ended September 30, 2012, compared to $7,083,000 in the prior year's quarter, an increase of $142,000.

General and Administrative Expenses

General and administrative expenses were $1,177,000 in the quarter ended September 30, 2012, compared to $1,297,000 in the prior year's quarter, a decrease of $120,000. This decrease was primarily due to a $200,000 write-off of previously capitalized legal costs in the prior year's quarter.

Interest and Other Income, net

Interest and other income, net was $41,000 in the quarter ended September 30, 2012, compared to $67,000 in the prior year's quarter, a decrease of $26,000.
This decrease was primarily due to lower average yields on investments in the current year's quarter.

Interest and Debt Expense

Interest and debt expense was $11,422,000 in the quarter ended September 30, 2012, compared to $9,230,000 in the prior year's quarter, an increase of $2,192,000. This increase was primarily due to a $2,561,000 reversal of previously recognized interest expense related to our income tax liability in the prior year's quarter, due to the expiration of the applicable statute of limitations.

Income Tax Expense

Income tax expense was $4,000 in the quarter ended September 30, 2012, compared to $2,000 in the prior year's quarter, an increase of $2,000.

Income from Discontinued Operations

Income from discontinued operations was $6,938,000 in the quarter ended September 30, 2012, compared to $7,327,000 in the prior year's quarter, a decrease of $389,000. This decrease was primarily due to higher bad debt expense.

Net Income Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest was $492,000 in the quarter ended September 30, 2012, compared to $1,843,000 in the prior year's quarter. This decrease was primarily due to our venture partner's 75% pro-rata share of a true-up in straight-line rental income at our consolidated partially owned entity, the Kings Plaza energy plant joint venture, in the prior year's quarter.


Results of Operations - Nine Months Ended September 30, 2012 compared to September 30, 2011

Property Rentals

Property rentals were $101,034,000 in the nine months ended September 30, 2012, compared to $100,486,000 in the prior year's nine months, an increase of $548,000.

Expense Reimbursements

Tenant expense reimbursements were $41,787,000 in the nine months ended September 30, 2012, compared to $38,202,000 in the prior year's nine months, an increase of $3,585,000. This increase was primarily due to higher real estate taxes, reimbursable operating expenses, and higher occupancy.

Operating Expenses

Operating expenses were $45,184,000 in the nine months ended September 30, 2012, compared to $41,029,000 in the prior year's nine months, an increase of $4,155,000. This increase wascomprised of higher (i) real estate taxes of $2,442,000, (ii) reimbursable operating expenses of $813,000, (iii) non-reimbursable operating expenses of $498,000 and (iv) bad debt expense of $402,000.

Depreciation and Amortization

Depreciation and amortization was $21,577,000 in the nine months ended September 30, 2012, compared to $20,931,000 in the prior year's nine months, an increase of $646,000.

General and Administrative Expenses

General and administrative expenses were $3,895,000 in the nine months ended September 30, 2012, compared to $2,899,000 in the prior year's nine months, an increase of $996,000. This increase was primarily due to an $807,000 reversal of a portion of the litigation loss accrual at our Flushing property in the prior year's nine months.

Interest and Other Income, net

Interest and other income, net was $111,000 in the nine months ended September 30, 2012, compared to $217,000 in the prior year's nine months, a decrease of $106,000. This decrease was primarily due to lower average yields on investments in the current year's nine months.

Interest and Debt Expense

Interest and debt expense was $34,206,000 in the nine months ended September 30, 2012, compared to $32,613,000 in the prior year's nine months, an increase of $1,593,000. This increase was primarily due to (i) a $2,561,000 reversal of previously recognized interest expense related to our income tax liability in the prior year's nine months, due to the expiration of the applicable statute of limitations, partially offset by (ii) savings of $491,000 from lower average interest rates and (iii) $460,000 from lower average outstanding debt balances.

Income Tax (Expense) Benefit

In the nine months ended September 30, 2012, we had an income tax expense of $62,000, compared to an income tax benefit of $80,000 in the prior year's nine months, an increase in expense of $142,000. This increase resulted from a true-up of our estimated income tax liability in the prior year's nine months.

Income from Discontinued Operations

Income from discontinued operations was $20,002,000 in the nine months ended September 30, 2012, compared to $18,762,000 in the prior year's nine months, an increase of $1,240,000. This increase was primarily due to $2,738,000 of lower interest expense in the current year's nine months, partially offset by $1,657,000 of income in the prior year's nine months, resulting from the collection of prior period tenant utility costs.


Results of Operations - Nine Months Ended September 30, 2012 compared to September 30, 2011 - continued

Net Income Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest was $780,000 in the nine months ended September 30, 2012, compared to $1,486,000 in the prior year's nine months. This decrease was primarily due to our venture partner's 75% pro-rata share of a true-up in straight-line rental income at our consolidated partially owned entity, the Kings Plaza energy plant joint venture, in the prior year's nine months.


Liquidity and Capital Resources

Cash Flows

Property rental income is our primary source of cash flow and is dependent on a number of factors including the occupancy level and rental rates of our properties, as well as our tenants' ability to pay their rents. Our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses, interest expense, recurring capital expenditures and cash dividends to stockholders. Other sources of liquidity to fund cash requirements include our existing cash, proceeds from financings secured by our properties, and proceeds from asset sales. We anticipate that cash from operations over the next twelve months, together with existing cash balances, will be adequate to fund our business operations, regular cash dividends to stockholders, debt amortization and maturities, and recurring capital expenditures.

On October 21, 2012, we entered into an agreement to sell the Kings Plaza Regional Shopping Center located in Brooklyn, New York for $751,000,000. We may elect to receive up to $30,000,000 of the consideration in MAC common shares. Net proceeds from the sale of the property will be approximately $481,000,000 after repaying the existing loan and closing costs. The tax gain will be approximately $624,000,000, which is expected to be paid out to stockholders as a special long-term capital gain dividend.

Nine Months Ended September 30, 2012

Cash and cash equivalents were $508,363,000 at September 30, 2012, compared to $506,619,000 at December 31, 2011, an increase of $1,744,000. This increase resulted from $72,676,000 of net cash provided by operating activities, partially offset by $69,014,000 of net cash used in financing activities and $1,918,000 of net cash used in investing activities.

Net cash provided by operating activities was $72,676,000, of which $21,397,000 was related to discontinued operations. Net cash provided by operating activities was comprised of net income of $58,010,000 and adjustments for non-cash items of $24,964,000, partially offset by the net change in operating assets and liabilities of $10,298,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization of $28,488,000 and (ii) stock-based compensation expense of $300,000, partially offset by (iii) straight-lining of rental income of $3,824,000.

Net cash used in investing activities of $1,918,000 was comprised of (i) capital expenditures of $6,502,000 (primarily Rego Park II) and (ii) an increase in restricted cash of $416,000, partially offset by (iii) proceeds from maturing short-term investments of $5,000,000.

Net cash used in financing activities of $69,014,000 was primarily comprised of dividends paid on common stock of $57,458,000 and debt amortization of $11,156,000.

Nine Months Ended September 30, 2011

Cash and cash equivalents were $509,590,000 at September 30, 2011, compared to $397,220,000 at December 31, 2010, an increase of $112,370,000. This increase resulted from $67,923,000 of net cash provided by operating activities, $5,309,000 of net cash provided by investing activities and $39,138,000 of net cash provided by financing activities.

Net cash provided by operating activities was $67,923,000, of which $19,824,000 was related to discontinued operations. Net cash provided by operating activites was comprised of net income of $60,275,000 and adjustments for non-cash items of $15,392,000, partially offset by the net change in operating assets and liabilities of $7,744,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization of $27,614,000, (ii) stock-based compensation expense of $300,000, partially offset by (iii) straight-lining of rental income of $9,961,000 and (iv) a $2,561,000 reversal of a portion of the liability for income taxes as a result of the expiration of the applicable statute of limitations.

Net cash provided by investing activities of $5,309,000 was comprised of (i) proceeds from maturing short-term investments of $23,000,000, partially offset by (ii) capital expenditures of $10,226,000 (primarily Rego Park II), (iii) purchases of short-term investments of $5,000,000, and (iv) an increase in restricted cash of $2,465,000.

Net cash provided by financing activities of $39,138,000 was primarily comprised of (i) $250,000,000 of proceeds from the refinancing of our Kings Plaza property, partially offset by (ii) repayments of borrowings of $160,037,000 (primarily Kings Plaza) and (iii) dividends paid on common stock of $45,956,000.


Liquidity and Capital Resources - continued

Commitments and Contingencies

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for terrorist acts, 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 of 2007. Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $275,000 deductible and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by FNSIC.

There can be no assurance that we will be able to maintain similar levels of insurance coverage in the future in amounts and on terms that are commercially reasonable. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.

Our mortgage loans are non-recourse to us, except for $75,000,000 of the $320,000,000 mortgage on our 731 Lexington Avenue property, in the event of a substantial casualty, as defined. Our mortgage loans contain customary covenants requiring us to maintain insurance. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.

Flushing Property

In 2002 Flushing Expo, Inc. ("Expo") agreed to purchase the stock of the entity which owns the Flushing property from us ("Purchase of the Property") and gave us a non-refundable deposit of $1,875,000. Pursuant to a stipulation of settlement, we settled the action Expo brought against us regarding the Purchase of the Property and in June 2011, deposited the settlement amount with the Court, in exchange for which we received a stipulation of discontinuance, with prejudice, as well as general releases. In November 2011, Expo filed another action, this time against our tenant at the Flushing property asserting, among other things, that such tenant interfered with Expo's Purchase of the Property from us and sought $50,000,000 in damages from our tenant, who sought indemnification from us for such amount. In August 2012, the Court entered judgment denying Expo's claim for damages. Expo has appealed the Court's decision and filed a motion to re-argue the decision. We believe, after consultation with counsel, that the amount or range of reasonably possible losses, if any, cannot be estimated.

Environmental Remediation

In July 2006, we discovered an oil spill at our Kings Plaza Regional Shopping Center. We have notified the New York State Department of Environmental Conservation ("NYSDEC") about the spill and have developed a remediation plan. The NYSDEC has approved a portion of the remediation plan and clean up is ongoing. The estimated costs associated with the clean up will aggregate approximately $3,000,000. We have paid $500,000 of such amount and the remainder is covered under our insurance policy.

Paramus

In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a 40-year term with a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 2.90%, which matures in October 2018. The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $62,000,000. 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.


Liquidity and Capital Resources - continued

Commitments and Contingencies - continued

Letters of Credit

Approximately $3,998,000 of standby letters of credit were outstanding as of September 30, 2012.

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 condition, results of operations or cash flows.


Funds from Operations ("FFO")

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate . . .

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