10-K 1 alx201310k.htm FORM 10-K alx201310k.htm - Generated by SEC Publisher for SEC Filing  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑K

 

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

 

For the Fiscal Year Ended:

December 31, 2013

 

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

 

For the transition period from

to

 

Commission File Number:

001-6064

 

 

 

 

ALEXANDER’S, INC.

 

 

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

 

51-0100517

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

210 Route 4 East, Paramus, New Jersey

 

07652

(Address of principal executive offices)

 

(Zip Code)

       

 

 

Registrant’s telephone number, including area code

(201) 587-8541 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $1 par value per share

 

New York Stock Exchange

 

 

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
x NO o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.
YES
o NO x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES
x NO o

 


 
 

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section  232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).  
x Yes  o No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, or a

smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting

company” in Rule 12b-2 of the Exchange Act.

 

 

o Large Accelerated Filer

 

x Accelerated Filer

o Non-Accelerated Filer (Do not check if smaller reporting company)

 

o Smaller Reporting Company

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x

 

 

The aggregate market value of the voting and non-voting shares of common stock held by non-affiliates of the registrant, (i.e., by persons other than officers and directors of Alexander’s, Inc.) was $619,995,000 at June 30, 2013.

 

 

As of January 31, 2014 there were 5,106,196 shares of the registrant’s common stock outstanding.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Part III: Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2014.

 


 
 

 

INDEX

Item

 

Financial Information:

Page

Part I.

1.

Business

4

1A.

Risk Factors

6

1B.

Unresolved Staff Comments

15

2.

Properties

16

3.

Legal Proceedings

18

4.

Mine Safety Disclosures

18

Part II.

5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

19

6.

Selected Financial Data

21

7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

7A.

Quantitative and Qualitative Disclosures about Market Risk

33

8.

Financial Statements and Supplementary Data

34

9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

53

9A.

Controls and Procedures

53

9B.

Other Information

56

Part III.

10.

Directors, Executive Officers and Corporate Governance(1)

56

11.

Executive Compensation(1)

57

12.

Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters(1)

57

13.

Certain Relationships and Related Transactions, and Director Independence(1)

57

14.

Principal Accounting Fees and Services(1)

57

Part IV.

15.

Exhibits, Financial Statement Schedules

58

Signatures

59

 

_____________________________

(1)     These items are omitted in part or in whole because the registrant will file a definitive Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of 1934 with the Securities and Exchange Commission no later than 120 days after December 31, 2013, portions of which are incorporated by reference herein. 

 

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FORWARD-LOOKING STATEMENTS

 

Certain statements contained herein 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 represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties.  Our future results, financial condition 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 Annual Report on Form 10‑K.  We also note the following forward-looking statements:  in the case of our development projects, the estimated completion date, estimated project costs and costs to complete; and estimates of dividends on shares of our common stock.  Many of the factors that will determine the outcome of these and our other forward-looking statements 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 this Annual Report on Form 10‑K. 

 

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 our forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K 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 occurring after the date of this Annual Report on Form 10-K.

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PART I

ITEM 1.     BUSINESS

GENERAL

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 six properties in the greater New York City metropolitan area consisting of:

 

Operating properties

·         731 Lexington Avenue, a 1,307,000 square foot multi-use building, comprising the entire square block bounded by Lexington Avenue, East 59th Street, Third Avenue and East 58th Street in Manhattan.  The building contains 885,000 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 63rd Road in Queens.  The center is anchored by a 195,000 square foot Sears department store, a 50,000 square foot Burlington Coat Factory, 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, located 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.  In addition, 47,000 square feet is leased to Toys “R” Us/Babies “R” Us, a one-third owned affiliate of Vornado;

 

·         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 at 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 under development

·         Rego Park II Apartment Tower; We have commenced the construction of an apartment tower, which will contain approximately 300 units aggregating 250,000 square feet, above our Rego Park II shopping center.  Construction is expected to be completed in 2015 and cost approximately $125,000,000, of which $2,265,000 has been incurred as of December 31, 2013.  There can be no assurance that the project will be completed, or completed on schedule or within budget.

 

Property to be developed

·         Rego Park III, a 3.2 acre land parcel adjacent to the Rego Park II shopping center in Queens at the intersection of Junction Boulevard and the Horace Harding Service Road.

 

 

 

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Relationship with Vornado

We are managed by, and our properties are leased and developed by, Vornado, pursuant to agreements which expire in March of each year and are automatically renewable.  Vornado is a fully-integrated REIT with significant experience in managing, leasing, developing, and operating retail and office properties.

 

At December 31, 2013, Vornado owned 32.4% of our outstanding common stock.  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.  At December 31, 2013, 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, 26.3% of our outstanding common stock, in addition to the 2.1% they indirectly own through Vornado.  Joseph Macnow, our Executive Vice President and Chief Financial Officer, is the Executive Vice President – Finance and Chief Administrative Officer of Vornado.

 

Significant Tenants

Bloomberg accounted for $88,164,000, $86,468,000 and $84,526,000, or 45%, 45% and 46% of our total revenues in the years ended December 31, 2013, 2012 and 2011, respectively.  No other tenant accounted for more than 10% of our total revenues in any of the last three years.  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.

 

Competition

We operate in a highly competitive environment.  All of our properties are located in the greater New York City metropolitan area.  We compete with a large number of property owners and developers.  Principal factors of competition are the amount of rent charged, attractiveness of location and quality and breadth of services provided.  Our success depends upon, among other factors, trends affecting 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.

 

Employees

We currently have 72 employees.

 

Executive Office

Our executive office is located at 210 Route 4 East, Paramus, New Jersey, 07652 and our telephone number is (201) 587-8541.

 

Available Information

Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as well as Reports on Forms 3, 4 and 5 regarding officers, directors, and 10% beneficial owners filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Securities Exchange Act of 1934, are available free of charge on our website (www.alx-inc.com) as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).  Also available on our website are copies of our Audit Committee Charter, Compensation Committee Charter, Code of Business Conduct and Ethics and Corporate Governance Guidelines.  In the event of any changes to these items, revised copies will be made available on our website.  Copies of these documents are also available directly from us, free of charge. 

 

On April 11, 2000, Vornado and Interstate filed with the SEC, the 26th amendment to a Form 13D indicating that they, as a group, own in excess of 51% of our common stock.  This ownership level makes us a “controlled” company for the purposes of the New York Stock Exchange, Inc.’s Corporate Governance Standards (the “NYSE Rules”).  This means that we are not required to, among other things, have a majority of the members of our Board of Directors be independent under the NYSE Rules, have all of the members of our Compensation Committee be independent under the NYSE Rules or to have a Nominating Committee.  While we have voluntarily complied with a majority of the independence requirements of the NYSE Rules, we are under no obligation to do so and this situation may change at anytime.

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ITEM 1a.  risk factors

Material factors that may adversely affect our business and operations are summarized below.  The risks and uncertainties described herein may not be the only ones we face.  Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.  See “Forward-Looking Statements” contained herein on page 3.

 

REAL ESTATE INVESTMENTS’ VALUE AND INCOME FLUCTUATE DUE TO VARIOUS FACTORS.

The value of real estate fluctuates depending on conditions in the general economy and the real estate business.  These conditions may also adversely impact our revenues and cash flows.

 

The factors that affect the value of our real estate include, among other things:

 

·      national, regional and local economic conditions;

·      competition from other available space;

·      local conditions such as an oversupply of space or a reduction in demand for real estate in the area;

·      how well we manage our properties;

·      changes in market rental rates;

·      the timing and costs associated with property improvements and rentals;

·      whether we are able to pass all or portions of any increases in operating costs through to tenants;

·      changes in real estate taxes and other expenses;  

·      whether tenants and users such as customers and shoppers consider a property attractive;

·      the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;

·      availability of financing on acceptable terms or at all;

·      inflation or deflation;

·      fluctuations in interest rates;

·      our ability to obtain adequate insurance;

·      changes in zoning laws and taxation;

·      government regulation;

·      consequences of any armed conflict involving, or terrorist attack against, the United States;

·      potential liability under environmental or other laws or regulations;

·      natural disasters;

·      general competitive factors; and

·         climate changes.

 

The rents we receive and the occupancy levels at our properties may decline as a result of adverse changes in any of these factors.  If our rental revenues and/or occupancy levels decline, we generally would expect to have less cash available to pay our indebtedness and for distribution to our stockholders.  In addition, some of our major expenses, including mortgage payments, real estate taxes and maintenance costs generally do not decline when the related rents decline.

 

Capital markets and economic conditions can materially affect our liquidity, financial condition and results of operations, as well as the value of our debt and equity securities.

There are many factors that can affect the value of our equity securities and any debt securities we may issue in the future, including the state of the capital markets and economy.  Demand for office and retail space may decline nationwide as it did in 2008 and 2009, due to the economic downturn, bankruptcies, downsizing, layoffs and cost cutting.  Government action or inaction may adversely affect the state of the capital markets.  The cost and availability of credit may be adversely affected by illiquid credit markets and wider credit spreads may adversely affect our liquidity and financial condition, including our results of operations, and the liquidity and financial condition of our tenants.  Our inability or the inability of our tenants to timely refinance maturing liabilities and access the capital markets to meet liquidity needs may materially affect our financial condition and results of operations and the value of our equity securities and any debt securities we may issue in the future.

 

 

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Real estate is a competitive business.

We compete with a large number of property owners and developers, some of which may be willing to accept lower returns on their investments than we are.  Principal factors of competition include rents charged, attractiveness of location, the quality of the property and breadth and quality of services provided.  Our success depends upon, among other factors, trends affecting national and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends. 

 

We depend on leasing space to tenants on economically favorable terms and collecting rent from tenants who may not be able to pay.

Our financial results depend significantly on leasing space in our properties to tenants on economically favorable terms.  In addition, because a majority of our income is derived from renting real property, our income, funds available to pay indebtedness and funds available for distribution to stockholders will decrease if certain of our tenants cannot pay their rent or if we are not able to maintain our occupancy levels on favorable terms.  If a tenant does not pay its rent, we might not be able to enforce our rights as landlord without delays and might incur substantial legal and other costs.  During periods of economic adversity, there may be an increase in the number of tenants that cannot pay their rent and an increase in vacancy rates.

 

Bankruptcy or insolvency of tenants may decrease our revenues, net income and available cash.

From time to time, some of our tenants have declared bankruptcy, and other tenants may declare bankruptcy or become insolvent in the future.  In the case of our shopping centers, the bankruptcy or insolvency of a major tenant could cause us to have difficulty leasing the remainder of the affected property.  Our leases generally do not contain restrictions designed to ensure the creditworthiness of our tenants.  As a result, the bankruptcy or insolvency of a major tenant could result in a lower level of net income and funds available to pay our indebtedness or make distributions to stockholders. 

 

731 Lexington Avenue accounts for a substantial portion of our revenues.  Loss of or damage to the building would adversely affect our financial condition and results of operations.

731 Lexington Avenue accounted for $128,845,000, $126,034,000 and $123,195,000, or 66%, 66% and 67% of our total revenues in the years ended December 31, 2013, 2012 and 2011, respectively.  Loss of or damage to the building in excess of our insurance coverage, including as a result of a terrorist attack, would adversely affect our results of operations and financial condition.

Bloomberg represents a significant portion of our revenues.  Loss of Bloomberg as a tenant or deterioration in Bloomberg’s credit quality could adversely affect our financial condition and results of operations.

Bloomberg accounted for $88,164,000, $86,468,000 and $84,526,000, or 45%, 45% and 46% of our total revenues in the years ended December 31, 2013, 2012 and 2011, respectively.  No other tenant accounted for more than 10% of our total revenues in any of the last three years.  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 could adversely affect our results of operations and financial condition.

 

We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control. 

Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”) from conducting business or engaging in transactions in the United States.  Our leases, loans and other agreements may require us to comply with OFAC requirements.  If a tenant or other party with whom we conduct business is placed on the OFAC list we may be required to terminate the lease or other agreement.  Any such termination could result in a loss of revenue or otherwise negatively affect our financial results and cash flows.

 

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Our business and operations would suffer in the event of system failures. 

Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures.  Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business.  We may also incur additional costs to remedy damages caused by such disruptions.

 

The occurrence of cyber incidents, or a deficiency in our cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. Our three primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure.  We have implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident.

 

We may incur significant costs to comply with environmental laws and environmental contamination may impair our ability to lease and/or sell real estate.

Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment including air and water quality, hazardous or toxic substances and health and safety.  Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property.  The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination.  These laws often impose liability without regard to whether the owner or operator knew of the release of the substances or caused such release.  The presence of contamination or the failure to remediate contamination may impair our ability to sell or lease real estate or to borrow using the real estate as collateral.  Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air.  The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) are also regulated by federal and state laws.  We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals.  We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or related claims arising out of environmental contamination or human exposure at or from our properties.

 

Each of our properties has been subjected to varying degrees of environmental assessment at various times.  To date, these environmental assessments have not revealed any environmental condition material to our business.  However, identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, human exposure to contamination or changes in cleanup or compliance requirements could result in significant costs to us.

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Some of our potential losses may not be covered by 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 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 2014.  Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence and in the aggregate.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies with no exposure to FNSIC.  For NBCR acts, FNSIC is responsible for a $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 incurred by FNSIC.

 

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future.  We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.

 

Our mortgage loans are non-recourse to us, 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.  Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future.  If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.

 

Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs.

The Americans with Disabilities Act (“ADA”) generally requires that public buildings, including our properties, meet certain federal requirements related to access and use by disabled persons.  Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants and/or legal fees to their counsel.  If, under the ADA, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to stockholders.

 

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements.  If we fail to comply with these requirements, we could incur fines or private damage awards.  We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations.

 

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OUR INVESTMENTS ARE CONCENTRATED IN THE GREATER NEW YORK CITY METROPOLITAN AREA. CIRCUMSTANCES AFFECTING THIS AREA GENERALLY COULD ADVERSELY AFFECT OUR BUSINESS.

All of our properties are in the greater New York City metropolitan area and are affected by the economic cycles and risks inherent in that area.

All of our revenues come from properties located in the greater New York City metropolitan area.  Real estate markets are subject to economic downturns and we cannot predict how economic conditions will impact this market in either the short or long term.  Declines in the economy or declines in the real estate market in this area could hurt our financial performance and the value of our properties.  In addition to the factors affecting the national economic condition generally, the factors affecting economic conditions in this area include:

 

·      financial performance and productivity of the media, advertising, financial, technology, retail, insurance and real estate industries;

·      unemployment levels;

·      business layoffs or downsizing;

·      industry slowdowns;

·      relocations of businesses;

·      changing demographics;

·      increased telecommuting and use of alternative work places;

·      infrastructure quality; and

·      any oversupply of, or reduced demand for, real estate.

 

It is impossible for us to assess the future effects of trends in the economic and investment climates of the greater New York City metropolitan region, and more generally of the United States, on the real estate market in this area.  Local, national or global economic downturns, would negatively affect our business and profitability.

 

Terrorist attacks, such as those of September 11, 2001 in New York City, may adversely affect the value of our properties and our ability to generate cash flow.

All of our properties are located in the greater New York City metropolitan area, and our most significant property, 731 Lexington Avenue, is located on Lexington Avenue and 59th Street in Manhattan.  In the aftermath of a terrorist attack, tenants in this area may choose to relocate their businesses to less populated, lower-profile areas of the United States that are not as likely to be targets of future terrorist activity and fewer customers may choose to patronize businesses in this area.  This would trigger a decrease in the demand for space in these markets, which could increase vacancies in our properties and force us to lease our properties on less favorable terms.  As a result, the value of our properties and the level of our revenues could decline materially.

 

Natural Disasters could have a concentrated impact on the area which we operate and could adversely impact our results.

Our investments are in the New York metropolitan area and since they are concentrated along the Eastern Seaboard, natural disasters, including hurricanes, could impact our properties.  Potentially adverse consequences of “global warming” could similarly have an impact on our properties.  As a result, we could become subject to significant losses and/or repair costs which may or may not be fully covered by insurance and to the risk of business interruption.  The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results.      

 

We are subject to risks that affect the general retail environment.

A portion of our properties are in the retail shopping center real estate market.  This means that we are subject to factors that affect the retail environment generally, including the level of consumer spending and consumer confidence, unemployment rates, the threat of terrorism and increasing competition from discount retailers, outlet malls, retail websites and catalog companies.  These factors could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our shopping centers. 

 

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WE MAY ACQUIRE OR SELL ASSETS OR DEVELOP PROPERTIES.  OUR FAILURE OR INABILITY TO CONSUMMATE THESE TRANSACTIONS OR MANAGE THESE TRANSACTIONS COULD ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL RESULTS.

We may acquire or develop properties and this may create risks.

Although our stated business strategy is not to engage in acquisitions, we may acquire or develop properties when we believe that an acquisition or development project is otherwise consistent with our business strategy.  We may not, however, succeed in consummating desired acquisitions or in completing developments on time or within budget.  In addition, we may face competition in pursuing acquisition or development opportunities that could increase our costs.  When we do pursue a project or acquisition, we may not succeed in leasing newly-developed or acquired properties at rents sufficient to cover costs of acquisition or development and operations.  Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management’s attention.  Acquisitions or developments in new markets or types of properties where we do not have the same level of market knowledge may result in weaker than anticipated performance.  We may abandon acquisition or development opportunities that we have begun pursuing and consequently fail to recover expenses already incurred and have devoted management time to a matter not consummated. 

 

It may be difficult to buy and sell real estate quickly, which may limit our flexibility.

Real estate investments are relatively difficult to buy and sell quickly.  Consequently, we may have limited ability to vary our portfolio promptly in response to changes in economic or other conditions.  Moreover, our ability to buy, sell, or finance real estate assets may be adversely affected during periods of uncertainty or unfavorable conditions in the credit markets as we, or potential buyers of our assets, may experience difficulty in obtaining financing.

 

We have an investment in marketable equity securities.  The value of this investment may decline.

We have an investment in Macerich, a retail shopping center company.  As of December 31, 2013, this investment had a carrying amount of $31,522,000.  A significant decline in the value of this investment due to, among other reasons, Macerich’s operating performance or economic or market conditions, may result in the recognition of an impairment loss, which could be material.

 

 

OUR ORGANIZATIONAL AND FINANCIAL STRUCTURE GIVES RISE TO OPERATIONAL AND FINANCIAL RISKS.

We depend on dividends and distributions from our direct and indirect subsidiaries.  The creditors of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to us.

Substantially all of our properties and assets are held through our subsidiaries.  We depend on cash distributions and dividends from our subsidiaries for substantially all of our cash flow.  The creditors of each of our direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligations to them when due and payable before that subsidiary may make distributions or dividends to us.  Thus, our ability to pay dividends, if any, to our security holders depends on our subsidiaries’ ability to first satisfy their obligations to their creditors and our ability to satisfy our obligations, if any, to our creditors.

 

In addition, our participation in any distribution of the assets of any of our direct or indirect subsidiaries upon the liquidation, reorganization or insolvency of the subsidiary, is only after the claims of the creditors, including trade creditors, and preferred security holders, if any, of the applicable direct or indirect subsidiaries are satisfied.

 

Our existing financing documents contain covenants and restrictions that may restrict our operational and financial flexibility.

At December 31, 2013, substantially all of the individual properties we own were encumbered by mortgages.  These mortgages contain covenants that limit our ability to incur additional indebtedness on these properties, provide for lender approval of tenants’ leases in certain circumstances, and provide for yield maintenance or defeasance premiums to prepay them.  These mortgages may significantly restrict our operational and financial flexibility.  In addition, if we were to fail to perform our obligations under existing indebtedness or become insolvent or were liquidated, secured creditors would be entitled to payment in full from the proceeds of the sale of the pledged assets prior to any proceeds being paid to other creditors or to any holders of our securities.  In such an event, it is possible that we would have insufficient assets remaining to make payments to other creditors or to any holders of our securities. 

11

 


 
 

 

We have outstanding debt, and the amount of debt and its cost may increase and refinancing may not be available on acceptable terms.

As of December 31, 2013, total debt outstanding was $1,049,959,000 and our ratio of total debt to total enterprise value was 44.0%.  “Enterprise value” means the market equity value of our common stock, plus debt, less cash and cash equivalents at such date.  In addition, we have significant debt service obligations.  For the year ended December 31, 2013, our scheduled cash payments for principal and interest were $58,078,000.  In the future, we may incur additional debt, and thus increase the ratio of total debt to total enterprise value.  If our level of indebtedness increases, there may be an increased risk of default which could adversely affect our financial condition and results of operations.  In addition, in a rising interest rate environment, the cost of refinancing our existing debt and any new debt or market rate security or instrument may increase.  Continued uncertainty in the equity and credit markets may negatively impact our ability to obtain financing on reasonable terms or at all, which may negatively affect our ability to refinance our debt.   

 

We might fail to qualify or remain qualified as a REIT, and may be required to pay income taxes at corporate rates.

Although we believe that we will remain organized and will continue to operate so as to qualify as a REIT for federal income tax purposes, we might fail to remain qualified.  Our qualification as a REIT for federal income tax purposes is governed by highly technical and complex provisions of the Internal Revenue Code (the “Code”) for which there are only limited judicial or administrative interpretations.  Our qualification as a REIT also depends on various facts and circumstances that are not entirely within our control.  In addition, legislation, new regulations, administrative interpretations or court decisions might significantly change the relevant tax laws and/or the federal income tax consequences of qualifying as a REIT.

 

If, with respect to any taxable year, we fail to maintain our qualification as a REIT and do not qualify under statutory relief provisions, we could not deduct distributions to stockholders in computing our taxable income and would have to pay federal income tax on our taxable income at regular corporate rates. The federal income tax payable would include any applicable alternative minimum tax. If we had to pay federal income tax, the amount of money available to distribute to stockholders and pay our indebtedness would be reduced for the year or years involved, and we would no longer be required to make distributions to stockholders. In addition, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost, unless we were entitled to relief under the relevant statutory provisions.

 

We face possible adverse changes in tax laws, which may result in an increase in our tax liability.

From time to time changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability.  The shortfall in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such changes.  If such changes occur, we may be required to pay additional taxes on our assets or income.  These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for payment of dividends.

 

Loss of our key personnel could harm our operations and adversely affect the value of our common stock.

We are dependent on the efforts of Steven Roth, our Chief Executive Officer.  Although we believe that we could find a replacement for this key personnel, the loss of his services could harm our operations and adversely affect the value of our common stock.

12

 


 
 

 

ALEXANDER’S CHARTER DOCUMENTS AND APPLICABLE LAW MAY HINDER ANY ATTEMPT TO ACQUIRE US.

Provisions in Alexander’s certificate of incorporation and by laws, as well as provisions of the Code and Delaware corporate law, may delay or prevent a change in control of the Company or a tender offer, even if such action might be beneficial to stockholders, and limit the stockholders’ opportunity to receive a potential premium for their shares of common stock over then prevailing market prices.

 

Primarily to facilitate maintenance of its qualification as a REIT, Alexander’s certificate of incorporation generally prohibits ownership, directly, indirectly or beneficially, by any single stockholder of more than 9.9% of the outstanding shares of preferred stock of any class or 4.9% of outstanding common stock of any class.  The Board of Directors may waive or modify these ownership limits with respect to one or more persons if it is satisfied that ownership in excess of these limits will not jeopardize Alexander’s status as a REIT for federal income tax purposes.  In addition, the Board of Directors has, subject to certain conditions and limitations, exempted Vornado and certain of its affiliates from these ownership limitations.  Stock owned in violation of these ownership limits will be subject to the loss of rights and other restrictions.  These ownership limits may have the effect of inhibiting or impeding a change in control.

 

Alexander’s Board of Directors is divided into three classes of directors.  Directors of each class are chosen for three-year staggered terms.  Staggered terms of directors may have the effect of delaying or preventing changes in control or management, even though changes in management or a change in control might be in the best interest of our stockholders.

 

In addition, Alexander’s charter documents authorize the Board of Directors to:

 

·      cause Alexander’s to issue additional authorized but unissued common stock or preferred stock;

·      classify or reclassify, in one or more series, any unissued preferred stock;

·      set the preferences, rights and other terms of any classified or reclassified stock that Alexander’s issues; and

·      increase, without stockholder approval, the number of shares of beneficial interest that Alexander’s may issue.

 

The Board of Directors could establish a series of preferred stock with terms that could delay, deter or prevent a change in control of Alexander’s or other transaction that might involve a premium price or otherwise be in the best interest of our stockholders, although the Board of Directors does not, at present, intend to establish a series of preferred stock of this kind.  Alexander’s charter documents contain other provisions that may delay, deter or prevent a change in control of the Company or other transaction that might involve a premium price or otherwise be in the best interest of our stockholders.

 

In addition, Vornado, Interstate and its three general partners (each of whom are both trustees of Vornado and Directors of Alexander’s) together beneficially own approximately 58.7% of our outstanding shares of common stock.  This degree of ownership is likely to reduce the possibility of a tender offer or an attempt to change control of the Company by a third party.

 

We may change our policies without obtaining the approval of our stockholders.

Our operating and financial policies, including our policies with respect to acquisitions of real estate or other assets, growth, operations, indebtedness, capitalization and dividends, are exclusively determined by our Board of Directors.  Accordingly, our stockholders do not control these policies.

 

13

 


 
 

 

OUR OWNERSHIP STRUCTURE AND RELATED-PARTY TRANSACTIONS MAY GIVE RISE TO CONFLICTS OF INTEREST.

Steven Roth, Vornado and Interstate may exercise substantial influence over us.  They and some of our other directors and officers have interests or positions in other entities that may compete with us.

At December 31, 2013, Interstate and its partners owned approximately 6.6% of the common shares of beneficial interest of Vornado and approximately 26.3% of our outstanding common stock.  Steven Roth, David Mandelbaum and Russell B. Wight, Jr. are the partners of Interstate.  Mr. Roth is the Chairman of our Board of Directors and Chief Executive Officer, the Chairman of the Board of Trustees and Chief Executive Officer of Vornado and the Managing General Partner of Interstate.  Mr. Wight and Mr. Mandelbaum are both trustees of Vornado and members of our Board of Directors.  In addition, Vornado manages and leases the real estate assets of Interstate.

 

At December 31, 2013, Vornado owned 32.4% of our outstanding common stock, in addition to the 26.3% owned by Interstate and its partners.  In addition to the relationships described in the immediately preceding paragraph, Dr. Richard West is a trustee of Vornado and a member of our Board of Directors and Joseph Macnow is our Executive Vice President and Chief Financial Officer and the Executive Vice President – Finance and Chief Administrative Officer of Vornado.

 

Because of their overlapping interests, Vornado, Mr. Roth, Interstate and the other individuals noted in the preceding paragraphs may have substantial influence over Alexander’s, and on the outcome of any matters submitted to Alexander’s stockholders for approval.  In addition, certain decisions concerning our operations or financial structure may present conflicts of interest among Vornado, Messrs. Roth, Mandelbaum and Wight and Interstate and other security holders.  Vornado, Mr. Roth and Interstate may, in the future, engage in a wide variety of activities in the real estate business which may result in conflicts of interest with respect to matters affecting us, such as, which of these entities or persons, if any, may take advantage of potential business opportunities, the business focus of these entities, the types of properties and geographic locations in which these entities make investments, potential competition between business activities conducted, or sought to be conducted, by us, competition for properties and tenants, possible corporate transactions such as acquisitions, and other strategic decisions affecting the future of these entities.

 

There may be conflicts of interest between Vornado, its affiliates and us.

Vornado manages, develops and leases our properties under agreements that have one-year terms expiring in March of each year, which are automatically renewable.  Because we share common senior management with Vornado and because four of the trustees of Vornado also constitute the majority of our directors, the terms of the foregoing agreements and any future agreements may not be comparable to those we could have negotiated with an unaffiliated third party.

 

For a description of Interstate’s ownership of Vornado and Alexander’s, see “Steven Roth, Vornado and Interstate may exercise substantial influence over us.  They and some of our other directors and officers have interests or positions in other entities that may compete with us.” above.

14

 


 
 

 

THE NUMBER OF SHARES OF ALEXANDER’S COMMON STOCK AND THE MARKET FOR THOSE SHARES GIVE RISE TO VARIOUS RISKS.

The price of our common shares has been volatile and may fluctuate.

The trading price of our common shares has been volatile and may continue to fluctuate widely as a result of a number of factors, many of which are outside of our control.  In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies.  These broad market fluctuations have in the past and may in the future adversely affect the market price of our common shares.  Among the factors that could affect the price of our common shares are:

·         our financial condition and performance;

·         the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;

·         actual or anticipated quarterly fluctuations in our operating results and financial condition;

·         our dividend policy;

·         the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities;

·         uncertainty and volatility in the equity and credit markets;

·         fluctuations in interest rates;

·         changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;

·         failure to meet analysts’ revenue or earnings estimates;

·         speculation in the press or investment community;

·         strategic actions by us or our competitors, such as acquisitions or restructurings;

·         the extent of institutional investor interest in us;

·         the extent of short-selling of our common shares and the shares of our competitors;

·         fluctuations in the stock price and operating results of our competitors;

·         general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related companies;

·         domestic and international economic factors unrelated to our performance; and

·         all other risk factors addressed elsewhere in this annual report on form 10-K.

A significant decline in our stock price could result in substantial losses for stockholders.

Alexander’s has additional shares of its common stock available for future issuance, which could decrease the market price of the common stock currently outstanding.

The interest of our current stockholders could be diluted if we issue additional equity securities.  As of December 31, 2013, we had authorized but unissued 4,826,550 shares of common stock, par value of $1.00 per share and 3,000,000 shares of preferred stock, par value $1.00 per share; of which, 3,521 shares of common stock are reserved for issuance upon redemption of the deferred stock units previously granted to our Board of Directors.  In addition, 891,219 shares are available for future grant under the terms of our 2006 Omnibus Stock Plan.  These awards may be granted in the form of options, restricted stock, stock appreciation rights, deferred stock units, or other equity-based interests, and if granted, would reduce that number of shares available for future grants, provided however that an award that may be settled only in cash, would not reduce the number of shares available under the plan.  We cannot predict the impact that future issuances of common or preferred stock or any exercise of outstanding options or grants of additional equity-based interests would have on the market price of our common stock.

 

 

ITEM 1B.     UNRESOLVED STAFF COMMENTS

There are no unresolved comments from the staff of the Securities and Exchange Commission as of the date of this Annual Report on Form 10-K. 

15

 


 
 

 

ITEM 2.     properties

The following table shows the location, ownership, approximate size (excluding parking garages) and occupancy of each of our properties as of December 31, 2013.

 

Average

Lease

Annualized

Expiration/

Land

Building

Occupancy

Rent Per

Option

Property

Acreage

Square Feet

Rate

Square Foot(1)

Tenants

Expiration(s)

Operating Properties:

731 Lexington Avenue

New York, New York

Office

697,000 

Bloomberg L.P.

2029/2039

188,000 

Bloomberg L.P.

2015/2020

885,000 

100%

$

95.21 

Retail

83,000 

The Home Depot

2025/2035

34,000 

The Container Store

2021 

27,000 

Hennes & Mauritz

2019 

30,000 

Various

Various

174,000 

100%

170.34 

1.9 

1,059,000 

Rego Park I

Queens, New York

195,000 

Sears

2021 

50,000 

Burlington Coat Factory

2022/2027

46,000 

Bed Bath & Beyond

2021 

36,000 

Marshalls

2021 

16,000 

Old Navy

2021 

4.8 

343,000 

100%

37.97 

Rego Park II

Queens, New York

145,000 

Costco

2034/2059

135,000 

Century 21

2030/2050

133,000 

Kohl’s

2030/2050

47,000 

Toys "R"Us/Babies "R" Us

2021/2036

149,000 

Various

Various

6.6 

609,000 

98%

40.22 

Paramus

Paramus, New Jersey

30.3 

100%

IKEA (ground lessee)

2041 

Flushing

Queens, New York (ground leased

through January 2037)

167,000 

100%

15.74 

New World Mall LLC

2027/2037

Property under Development:

Rego Park II Apartment Tower, 250,000

square feet under development

Queens, New York

Property to be Developed:

Rego Park III, adjacent to Rego Park II

Queens, New York

3.2 

2,178,000 

 

 

(1)               Represents the cash basis weighted average rent per square foot, which includes periodic step-ups in rent.  For a discussion of our leasing activity, see Item 7 - Overview - Leasing Activity,

 

          Square Footage and Occupancy.

16

 


 
 

 

ITEM 2.        PROPERTIES – continued 

 

Operating Properties

 

731 Lexington Avenue

731 Lexington Avenue, a 1,307,000 square foot multi-use building, comprises the entire square block bounded by Lexington Avenue, East 59th Street, Third Avenue and East 58th Street in Manhattan, New York, and is situated in the heart of one of Manhattan’s busiest business and shopping districts, with convenient access to several subway and bus lines. The property is located across the street from Bloomingdale’s flagship store and only a few blocks away from Fifth Avenue and 57th Street.  The building contains 885,000 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. 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.

 

The office and retail spaces are encumbered by first mortgage loans with balances of $314,217,000 and $320,000,000, respectively, as of December 31, 2013.  These loans bear interest at 5.33% and 4.93% and mature in February 2014 and July 2015, respectively.  We are in the process of finalizing a $300,000,000 refinancing of the office loan.

 

 

Rego Park I

Rego Park I, a 343,000 square foot shopping center, located on Queens Boulevard and 63rd Road in Queens, New York, is anchored by a 195,000 square foot Sears department store, a 50,000 square foot Burlington Coat Factory, a 46,000 square foot Bed Bath & Beyond and a 36,000 square foot Marshalls.  The center contains a parking deck (1,259 spaces) that provides for paid parking.

 

The center is encumbered by a 100% cash collateralized loan with a balance of $78,246,000 as of December 31, 2013.  The loan bears interest at 0.40%, is prepayable at any time without penalty and matures in March 2015.

 

 

Rego Park II

Rego Park II, a 609,000 square foot shopping center, adjacent to the Rego Park I shopping center in Queens, New York, is anchored by a 145,000 square foot Costco, a 135,000 square foot Century 21 and a 133,000 square foot Kohl’s.  In addition, 47,000 square feet is leased to Toys “R” Us/Babies “R” Us, a one-third owned affiliate of Vornado.  The center contains a parking deck (1,315 spaces) that provides for paid parking.

 

This center is encumbered by a first mortgage loan with a balance of $269,496,000 as of December 31, 2013.  The loan bears interest at LIBOR plus 1.85% (2.02% at December 31, 2013) and matures in November 2018.

 

 

Paramus

We own 30.3 acres of land located at the intersection of Routes 4 and 17 in Paramus, New Jersey.  The land is located directly across from the Garden State Plaza regional shopping mall and is within two miles of three other regional shopping malls and ten miles of New York City.  The land has been ground leased to IKEA Property, Inc. since 2001.  The lease expires in 2041, 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 net gain on the sale of the land of approximately $60,000,000.  If the purchase option is not exercised, the triple-net rent for the last 20 years must include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.

 

 

 

17

 


 
 

 

ITEM 2.        PROPERTIES – continued   

 
Flushing

Flushing is located on Roosevelt Avenue and Main Street in the downtown, commercial section of Flushing, Queens, New York.  Roosevelt Avenue and Main Street are active shopping districts and there are many national retailers located in the area.  A subway entrance is located directly in front of the property with bus service across the street.  The property comprises a four-floor building containing 167,000 square feet and a parking garage, which is sub-leased to New World Mall LLC for the remainder of our ground lease term, which expires in 2027 and has one 10-year extension option.

 

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 filed a motion to re-argue the decision, which the Court denied on December 7, 2012.  Expo has appealed the Court’s August 2012 decision.  We believe, after consultation with counsel, that the amount or range of reasonably possible losses, if any, cannot be estimated.

 

 

Property under Development
Rego Park II Apartment Tower

We have commenced the construction of an apartment tower, which will contain approximately 300 units aggregating 250,000 square feet, above our Rego Park II shopping center.  Construction is expected to be completed in 2015 and cost approximately $125,000,000, of which $2,265,000 has been incurred as of December 31, 2013.  There can be no assurance that the project will be completed, or completed on schedule or within budget.

 

 

Property to be Developed
Rego Park III

We own approximately 3.2 acres of land adjacent to the Rego Park II shopping center in Queens, New York, which comprises a one‑quarter square block and is located at the intersection of Junction Boulevard and the Horace Harding Service Road.  The land is currently being used for paid public parking.  Plans and budgets for this project have not been established and there can be no assurance that it will commence.

 

 

ITEM 3.        LEGAL PROCEEDINGS

We are from time to time involved in legal actions arising in the ordinary course of business.  In our opinion, after consultation with our legal counsel, the outcome of such matters will not have a material effect on our financial condition, results of operations or cash flows. 

 

For a discussion of the litigation concerning our Flushing, New York property, see “Item 2.  Properties – Operating Properties – Flushing.”

 

 

ITEM 4.        MINE SAFETY DISCLOSURES

Not applicable.

18

 


 
 

 

PART II

 

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

                  PURCHASES OF EQUITY SECURITIES

 

Our common stock is listed on the New York Stock Exchange under the symbol “ALX.”  Set forth below are the high and low closing prices for the shares of our common stock for each full quarterly period within the two most recent years and any dividends paid per share during such periods.

 

Year Ended December 31,

2013 

2012 

Quarter

High

Low

Dividends

High

Low

Dividends

First

$

340.30 

$

322.00 

$

2.75 

$

411.97 

$

350.60 

$

3.75 

Second

328.53 

281.51 

2.75 

431.11 

361.00 

3.75 

Third

310.75 

268.10 

2.75 

458.07 

422.86 

3.75 

Fourth

344.92 

279.60 

2.75 

461.26 

329.90 

125.75 

(1)

(1)

 

Comprised of a regular quarterly dividend of $3.75 per share and a special long-term capital gain dividend of $122.00 per share, to distribute the tax gain resulting

from the sale of Kings Plaza, which was sold in November 2012.

 

 

On January 15, 2014, we increased our regular quarterly dividend to $3.25 per share (a new indicated annual rate of $13.00 per share).  As of January 31, 2014, there were approximately 301 holders of record of our common stock. 

 

 

Recent Sales of Unregistered Securities

 

During 2013, we did not sell any unregistered securities.

 

Information relating to compensation plans under which our equity securities are authorized for issuance is set forth under Part III, Item 12 of this Annual Report on Form 10-K and such information is incorporated by reference herein.

 

 

Recent Purchases of Equity Securities

 

During 2013, we did not repurchase any of our equity securities.

19

 


 
 

 

Performance Graph

 

The following graph is a comparison of the five-year cumulative return of our common stock, the Standard & Poor’s 500 Index (the “S&P 500 Index”) and the National Association of Real Estate Investment Trusts’ (“NAREIT”) All Equity Index, a peer group index.  The graph assumes that $100 was invested on December 31, 2008 in our common stock, the S&P 500 Index and the NAREIT All Equity Index and that all dividends were reinvested without the payment of any commissions.  There can be no assurance that the performance of our stock will continue in line with the same or similar trends depicted in the graph below.

  

 

 

2008 

2009 

2010 

2011 

2012 

2013 

Alexander’s

$

100 

$

118 

$

163 

$

151 

$

191 

$

197 

S&P 500 Index

100 

126 

146 

149 

172 

228 

The NAREIT All Equity Index

100 

128 

164 

177 

212 

218 

20

 


 
 

 

ITEM 6.     selected financial data

The following table sets forth selected financial and operating data.  This data should be read in conjunction with the consolidated financial statements and notes thereto and “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.  This data may not be comparable to, or indicative of, future operating results.

 

Year Ended December 31,

(Amounts in thousands, except per share amounts)

2013 

2012 

2011 

2010 

2009 

Total revenues

$

196,459 

$

191,312 

$

185,246 

$

174,206 

$

159,694 

Income from continuing operations(1)

$

54,663 

$

50,041 

$

54,831 

$

49,159 

$

118,697 

Income from discontinued operations(2)

2,252 

624,952 

26,215 

18,286 

14,244 

Net income

56,915 

674,993 

81,046 

67,445 

132,941 

Net income attributable to the noncontrolling interest

(606)

(1,623)

(1,016)

(751)

Net income attributable to Alexander’s

$

56,915 

$

674,387 

$

79,423 

$

66,429 

$

132,190 

Income per common share:

Income from continuing operations – basic

$

10.70 

$

9.80 

$

10.74 

$

9.63 

$

23.26 

Income from continuing operations – diluted

10.70 

9.80 

10.74 

9.63 

23.25 

Net income per common share – basic

11.14 

132.04 

15.55 

13.01 

25.90 

Net income per common share – diluted

11.14 

132.04 

15.55 

13.01 

25.89 

Dividends per common share(3)

$

11.00 

$

137.00 

$

12.00 

$

7.50 

$

Balance sheet data:

Total assets

$

1,457,724 

$

1,481,810 

$

1,771,307 

$

1,679,300 

$

1,703,769 

Real estate, at cost

919,576 

911,792 

906,907 

897,312 

879,833 

Accumulated depreciation and amortization

185,375 

160,826 

136,460 

112,765 

91,247 

Mortgages payable

1,049,959 

1,065,916 

1,080,932 

1,095,197 

1,095,646 

Total equity

333,581 

332,153 

363,245 

343,776 

314,626 

 

 

 

 

(1)

 

Includes the reversal of stock appreciation rights ("SARs") compensation expense of $34,275 in 2009, and the reversal of a portion of the liability for income taxes of $2,561, $5,113 and $42,472 in 2011, 2010 and 2009, respectively.

(2)

2012 includes a $599,628 gain on sale of real estate.

(3)

2012 includes a special long-term capital gain dividend of $122.00 per share, to distribute the tax gain resulting from the sale of Kings Plaza. We began paying a regular quarterly dividend in the second quarter of 2010.

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 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 affecting 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.

 

 

Year Ended December 31, 2013 Financial Results Summary

Net income attributable to common stockholders for the year ended December 31, 2013 was $56,915,000, or $11.14 per diluted share, compared to $674,387,000, or $132.04 per diluted share for the year ended December 31, 2012.  Net income attributable to common stockholders includes income from discontinued operations (Kings Plaza) of $2,252,000, or $0.44 per diluted share for the year ended December 31, 2013, compared to $624,346,000, or $122.24 per diluted share for the year ended December 31, 2012 (primarily from the net gain on sale of Kings Plaza).

 

Funds from operations attributable to common stockholders (“FFO”) for the year ended December 31, 2013 was $85,717,000, or $16.78 per diluted share, compared to $107,616,000, or $21.07 per diluted share for the prior year.  FFO includes FFO from discontinued operations (Kings Plaza) of $2,252,000, or $0.44 per diluted share for the year ended December 31, 2013, compared to $28,936,000, or $5.67 per diluted share, including $4,218,000 of real property depreciation, for the prior year.

 

 

Quarter Ended December 31, 2013 Financial Results Summary

Net income attributable to common stockholders for the quarter ended December 31, 2013 was $15,790,000, or $3.09 per diluted share, compared to $617,157,000, or $120.82 per diluted share for the quarter ended December 31, 2012.  Net income attributable to common stockholders includes income from discontinued operations (Kings Plaza) of $2,252,000, or $0.44 per diluted share for the quarter ended December 31, 2013, compared to $605,124,000, or $118.46 per diluted share for the quarter ended December 31, 2012 (primarily from the net gain on sale of Kings Plaza).

 

FFO for the quarter ended December 31, 2013 was $23,015,000, or $4.50 per diluted share, compared to $24,723,000, or $4.84 per diluted share for the prior year’s quarter.  FFO includes FFO from discontinued operations (Kings Plaza) of $2,252,000, or $0.44 per diluted share for the quarter ended December 31, 2013, compared to $5,496,000, or $1.08 per diluted share for the prior year’s quarter.

22

 


 
 

 

Overview – continued

 

Leasing Activity, Square Footage and Occupancy

 

As of December 31, 2013 and 2012, our portfolio was comprised of six properties aggregating 2,178,000 square feet that had occupancy rates of 99.4% and 99.1%, respectively.  In the year ended December 31, 2013 we leased 6,562 square feet with an average initial rent of $346.84 per square foot and a weighted average lease term of 10.4 years.

 

 

Significant Tenants

Bloomberg L.P. (“Bloomberg”) accounted for $88,164,000, $86,468,000 and $84,526,000, or 45%, 45% and 46% of our total revenues in the years ended December 31, 2013, 2012 and 2011, respectively.  No other tenant accounted for more than 10% of our total revenues in any of the last three years.  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. 

 

 

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 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, 2013 and 2012, the carrying amount of our real estate, net of accumulated depreciation and amortization, was $734,201,000 and $750,966,000, 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.  As real estate is undergoing development activities, all property operating expenses directly associated with and attributable to, the development and construction of a project, including interest expense, are capitalized to the cost of the real property to the extent that we believe such costs are recoverable through the value of the property.  The capitalization period begins when development activities are underway and ends when the project is substantially complete.  General and administrative costs are expensed as incurred.

 

Our properties and related intangible assets, including properties to be developed in the future and currently under development, 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.

23

 


 
 

 

Critical Accounting Policies and Estimates – continued

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 ($1,993,000 and $2,219,000 as of December 31, 2013 and 2012, 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. 

 

 

Revenue Recognition

We have the following revenue sources and revenue recognition policies:

 

·     Base Rent – 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 free rent abatements under the leases.  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 – 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).

 

·     Expense Reimbursements – revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective properties.  This revenue is accrued in the same periods as the expenses are incurred.

 

·     Parking income – revenue arising from the rental of parking space at our properties.  This income is recognized as cash is received.

 

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 Real Estate Investment Trust (“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.

24

 


 
 

 

Results of Operations – Year Ended December 31, 2013 compared to December 31, 2012

 

 

Property Rentals

Property rentals were $135,908,000 in the year ended December 31, 2013, compared to $134,847,000 in the prior year, an increase of $1,061,000.  This increase was primarily due to higher occupancy.

 

 

Expense Reimbursements

Tenant expense reimbursements were $60,551,000 in the year ended December 31, 2013, compared to $56,465,000 in the prior year, an increase of $4,086,000. This increase was primarily due to higher real estate taxes and reimbursable operating expenses.

 

 

Operating Expenses

Operating expenses were $64,675,000 in the year ended December 31, 2013, compared to $61,755,000 in the prior year, an increase of $2,920,000.  This increase was primarily comprised of higher (i) real estate taxes of $3,991,000 and (ii) reimbursable operating expenses of $512,000, partially offset by (iii) lower bad debt expense of $1,362,000.

 

 

Depreciation and Amortization

Depreciation and amortization was $28,987,000 in the year ended December 31, 2013, compared to $28,815,000 in the prior year, an increase of $172,000. 

 

 

General and Administrative Expenses

General and administrative expenses were $5,281,000 in the year ended December 31, 2013, compared to $5,162,000 in the prior year, an increase of $119,000.

 

 

Interest and Other Income, net

Interest and other income, net was $1,527,000 in the year ended December 31, 2013, compared to $177,000 in the prior year, an increase of $1,350,000.  This increase was primarily due to dividend income in the current year on the Macerich common shares that we received in connection with the sale of Kings Plaza in November 2012.

 

 

Interest and Debt Expense

Interest and debt expense was $44,540,000 in the year ended December 31, 2013, compared to $45,652,000 in the prior year, a decrease of $1,112,000.  This decrease was primarily due to lower average debt balances.

 

 

Income Tax Benefit (Expense)

In the year ended December 31, 2013, we had an income tax benefit of $160,000, compared to an income tax expense of $64,000 in the prior year, a decrease in expense of $224,000.  This decrease resulted primarily from a reduction of our income tax liability due to the expiration of the applicable statute of limitations.

 

 

Income from Discontinued Operations

Income from discontinued operations was $2,252,000 in the year ended December 31, 2013, compared to $624,952,000 in the year ended December 31, 2012, a decrease of $622,700,000.  Income for the year ended December 31, 2013 represents the reversal of previously accrued liabilities related to Kings Plaza.  Income for the year ended December 31, 2012 is comprised of a $599,628,000 net gain on sale of Kings Plaza and $25,324,000 of income from the operations of the property prior to its sale in November 2012.

 

 

Net Income Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest was $606,000 in the in the year ended December 31, 2012, and represents our venture partner’s 75% pro-rata share of the net income from the Kings Plaza energy plant joint venture, which was sold together with Kings Plaza in November 2012.

25

 


 
 

 

Results of Operations – Year Ended December 31, 2012 compared to December 31, 2011

 

 

Property Rentals

Property rentals were $134,847,000 in the year ended December 31, 2012, compared to $133,682,000 in the year ended December 31, 2011, an increase of $1,165,000.  This increase was primarily due to higher occupancy.

 

 

Expense Reimbursements

Tenant expense reimbursements were $56,465,000 in the year ended December 31, 2012, compared to $51,564,000 in the year ended December 31, 2011, an increase of $4,901,000. This increase was primarily due to higher real estate taxes and reimbursable operating expenses.

 

 

Operating Expenses

Operating expenses were $61,755,000 in the year ended December 31, 2012, compared to $55,481,000 in the year ended December 31, 2011, an increase of $6,274,000.  This increase was primarily comprised of higher (i) real estate taxes of $4,395,000, (ii) reimbursable operating expenses of $622,000 and (iii) bad debt expense of $1,041,000.

 

 

Depreciation and Amortization

Depreciation and amortization was $28,815,000 in the year ended December 31, 2012, compared to $28,083,000 in the year ended December 31, 2011, an increase of $732,000. 

 

 

General and Administrative Expenses

General and administrative expenses were $5,162,000 in the year ended December 31, 2012, compared to $3,996,000 in the year ended December 31, 2011, an increase of $1,166,000.  This increase was primarily due to an $807,000 reversal of a portion of the litigation loss accrual at our Flushing property in the year ended December 31, 2011.

 

 

Interest and Other Income, net

Interest and other income, net was $177,000 in the year ended December 31, 2012, compared to $1,001,000 in the year ended December 31, 2011, a decrease of $824,000.  This decrease was primarily due to $740,000 of income in the year ended December 31, 2011 resulting from the collection of prior period real estate tax billings. 

 

 

Interest and Debt Expense

Interest and debt expense was $45,652,000 in the year ended December 31, 2012, compared to $43,898,000 in the year ended December 31, 2011, an increase of $1,754,000.  This increase was primarily due to a $2,561,000 reversal of previously recognized interest expense related to our income tax liability in the year ended December 31, 2011, due to the expiration of the applicable statute of limitations, partially offset by savings of $621,000 from lower average debt balances.

 

 

Income Tax Benefit (Expense)

In the year ended December 31, 2012, we had income tax expense of $64,000, compared to a $42,000 income tax benefit in the year ended December 31, 2011, an increase in expense of $106,000.  This increase resulted from a true-up of our estimated income tax liability in the year ended December 31, 2011.

 

 

Income from Discontinued Operations

Income from discontinued operations was $624,952,000 in the year ended December 31, 2012, compared to $26,215,000 in the year ended December 31, 2011, an increase of $598,737,000.  The increase resulted primarily from a $599,628,000 net gain on the sale of Kings Plaza in November 2012. 

 

 

Net Income Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest was $606,000 in the year ended December 31, 2012, compared to $1,623,000 in the year ended December 31, 2011, a decrease of $1,017,000.  This decrease was primarily due to our Kings Plaza energy plant venture partner’s 75% pro-rata share of a true-up in straight-line rental income in the year ended December 31, 2011.  The Kings Plaza energy plant was sold together with Kings Plaza in November 2012. 

26

 


 
 

 

Related Party Transactions

 

 

Vornado

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.  At December 31, 2013, 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, 26.3% of our outstanding common stock, in addition to the 2.1% they indirectly own through Vornado.  Joseph Macnow, our Executive Vice President and Chief Financial Officer, is the Executive Vice President – Finance and Chief Administrative Officer of Vornado.

 

At December 31, 2013, 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 3 – Related Party Transactions, to our consolidated financial statements in this Annual Report on Form 10-K.

 

27

 


 
 

 

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 maturities, and recurring capital expenditures.

 

 

Dividends

 

On January 15, 2014, we increased our regular quarterly dividend to $3.25 per share (a new indicated annual rate of $13.00 per share).  The new dividend, if continued for all of 2014, would require us to pay out approximately $66,500,000.

 

 

Development Project

 

We have commenced the construction of an apartment tower, which will contain approximately 300 units aggregating 250,000 square feet, above our Rego Park II shopping center.  Construction is expected to be completed in 2015 and cost approximately $125,000,000, of which $2,265,000 has been incurred as of December 31, 2013.  There can be no assurance that the project will be completed, or completed on schedule or within budget.

 

 

Financing Activities and Contractual Obligations

 

Below is a summary of our outstanding debt and maturities as of December 31, 2013.

 

Interest

(Amounts in thousands)

Balance

Rate

Maturity

731 Lexington Avenue, office space(1)

$

314,217 

5.33%

Feb. 2014

Rego Park I shopping center(2)

78,246 

0.40%

Mar. 2015

731 Lexington Avenue, retail space(3)

320,000 

4.93%

Jul. 2015

Paramus

68,000 

2.90%

Oct. 2018

Rego Park II shopping center(4)

269,496 

2.02%

Nov. 2018

$

1,049,959 

 

 

 -------------------------------------------------------------         

   

(1) We are in the process of finalizing a $300,000 refinancing of this loan.

(2) This loan is 100% cash collateralized.

(3) In the event of a substantial casualty, as defined, up to $75,000 of this loan may become recourse to us.

(4) This loan bears interest at LIBOR plus 1.85%.

 

Below is a summary of our contractual obligations and commitments as of December 31, 2013.

 

Less than

One to

Three to

More than

(Amounts in thousands)

Total

One Year

Three Years

Five Years

Five Years

Contractual obligations (principal and interest(1)):

Long-term debt obligations

$

1,113,190 

$

344,320 

$

427,881 

$

340,989 

$

Operating lease obligations

10,158 

700 

1,400 

1,592 

6,466 

Purchase obligations (primarily construction

commitments)

347 

347 

Other obligations (primarily due to Vornado)

47,934 

4,000 

8,000 

8,000 

27,934 

$

1,171,629 

$

349,367 

$

437,281 

$

350,581 

$

34,400 

Commitments:

Standby letters of credit

$

3,308 

$

3,308 

$

$

$

(1)

Interest on variable rate debt is computed using rates in effect at December 31, 2013.

28

 


 
 

 

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 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 2014.  Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence and in the aggregate.  Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies with no exposure to FNSIC.  For NBCR acts, FNSIC is responsible for a $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 incurred by FNSIC.

 

We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism.  However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future.  We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.

 

Our mortgage loans are non-recourse to us, 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.  Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future.  If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.

 

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 filed a motion to re-argue the decision, which the Court denied on December 7, 2012.  Expo has appealed the Court’s August 2012 decision.  We believe, after consultation with counsel, that the amount or range of reasonably possible losses, if any, cannot be estimated.

 

Paramus

In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 2.90%, which matures in October 2018. The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term. 

 

Other

There are various 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.

29

 


 
 

 

Liquidity and Capital Resources – continued

 

 

Cash Flows

Cash and cash equivalents were $347,718,000 at December 31, 2013, compared to $353,396,000 at December 31, 2012, a decrease of $5,678,000.  This decrease resulted from $72,241,000 of net cash used in financing activities and $7,320,000 of net cash used in investing activities, partially offset by $73,883,000 of net cash provided by operating activities. Our consolidated outstanding debt was $1,049,959,000 at December 31, 2013, a $15,957,000 decrease from the balance at December 31, 2012.

 

 

Year Ended December 31, 2013

Net cash provided by operating activities of $73,883,000 was comprised of net income of $56,915,000 and $27,876,000 of adjustments for non-cash items, partially offset by $10,908,000 for the net change in operating assets and liabilities.  The adjustments for non-cash items were primarily comprised of depreciation and amortization of $31,395,000, partially offset by straight-lining of rental income of $3,707,000.

 

Net cash used in investing activities of $7,320,000 was primarily comprised of $7,671,000 of real estate additions.

 

Net cash used in financing activities of $72,241,000 was primarily comprised of dividends paid on common stock of $56,197,000 and debt repayments of $15,957,000.

 

 

Year Ended December 31, 2012

Cash and cash equivalents were $353,396,000 at December 31, 2012, compared to $506,619,000 at December 31, 2011, a decrease of $153,223,000.  This decrease resulted from $973,007,000 of net cash used in financing activities, partially offset by $710,077,000 of net cash provided by investing activities and $109,707,000 of net cash provided by operating activities.

 

Net cash provided by operating activities was $109,707,000, of which $34,896,000 was related to discontinued operations.  Net cash provided by operating activities was comprised of net income of $674,993,000, and $2,154,000 for the net change in operating assets and liabilities, partially offset by $567,440,000 of adjustments for non-cash items.  The adjustments for non-cash items were primarily comprised of a net gain on the sale of real estate of $599,628,000 and straight-lining of rental income of $4,475,000, partially offset by depreciation and amortization of $36,363,000.

  

Net cash provided by investing activities of $710,077,000 was comprised of (i) net proceeds from the sale of real estate of $714,054,000 (excluding $30,000,000 of stock consideration) and (ii) proceeds from maturing short-term investments of $5,000,000, partially offset by (iii) $7,351,000 of real estate additions, primarily related to our Rego Park II property and (iv) an increase in restricted cash of $1,626,000.

  

Net cash used in financing activities of $973,007,000 was primarily comprised of (i) dividends paid on common stock of $699,791,000, which included a special dividend of $623,178,000 to distribute the tax gain on the sale of Kings Plaza, (ii) repayment of the Kings Plaza debt of $250,000,000 upon the sale of the property, (iii) debt repayments of $15,016,000 and (iv) a payment of $7,800,000 to acquire the noncontrolling interest in the Kings Plaza energy plant joint venture, which was sold with the mall.

 

30

 


 
 

 

Liquidity and Capital Resources – continued

 

 

Year Ended December 31, 2011

Cash and cash equivalents were $506,619,000 at December 31, 2011, compared to $397,220,000 at December 31, 2010, an increase of $109,399,000.  This increase resulted from $92,514,000 of net cash provided by operating activities, $383,000 of net cash provided by investing activities and $16,502,000 of net cash provided by financing activities.

  

Net cash provided by operating activities of $92,514,000 was comprised of net income of $81,046,000, and $22,216,000 of adjustments for non-cash items, partially offset by $10,748,000 for the net change in operating assets and liabilities.  The adjustments for non-cash items were primarily comprised of depreciation and amortization of $37,086,000, partially offset by straight-lining of rental income of $12,609,000 and a $2,561,000 reversal of a portion of the liability for income taxes.

   

Net cash provided by investing activities of $383,000 was comprised of (i) proceeds from maturing short-term investments of $23,000,000, partially offset by (ii) $14,415,000 of real estate additions, primarily related to the development of our Rego Park II property, (iii) purchases of short-term investments of $5,000,000, and (iv) an increase in restricted cash of $3,202,000.

   

Net cash provided by financing activities of $16,502,000 was primarily comprised of $593,000,000 of proceeds from the refinancing of our Rego Park II, Kings Plaza and Paramus properties, partially offset by debt repayments of $508,479,000 (primarily Rego Park II, Kings Plaza and Paramus) and dividends paid on common stock of $61,277,000.

 

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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 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 attributable to common stockholders for the year ended December 31, 2013 was $85,717,000, or $16.78 per diluted share, compared to $107,616,000, or $21.07 per diluted share for the prior year.  FFO attributable to common stockholders includes FFO from discontinued operations (Kings Plaza) of $2,252,000, or $0.44 per diluted share for the year ended December 31, 2013, compared to $28,936,000, or $5.67 per diluted share, including $4,218,000 of real property depreciation, for the prior year.

 

FFO attributable to common stockholders for the quarter ended December 31, 2013 was $23,015,000, or $4.50 per diluted share, compared to $24,723,000, or $4.84 per diluted share for the prior year’s quarter.  FFO attributable to common stockholders includes FFO from discontinued operations (Kings Plaza) of $2,252,000, or $0.44 per diluted share for the quarter ended December 31, 2013, compared to $5,496,000, or $1.08 per diluted share for the prior year’s quarter.

 

The following table reconciles our net income to FFO:

 

For the Year Ended

For the Quarter Ended

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

December 31,

December 31,

2013 

2012 

2013 

2012 

Net income attributable to Alexander’s

$

56,915 

$

674,387 

$

15,790 

$

617,157 

Net gain on sale of real estate

(599,628)

(599,628)

Depreciation and amortization of real property

28,802 

32,857 

7,225 

7,194 

FFO attributable to common stockholders

$

85,717 

$

107,616 

$

23,015 

$

24,723 

FFO attributable to common stockholders per diluted share

$

16.78 

$

21.07 

$

4.50 

$

4.84 

Weighted average shares used in computing diluted FFO per share

5,109,055 

5,107,610 

5,109,717 

5,108,016 

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ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have exposure to fluctuations in interest rates, which are sensitive to many factors that are beyond our control.  Our exposure to a change in interest rates is summarized in the table below.

 

2013 

2012 

Weighted

Effect of 1%

Weighted

December 31,

Average

Change in

December 31,

Average

(Amounts in thousands, except per share amounts)

Balance

Interest Rate

Base Rates

Balance

Interest Rate

Variable (including $42,924 and $45,803,

respectively, due to Vornado)

$

312,420 

2.00%

$

3,124 

$

318,048 

2.07%

Fixed Rate

780,463 

4.46%

793,671 

4.48%

$

1,092,883 

$

3,124 

$

1,111,719 

Total effect on diluted earnings per share

$

0.61 

 

The fair value of our consolidated debt is 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.  As of December 31, 2013 and 2012, the estimated fair value of our consolidated debt was $1,115,000,000 and $1,143,000,000, respectively.  Our fair value estimates, which are made at the end of the reporting period, may be different from the amounts that may ultimately be realized upon the disposition of our financial instruments.

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ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Page

Index to Consolidated Financial Statements

Number

Report of Independent Registered Public Accounting Firm

35

Consolidated Balance Sheets at December 31, 2013 and 2012

36

Consolidated Statements of Income for the

Years Ended December 31, 2013, 2012 and 2011

37

Consolidated Statements of Comprehensive Income for the