Alexanders Inc 10-K for FY2019
Alexanders Inc (ALX)
10-K
2020-02-18
For: 2019-12-31
View Original
Added on
April 09, 2026
About this 10-K
Alexanders Inc filed this 10-K on February 18, 2020, covering the fiscal year ended December 31, 2019 (FY2019).
Headline figures
Fiscal year ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $226.35M
- down 2.8% from $232.83M a year earlier
- Net income
- $60.08M
- up 82.9% from net income of $32.84M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Fiscal Year Ended: | |
OR
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: | ||
(Exact name of registrant as specified in its charter) | ||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||
(Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code | ||
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
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 ☐ No ☑
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☑ | ☐ | Accelerated Filer | |
☐ | Non-Accelerated Filer | Smaller Reporting Company | |
Emerging Growth Company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
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 $785,470,000 at June 30, 2019.
As of January 31, 2020, there were 5,107,290 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 14, 2020.
INDEX | ||||||
Item | Financial Information: | Page Number | ||||
Part I. | 1. | Business | ||||
1A. | Risk Factors | |||||
1B. | Unresolved Staff Comments | |||||
2. | Properties | |||||
3. | Legal Proceedings | |||||
4. | Mine Safety Disclosures | |||||
Part II. | 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||||
6. | Selected Financial Data | |||||
7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
7A. | Quantitative and Qualitative Disclosures about Market Risk | |||||
8. | Financial Statements and Supplementary Data | |||||
9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |||||
9A. | Controls and Procedures | |||||
9B. | Other Information | |||||
Part III. | 10. | Directors, Executive Officers and Corporate Governance(1) | ||||
11. | Executive Compensation(1) | |||||
12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters(1) | |||||
13. | Certain Relationships and Related Transactions, and Director Independence(1) | |||||
14. | Principal Accounting Fees and Services(1) | |||||
Part IV. | 15. | Exhibits, Financial Statement Schedules | ||||
16. | Form 10-K Summary | |||||
Signatures | ||||||
__________________________
(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, 2019, 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 seven properties in the greater New York City metropolitan area consisting of:
Operating properties
• | 731 Lexington Avenue, a 1,323,000 square foot multi-use building, comprising the entire block bounded by Lexington Avenue, East 59th Street, Third Avenue and East 58th Street in Manhattan. The building contains 920,000 and 155,000 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) and The Container Store (34,000 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. On April 4, 2017, Sears closed its 195,000 square foot anchor store at the property ($10,300,000 of annual revenue). On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief and rejected its lease. On September 23, 2019, we leased 113,000 square feet at the property to IKEA Property, Inc. (“IKEA”), replacing a significant portion of the space formerly occupied by Sears. The center is also anchored by a 50,000 square foot Burlington, a 46,000 square foot Bed Bath & Beyond and a 36,000 square foot Marshalls; |
• | Rego Park II, a 609,000 square foot shopping center, adjacent to the Rego Park I shopping center in Queens. The center is anchored by a 145,000 square foot Costco, a 135,000 square foot Century 21 and a 133,000 square foot Kohl’s. On April 13, 2019, Kohl’s closed its store at the property. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031; |
• | The Alexander apartment tower, located above our Rego Park II shopping center, contains 312 units aggregating 255,000 square feet; |
• | Paramus, located at the intersection of Routes 4 and 17 in Paramus, New Jersey, consists of 30.3 acres of land that is leased to IKEA; and |
• | Flushing, a 167,000 square foot building, located on Roosevelt Avenue and Main Street in Queens, that is sub-leased to New World Mall LLC for the remainder of our ground lease term. |
Property to be developed
• | Rego Park III, a 140,000 square foot land parcel adjacent to the Rego Park II shopping center in Queens, at the intersection of Junction Boulevard and the Horace Harding Service Road. |
Relationship with Vornado
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. Vornado is a fully-integrated REIT with significant experience in managing, leasing, developing, and operating retail and office properties.
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Relationship with Vornado - continued
As of December 31, 2019, 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. As of December 31, 2019, 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, 26.1% of our outstanding common stock, in addition to the 2.3% they indirectly own through Vornado. Joseph Macnow, our Treasurer, is the Executive Vice President - Chief Financial Officer and Chief Administrative Officer of Vornado. Matthew Iocco, our Chief Financial Officer, is the Executive Vice President - Chief Accounting Officer of Vornado.
Significant Tenant
Bloomberg accounted for revenue of $109,113,000, $107,356,000 and $105,224,000 in the years ended December 31, 2019, 2018, and 2017, respectively, representing approximately 48%, 46% and 46% of our total revenues in each year, respectively. No other tenant accounted for more than 10% of our total revenues. If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition. In order to assist us in our continuing assessment of Bloomberg’s creditworthiness, we receive certain confidential financial information and metrics from Bloomberg. In addition, we access and evaluate financial information regarding Bloomberg from other private sources, as well as publicly available data.
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 real estate investors, property owners and developers. Principal factors of competition are rents charged, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Our success depends upon, among other factors, trends of the global, national and local economies, the financial condition and operating results of current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels. Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.
Employees
We currently have 69 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.
In May 2009, Vornado and Interstate each filed with the SEC an amendment to their respective Schedule 13D indicating that they, as a group, own 47.2% of our common stock. This ownership level, together with the shares owned by Messrs. Roth, Mandelbaum and Wight, 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 any time.
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ITEM 1A. RISK FACTORS
Material factors that may adversely affect our business, operations and financial condition 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, operations and financial condition. See “Forward-Looking Statements” contained herein on page 4.
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, professional services, financial, technology, retail, insurance and real estate industries; |
• | business layoffs or downsizing; |
• | industry slowdowns; |
• | relocations of businesses; |
• | changing demographics; |
• | increased telecommuting and use of alternative work places; |
• | changes in the number of domestic and international tourists to our markets (including as a result of changes in the relative strengths of world currencies); |
• | infrastructure quality; |
• | changes in the rates or treatment of the deductibility of state and local taxes; and |
• | any oversupply of, or reduced demand for, real estate. |
It is impossible for us to predict the future or the effect 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 could negatively affect our business and profitability.
We are subject to risks that affect the general and New York City retail environments.
Certain of our properties are New York City retail properties. As such, these properties are affected by the general and New York City retail environments, including the level of consumer spending and consumer confidence, New York City tourism, the threat of terrorism, increasing competition from on-line retailers, other retailers and outlet malls and the impact of technological change upon the retail environment generally. These factors could adversely affect the financial condition of our retail tenants, or result in the bankruptcy of such tenants, and the willingness of retailers to lease space in our retail locations, which could have an adverse effect on our business and profitability.
Terrorist attacks 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 response to a terrorist attack or the perceived threat of terrorism, tenants in this area may choose to relocate their businesses to less populated, lower-profile areas of the United States that may be perceived to be less likely targets of future terrorist activity and fewer customers may choose to patronize businesses in this area. This, in turn, could 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. Furthermore, we may experience increased costs for security, equipment and personnel. As a result, the value of our properties and the level of our revenues could decline materially.
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Natural disasters and the effects of climate change could have a concentrated impact on the area which we operate and could adversely impact our results.
Our investments are in the greater New York City metropolitan area and since they are concentrated along the Eastern Seaboard, natural disasters, including hurricanes, could cause significant damage to our properties and the surrounding environment or area. Potentially adverse consequences of “global warming,” including rising sea levels, could similarly have an impact on our properties and the economy of the greater New York City metropolitan area in which we operate. Over time, these conditions could result in declining demand for office space in our buildings or the inability of us to operate the buildings at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy at our properties and requiring us to expend funds as we seek to repair and protect our properties against such risks. The incurrence of these losses, costs or business interruptions may adversely affect our operating and financial results.
REAL ESTATE INVESTMENTS’ VALUE AND INCOME FLUCTUATE DUE TO VARIOUS FACTORS.
Our performance and the value of an investment in us are subject to risks associated with our real estate assets and with the real estate industry.
The value of our real estate and the value of an investment in us 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:
• | global, 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; |
• | the development and/or redevelopment of 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; |
• | the ability of state and local governments to operate within their budgets; |
• | whether tenants and users such as customers and shoppers consider a property attractive; |
• | changes in consumer preferences adversely affecting retailers and retail store values; |
• | changes in space utilization by our tenants due to technology, economic conditions and business environment; |
• | the financial condition of our tenants, including the extent of tenant bankruptcies or defaults; |
• | consequences of any armed conflict involving, or terrorist attack against, the United States or individual acts of violence in public spaces; |
• | trends in office real estate; |
• | the impact on our retail tenants and demand for retail space at our properties due to increased competition from online shopping; |
• | 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; |
• | 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 for operating costs, 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.
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Capital markets and economic conditions can materially affect our liquidity, financial condition and results of operations as well as the value of an investment in 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 typically declines nationwide due to an 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, which 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.
U.S. federal tax reform legislation now and in the future could affect REITs generally, the geographic markets in which we operate, the trading of our shares and our results of operations, both positively and negatively, in ways that are difficult to anticipate.
The Tax Cuts and Jobs Act of 2017 (the “2017 Act”) represented sweeping tax reform legislation that made significant changes to corporate and individual tax rates and the calculation of taxes, as well as international tax rules. As a REIT, we are generally not required to pay federal taxes otherwise applicable to regular corporations if we comply with the various tax regulations governing REITs. Shareholders, however, are generally required to pay taxes on REIT dividends. The 2017 Act and future tax reform legislation could impact our share price or how shareholders and potential investors view an investment in REITs. For example, the decrease in corporate tax rates in the 2017 Act could decrease the attractiveness of the REIT structure relative to companies that are not organized as REITs. In addition, while certain elements of the 2017 Act do not impact us directly as a REIT, they could impact the geographic markets in which we operate as well as our tenants in ways, both positive and negative, that are difficult to anticipate. For example, the limitation in the 2017 Act on the deductibility of certain state and local taxes may make operating in jurisdictions that impose such taxes at higher rates less desirable than operating in jurisdictions imposing such taxes at lower rates. The overall impact of the 2017 Act also depends on the future interpretations and regulations that may be issued by U.S. tax authorities, and it is possible that future guidance could adversely impact us.
Real estate is a competitive business and that competition may adversely impact us.
We compete with a large number of real estate investors, property owners and developers, some of which may be willing to accept lower returns on their investments. Principal factors of competition are rents charged, attractiveness of location, the quality of the property and the breadth and the quality of services provided. Substantially all of our properties face competition from similar properties in the same market, which may adversely impact the rents we can charge at those properties and our results of operations.
We may be adversely affected by trends in office real estate.
Telecommuting, flexible work schedules, open workplaces and teleconferencing are becoming more common. These practices enable businesses to reduce their office space requirements. There is also an increasing trend among some businesses to utilize shared office spaces and co-working spaces. A continuation of these trends could, over time, erode the overall demand for office space and, in turn, place downward pressure on occupancy, rental rates and property valuations.
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 for distributions 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. Even if we are able to enforce our rights, a tenant may not have recoverable assets.
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. The bankruptcy or insolvency of a major tenant could cause us to suffer lower revenues and operational difficulties, including leasing the remainder of the property. As a result, the bankruptcy or insolvency of a major tenant or multiple tenants could result in decreased net income and funds available to pay our indebtedness or make distributions to stockholders.
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We depend upon anchor tenants to attract shoppers at our Rego Park I and II retail properties and decisions made by these tenants, or adverse developments in the businesses of these tenants, could materially affect our financial condition and results of operations.
Our Rego Park I and II retail properties are anchored by well-known department stores and other tenants who generate shopping traffic. The value of these properties would be adversely affected if our anchor tenants failed to meet their contractual obligations, sought concessions in order to continue operations or ceased their operations, including as a result of bankruptcy. If the level of sales of stores operating in our properties were to decline significantly due to economic conditions, increased competition from online shopping, closing of anchors or for other reasons, tenants may be unable to pay their minimum rents or expense recovery charges. In the event of a default by a tenant or anchor, we may experience delays and costs in enforcing our rights as landlord. Additionally, closure of an anchor or major tenant could result in lease terminations by, or reductions of rent from, other tenants if the other tenants’ leases have co-tenancy clauses. On April 4, 2017, Sears closed its 195,000 square foot store at our Rego Park I shopping center ($10,300,000 of annual revenue). On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief and rejected its lease. On April 13, 2019, Kohl’s closed its 133,000 square foot store at our Rego Park II shopping center. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031.
We may be unable to renew leases or relet space as leases expire.
When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if tenants do renew or we can relet the space, the terms of renewal or reletting, considering among other things, the cost of improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases. In addition, changes in space utilization by our tenants may impact our ability to renew or relet space without the need to incur substantial costs in renovating or redesigning the internal configuration of the relevant property. If we are unable to promptly renew the leases or relet the space at similar rates or if we incur substantial costs in renewing or reletting the space, our cash flow and ability to service debt obligations and pay dividends and distributions to stockholders could be adversely affected.
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 revenue of $153,797,000, $151,834,000 and $148,324,000 in the years ended December 31, 2019, 2018, and 2017, respectively, representing approximately 68%, 65% and 64% of our total revenues in each year, 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 revenue of $109,113,000, $107,356,000 and $105,224,000 in the years ended December 31, 2019, 2018, and 2017, respectively, representing approximately 48%, 46% and 46% of our total revenues in each year, respectively. No other tenant accounted for more than 10% of our total revenues. If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition.
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The occurrence of cyber incidents, or a deficiency in our cyber security, as well as other disruptions of our IT networks and related systems, 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 or reputation, all of which could negatively impact our financial results.
We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons who access our systems from inside or outside our organization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Although we have not experienced cyber incidents that are individually, or in the aggregate, material, we have experienced cyber attacks in the past, which have thus far been mitigated by preventative, detective, and responsive measures that we have put in place. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations (including managing our building systems) and, in some cases, may be critical to the operations of certain of our tenants. Although we make efforts to maintain the security and integrity of these types of IT networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Unauthorized parties, whether within or outside our company, may disrupt or gain access to our systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, computer viruses or other malicious codes, and similar means of unauthorized and destructive tampering. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.
A security breach or other significant disruption involving our IT networks and related systems could disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants; result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties for disruptive, destructive or otherwise harmful purposes and outcomes; result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space; require significant management attention and resources to remedy any damages that result; subject us to litigation claims for breach of contract, damages, credits, fines, penalties, governmental investigations and enforcement actions or termination of leases or other agreements; or damage our reputation among our tenants and investors generally. Any or all of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.
A cyber attack or systems failure could interfere with our ability to comply with financial reporting requirements, which could adversely affect us. A cyber attack could also compromise the confidential information of our employees, tenants, customers and vendors. A successful attack could disrupt and materially affect our business operations, including damaging relationships with tenants, customers and vendors. Any compromise of our information security systems could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary and/or commercially sensitive in nature) and a loss of confidence in our security measures, which could harm our business.
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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 per property, and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties.
Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Act of 2002, as amended to date and which has been extended through December 2027. Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence and in the aggregate. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $268,000 deductible and 20% of the balance of a covered loss, and the Federal government is responsible for the remaining 80% of a covered loss. We are ultimately responsible for any loss incurred by FNSIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism or other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material.
Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.
Compliance or failure to comply with the Americans with Disabilities Act (“ADA”) or other safety regulations and requirements could result in substantial costs.
The 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.
Changes in the method pursuant to which the LIBOR rates are determined and phasing out of LIBOR after 2021 may affect our financial results.
The chief executive of the United Kingdom Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In response, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. It is not possible to predict the effect of these changes, including when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets.
We have outstanding debt with variable rates based on LIBOR. In the transition from the use of LIBOR to SOFR or other alternatives, the level of interest payments we incur may change. In addition, although certain of our LIBOR based obligations provide for alternative methods of calculating the related interest rate payable (including transition to an alternative benchmark rate) if LIBOR is not reported, uncertainty as to the extent and manner of future changes may result in interest rates and/or payments that are higher than, lower than or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form. Use of alternative interest rates or other LIBOR reforms could result in increased volatility or a tightening of credit markets which could adversely affect our ability to obtain cost-effective financing.
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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 the release. The presence of contamination or the failure to remediate contamination may also 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 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 to contamination at or from our properties.
Each of our properties has been subjected to varying degrees of environmental assessment. 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 clean-up or compliance requirements could result in significant costs to us.
In addition, we may become subject to costs or taxes, or increases therein, associated with natural resource or energy usage (such as a “carbon tax”). These costs or taxes could increase our operating costs and decrease the cash available to pay our obligations or distribute to stockholders.
We face risks associated with our tenants being designated “Prohibited Persons” by the Office of Foreign Assets Control and similar requirements.
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 and thereby restricts our doing business with such persons. In addition, our leases, loans and other agreements may require us to comply with OFAC and related requirements, and any failure to do so may result in a breach of such agreements. If a tenant or other party with whom we conduct business is placed on the OFAC list or is otherwise a party with whom we are prohibited from doing business, we may be required to terminate the lease or other agreement or face other penalties. Any such termination could result in a loss of revenue or otherwise negatively affect our financial results and cash flows.
WE MAY ACQUIRE OR SELL ASSETS OR DEVELOP PROPERTIES. OUR FAILURE OR INABILITY TO CONSUMMATE THESE TRANSACTIONS OR MANAGE THE RESULTS OF THESE TRANSACTIONS COULD ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL RESULTS.
We may acquire, develop, or redevelop 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 succeed in (i) developing, redeveloping or acquiring properties; (ii) completing these activities on time or within budget; and (iii) leasing or selling developed, redeveloped or acquired properties at amounts sufficient to cover our costs. Competition in these activities could also significantly increase our costs. 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 also abandon acquisition or development opportunities that we have begun pursuing and consequently fail to recover expenses already incurred. Furthermore, we may be exposed to the liabilities of properties acquired, some of which we may not be aware of at the time of acquisition.
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We are exposed to risks associated with property redevelopment and repositioning that could adversely affect us, including our financial condition and results of operations.
We continue to engage in redevelopment and repositioning activities with respect to our properties, and, accordingly, we are subject to certain risks, which could adversely affect us, including our financial condition and results of operations. These risks include, without limitation, (i) the availability and pricing of financing on favorable terms or at all; (ii) the availability and timely receipt of zoning and other regulatory approvals; (iii) the potential for the fluctuation of occupancy rates and rents at redeveloped properties, which may result in our investment not being profitable; (iv) start up, repositioning and redevelopment costs may be higher than anticipated; (v) cost overruns and untimely completion of construction (including risks beyond our control, such as weather or labor conditions, or material shortages); (vi) the potential that we may fail to recover expenses already incurred if we abandon development or redevelopment opportunities after we begin to explore them; (vii) the potential that we may expend funds on and devote management time to projects which we do not complete; (viii) the inability to lease a property on schedule or at all, resulting in increased construction or redevelopment costs; and (ix) the possibility that properties will be leased at below expected rental rates. These risks could result in substantial unanticipated delays or expenses and could prevent the initiation or the completion of redevelopment activities, any of which could have an adverse effect on our financial condition, results of operations, cash flow, the market value of our common shares and ability to satisfy our principal and interest obligations and to make distributions to our stockholders.
It may be difficult to sell real estate quickly, which may limit our flexibility.
Real estate investments are relatively illiquid. Consequently, we may have limited ability to dispose of assets in our portfolio promptly in response to changes in economic or other conditions which could have an adverse effect on our sources of working capital and our ability to satisfy our debt obligations.
We have an investment in marketable equity securities. The value of this investment may decline as a result of operating performance or economic or market conditions.
We have an investment in The Macerich Company (“Macerich”), a retail shopping center company. As of December 31, 2019, this investment had a carrying amount of $14,409,000. A decline in the value of this investment due to, among other reasons, Macerich’s operating performance or economic or market conditions, would result in recognized GAAP losses, which could be material.
OUR ORGANIZATIONAL AND FINANCIAL STRUCTURE GIVES RISE TO OPERATIONAL AND FINANCIAL RISKS.
Substantially all of our assets are owned by subsidiaries. We depend on dividends and distributions from these 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.
As of December 31, 2019, we had outstanding mortgage indebtedness of $974,836,000, secured by three of our properties. 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.
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We have a substantial amount of indebtedness that could affect our future operations.
As of December 31, 2019, total debt outstanding was $974,836,000. We are subject to the risks normally associated with debt financing, including the risk that our cash flow from operations will be insufficient to meet required debt service. Our debt service costs generally will not be reduced if developments in the market or at our properties, such as the entry of new competitors or the loss of major tenants, cause a reduction in the income from our properties. Should such events occur, our operations may be adversely affected. If a property is mortgaged to secure payment of indebtedness and income from such property is insufficient to pay that indebtedness, the property could be foreclosed upon by the mortgagee resulting in a loss of income and a decline in our total asset value.
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, 2019, total debt outstanding was $974,836,000 and our ratio of total debt to total enterprise value was 41.2%. “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, 2019, our scheduled cash payments for principal and interest were $34,669,000. 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 federal 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. 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 and depends on various facts and circumstances that are not entirely within our control. In addition, legislation, new regulations, administrative interpretations or court decisions may 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 that taxable year and in future years until we were able to qualify as a REIT and did so. 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 may face possible adverse changes in federal tax laws, which may result in an increase in our tax liability.
At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict if or when any new U.S. federal income tax law, regulation, or administrative interpretation, or any amendment to any existing U.S. federal income tax law, Treasury regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. Alexander’s, its taxable REIT subsidiaries, and our security holders could be adversely affected by any such change in, or any new, U.S. federal income tax law, Treasury regulation or administrative interpretation.
15
We may face possible adverse state and local tax audits and changes in state and local tax law.
Because we are organized and qualify as a REIT, we are generally not subject to federal income taxes, but we are subject to certain state and local taxes. In the normal course of business, certain entities through which we own real estate either have undergone, or are currently undergoing, tax audits. Although we believe that we have substantial arguments in favor of our positions in the ongoing audits, in some instances there is no controlling precedent or interpretive guidance on the specific point at issue. There can be no assurance that ongoing and future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.
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. A shortfall in tax revenues for states and municipalities in which we operate 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 the payment of dividends and distributions to our stockholders.
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, the loss of his services could harm our operations and adversely affect the value of our common stock.
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; and |
• | set the preferences, rights and other terms of any classified or reclassified stock that Alexander’s issues. |
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 58.5% 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.
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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.
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.
As of December 31, 2019, Interstate and its partners owned approximately 7.1% of the common shares of beneficial interest of Vornado and approximately 26.1% 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.
As of December 31, 2019, Vornado owned 32.4% of our outstanding common stock, in addition to the 26.1% 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, our Treasurer, is the Executive Vice President - Chief Financial Officer and Chief Administrative Officer of Vornado. Matthew Iocco is our Chief Financial Officer and the Executive Vice President - Chief Accounting 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 are on our Board of 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.
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THE NUMBER OF SHARES OF ALEXANDER’S COMMON STOCK AND THE MARKET FOR THOSE SHARES GIVE RISE TO VARIOUS RISKS.
The trading price of our common shares has been volatile and may continue to fluctuate.
The trading price of our common shares has been volatile and may continue to fluctuate widely as a result of several 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; |
• | changes in tax laws and rules; 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, 2019, 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 11,408 shares of common stock are reserved for issuance upon redemption of the deferred stock units previously granted to our Board of Directors. In addition, 494,379 shares are available for future grant under the terms of our 2016 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.
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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, 2019.
Square Feet | Weighted | ||||||||||||||||||||||||||
Under | Average | ||||||||||||||||||||||||||
Development Or | In Service | Escalated | Lease Expiration(s) | ||||||||||||||||||||||||
Land | Total | Not Available | Occupancy | Annual | Original | Option | |||||||||||||||||||||
Property | Acreage | Property | In Service | For Lease | Rate | Rent PSF (1) | Tenants | Term (2) | Term (3) | ||||||||||||||||||
Operating Properties: | |||||||||||||||||||||||||||
731 Lexington Avenue | |||||||||||||||||||||||||||
New York, NY | |||||||||||||||||||||||||||
Office | 920,000 | 896,000 | 24,000 | 100% | $ | 121.81 | Bloomberg L.P. | 2029 | 2039 | ||||||||||||||||||
Retail | 83,000 | 83,000 | — | The Home Depot | 2025 | 2035 | |||||||||||||||||||||
34,000 | 34,000 | — | The Container Store | 2021 | N/A | ||||||||||||||||||||||
38,000 | 38,000 | — | Various | Various | Various | ||||||||||||||||||||||
155,000 | 155,000 | — | 93% | 277.36 | |||||||||||||||||||||||
1.9 | 1,075,000 | 1,051,000 | 24,000 | ||||||||||||||||||||||||
Rego Park I | |||||||||||||||||||||||||||
Queens, NY | |||||||||||||||||||||||||||
113,000 | — | 113,000 | IKEA (4) | 2025 | (5) | 2030 | |||||||||||||||||||||
50,000 | 50,000 | — | Burlington | 2022 | 2027 | ||||||||||||||||||||||
46,000 | 46,000 | — | Bed Bath & Beyond | 2021 | N/A | ||||||||||||||||||||||
36,000 | 36,000 | — | Marshalls | 2032 | N/A | ||||||||||||||||||||||
16,000 | 16,000 | — | Old Navy | 2021 | N/A | ||||||||||||||||||||||
82,000 | — | 82,000 | (6) | N/A | N/A | ||||||||||||||||||||||
4.8 | 343,000 | 148,000 | 195,000 | 100% | 53.18 | ||||||||||||||||||||||
Rego Park II | |||||||||||||||||||||||||||
Queens, NY | |||||||||||||||||||||||||||
145,000 | 145,000 | — | Costco | 2034 | 2059 | ||||||||||||||||||||||
135,000 | 135,000 | — | Century 21 | 2031 | 2051 | ||||||||||||||||||||||
133,000 | 133,000 | — | Kohl’s (7) | 2031 | 2051 | ||||||||||||||||||||||
196,000 | 196,000 | — | Various | Various | Various | ||||||||||||||||||||||
6.6 | 609,000 | 609,000 | — | 92% | 59.78 | ||||||||||||||||||||||
The Alexander apartment tower, 312 units | |||||||||||||||||||||||||||
Queens, NY | — | 255,000 | 255,000 | — | 94% | 46.19 | (8) | Residential | (9) | N/A | |||||||||||||||||
Paramus | |||||||||||||||||||||||||||
Paramus, NJ | 30.3 | — | — | — | 100% | — | IKEA (ground lessee) | 2041 | N/A | ||||||||||||||||||
Flushing | |||||||||||||||||||||||||||
Queens, NY (10) | 1 | 167,000 | 167,000 | — | 100% | 29.18 | New World Mall LLC | 2027 | 2037 | ||||||||||||||||||
Property to be Developed: | |||||||||||||||||||||||||||
Rego Park III, adjacent to Rego Park II | |||||||||||||||||||||||||||
Queens, NY | 3.2 | — | — | — | — | — | — | — | — | ||||||||||||||||||
2,449,000 | 2,230,000 | 219,000 | |||||||||||||||||||||||||
(1) | Represents the weighted average escalated annual rent per square foot, which includes tenant reimbursements and excludes the impact of tenant concessions (such as free rent), as of December 31, 2019. For a discussion of our leasing activity, see Item 7 - Overview - Square Footage, Occupancy and Leasing Activity. | ||||||||||||||||||||||||||
(2) | Represents the year in which the tenant’s lease expires, without consideration of any renewal or extension options. Lease expiration dates are based on non-cancelable lease terms and do not extend beyond any early termination rights that the tenant may have under its lease. | ||||||||||||||||||||||||||
(3) | Represents the year in which the tenant’s lease expires if all renewal or extension options are exercised. | ||||||||||||||||||||||||||
(4) | On September 23, 2019, we entered into a lease agreement with IKEA, replacing a significant portion of the space formerly occupied by Sears. Currently out of service due to redevelopment. | ||||||||||||||||||||||||||
(5) | IKEA has the option to terminate its lease after the fifth year of the lease term subject to payment to us of the lesser of $10,000,000 or the amount of rent due under the remaining term. | ||||||||||||||||||||||||||
(6) | Formerly occupied by Sears. Currently out of service due to redevelopment. | ||||||||||||||||||||||||||
(7) | On April 13, 2019, Kohl’s closed its store at the property. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031. | ||||||||||||||||||||||||||
(8) | Average monthly rent per unit is $3,150. | ||||||||||||||||||||||||||
(9) | Residential tenants have one or two year leases. | ||||||||||||||||||||||||||
(10) | Ground leased through January 2027 with one 10-year extension option. | ||||||||||||||||||||||||||
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Operating Properties
731 Lexington Avenue
731 Lexington Avenue, a 1,323,000 square foot multi-use building, comprises the entire 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 920,000 and 155,000 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 occupies all of the office space. The Home Depot (83,000 square feet) and The Container Store (34,000 square feet) are the principal retail tenants.
The office portion of 731 Lexington Avenue is encumbered by a mortgage loan with a balance of $500,000,000 as of December 31, 2019. The interest-only loan is at LIBOR plus 0.90% (2.64% as of December 31, 2019) and matures in June 2020, with four one-year unilateral extension options. In connection therewith, we purchased an interest rate cap with a notional amount of $500,000,000 that caps LIBOR at a rate of 6.0%.
The retail portion of 731 Lexington Avenue is encumbered by a mortgage loan with a balance of $350,000,000 as of December 31, 2019. The interest-only loan is at LIBOR plus 1.40% (3.10% as of December 31, 2019) and matures in August 2020, with two one-year conditional extension options.
Rego Park I
Rego Park I, a 343,000 square foot shopping center, located on Queens Boulevard and 63rd Road in Queens. On April 4, 2017, Sears closed its 195,000 square foot anchor store at the property ($10,300,000 of annual revenue). On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief and rejected its lease. On September 23, 2019, we leased 113,000 square feet at the property to IKEA, replacing a significant portion of the space formerly occupied by Sears. The center is also anchored by a 50,000 square foot Burlington, a 46,000 square foot Bed Bath & Beyond and a 36,000 square foot Marshalls. The center contains a parking deck (1,241 spaces) that provides for paid parking.
Rego Park II
Rego Park II, a 609,000 square foot shopping center, adjacent to the Rego Park I shopping center in Queens. The center is anchored by a 145,000 square foot Costco, a 135,000 square foot Century 21 and a 133,000 square foot Kohl’s. On April 13, 2019, Kohl’s closed its store at the property. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031. The center contains a parking deck (1,326 spaces) that provides for paid parking.
This center is encumbered by a mortgage loan in the amount of $252,544,000. The interest-only loan is at LIBOR plus 1.35% (3.15% as of December 31, 2019) and matures in December 2025. As of December 31, 2019, we have a participation in the mortgage in the amount of $195,708,000 which for GAAP purposes is netted against the mortgage balance. Therefore, the balance sheet amount of the mortgage loan is $56,836,000. On February 14, 2020, we reduced our participation in the mortgage loan to $50,000,000 and received cash proceeds of approximately $145,000,000.
The Alexander Apartment Tower
The Alexander apartment tower, located above our Rego Park II shopping center, contains 312 units aggregating 255,000 square feet.
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Operating Properties - continued
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 4.72%, which matures in October 2021. The annual triple-net rent is the sum of $700,000 plus the amount of interest on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.
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.
Property to be Developed
Rego Park III
We own a 140,000 square foot land parcel adjacent to the Rego Park II shopping center in Queens, New York, at the intersection of Junction Boulevard and the Horace Harding Service Road. The land is currently being used for paid public parking. In 2016, the Company started the entitlement process.
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.
In June 2014, Sears Roebuck and Co. (“Sears”) filed a lawsuit in the Supreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to space that Sears leased at our Rego Park I property alleging that the defendants are liable for harm that Sears has suffered as a result of (a) water intrusions into the premises, (b) two fires in February 2014 that caused damages to those premises, and (c) alleged violations of the Americans with Disabilities Act in the premises’ parking garage. Sears asserted various causes of actions for damages and sought to compel compliance with landlord’s obligations to repair the premises and to provide security, and to compel us to abate a nuisance that Sears claims was a cause of the water intrusions into its premises. In addition to injunctive relief, Sears sought, among other things, damages of not less than $4,000,000 and future damages it estimated would not be less than $25,000,000. In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $650,000 based on information provided by Sears. We intend to defend the remaining claim vigorously. The amount or range of reasonable possible losses, if any, is not expected to be greater than $650,000. On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief resulting in an automatic stay of this case.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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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.”
As of January 31, 2020, there were 212 holders of record of our common stock.
Recent Sales of Unregistered Securities
During 2019, 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 2019, we did not repurchase any of our equity securities.
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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, 2014 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.
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||||||
Alexander’s | $ | 100 | $ | 91 | $ | 105 | $ | 102 | $ | 82 | $ | 94 | ||||||||||||
S&P 500 Index | 100 | 101 | 114 | 138 | 132 | 174 | ||||||||||||||||||
The NAREIT All Equity Index | 100 | 103 | 112 | 121 | 116 | 150 | ||||||||||||||||||
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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) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Total revenues | $ | 226,350 | $ | 232,825 | $ | 230,574 | $ | 226,936 | $ | 207,915 | |||||||||||
Income from continuing operations (1) | $ | 60,075 | $ | 56,641 | $ | 80,509 | $ | 86,477 | $ | 76,907 | |||||||||||
Loss from discontinued operations | — | (23,797 | ) | — | — | — | |||||||||||||||
Net income | $ | 60,075 | $ | 32,844 | $ | 80,509 | $ | 86,477 | $ | 76,907 | |||||||||||
Income per common share: | |||||||||||||||||||||
Income from continuing operations - basic | $ | 11.74 | $ | 11.07 | $ | 15.74 | $ | 16.91 | $ | 15.04 | |||||||||||
Income from continuing operations - diluted | 11.74 | 11.07 | 15.74 | 16.91 | 15.04 | ||||||||||||||||
Net income per common share - basic | 11.74 | 6.42 | 15.74 | 16.91 | 15.04 | ||||||||||||||||
Net income per common share - diluted | 11.74 | 6.42 | 15.74 | 16.91 | 15.04 | ||||||||||||||||
Dividends per common share | $ | 18.00 | $ | 18.00 | $ | 17.00 | $ | 16.00 | $ | 14.00 | |||||||||||
Balance sheet data: | |||||||||||||||||||||
Total assets (2) (3) | $ | 1,265,511 | $ | 1,285,549 | $ | 1,632,395 | $ | 1,451,230 | $ | 1,447,808 | |||||||||||
Real estate, at cost | 1,041,342 | 1,027,691 | 1,037,368 | 1,033,551 | 1,029,472 | ||||||||||||||||
Accumulated depreciation and amortization | 324,499 | 297,421 | 283,044 | 252,737 | 225,533 | ||||||||||||||||
Mortgages payable, net of deferred debt issuance costs (2) | 970,961 | 965,826 | 1,240,222 | 1,052,359 | 1,053,262 | ||||||||||||||||
Total equity | 253,515 | 285,092 | 343,955 | 352,845 | 352,880 | ||||||||||||||||
(1) | 2019 and 2018 include $8,757 and $11,990 of expense, respectively, from the decrease in the fair value of marketable securities. Prior to January 1, 2018, changes in the fair value of marketable securities were recognized through “accumulated other comprehensive loss” on our consolidated balance sheets and did not impact our consolidated statements of income. | ||||||||||||||||||||
(2) | Subsequent to the issuance of our consolidated financial statements for the year ended December 31, 2018, we determined that the $195,708 participation in our Rego Park II shopping center mortgage loan was incorrectly classified as an asset, presented as “Rego Park II loan participation,” instead of as a reduction to “mortgages payable, net of deferred debt issuance costs” on our consolidated balance sheet as of December 31, 2018. Accordingly, our consolidated balance sheet for the year ended December 31, 2018 has been restated to reclassify $195,708 from “Rego Park II loan participation” to “mortgages payable, net of deferred debt issuance costs.” See Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements in this Annual Report on Form 10-K for additional information. | ||||||||||||||||||||
(3) | On January 1, 2019 we adopted Accounting Standards Codification Topic 842, Leases, which required us to record a right-of-use asset of $4,529 as of December 31, 2019. See Note 2 - Summary of Significant Accounting Policies and Note 9 - Leases to our consolidated financial statements in this Annual Report on Form 10-K for additional information. | ||||||||||||||||||||
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping its properties. All references to “we,” “us,” “our,” “Company” and “Alexander’s” refer to Alexander’s, Inc. and its consolidated subsidiaries. We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE: VNO). We have seven properties in the greater New York City metropolitan area.
We compete with a large number of property owners and developers. Our success depends upon, among other factors, trends of the global, national and local economies, the financial condition and operating results of current and prospective tenants and customers, the availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation, population and employment trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels. Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.
Year Ended December 31, 2019 Financial Results Summary
Net income for the year ended December 31, 2019 was $60,075,000 or $11.74 per diluted share, compared to $32,844,000, or $6.42 per diluted share for the year ended December 31, 2018. Net income for the year ended December 31, 2018 included $23,797,000, or $4.65 per diluted share, of expense for potential additional New York City real property transfer taxes on the 2012 sale of Kings Plaza Regional Shopping Center (“Kings Plaza”).
Funds from operations (“FFO”) (non-GAAP) for the year ended December 31, 2019 was $99,670,000, or $19.47 per diluted share, compared to $77,429,000, or $15.13 per diluted share for the year ended December 31, 2018. FFO (non-GAAP) for the year ended December 31, 2018 included $23,797,000, or $4.65 per diluted share, of expense for the Kings Plaza transfer taxes.
Quarter Ended December 31, 2019 Financial Results Summary
Net income for the quarter ended December 31, 2019 was $14,434,000, or $2.82 per diluted share, compared to $9,971,000, or $1.95 per diluted share for the quarter ended December 31, 2018.
FFO (non-GAAP) for the quarter ended December 31, 2019 was $24,626,000, or $4.81 per diluted share, compared to $24,158,000, or $4.72 per diluted share for the quarter ended December 31, 2018.
Square Footage, Occupancy and Leasing Activity
As of December 31, 2019, our portfolio was comprised of seven properties aggregating 2,449,000 square feet, of which 2,230,000 square feet was in service and 219,000 square feet (primarily the former Sears space at our Rego Park I shopping center) was out of service due to redevelopment. The in service square feet was 96.5% occupied as of December 31, 2019.
On September 23, 2019, we entered into a 10-year lease agreement with IKEA for 113,000 square feet at our Rego Park I shopping center, replacing a significant portion of the space formerly occupied by Sears. IKEA has the option to terminate this lease after the fifth year of the lease term subject to payment to us of the lesser of $10,000,000 or the amount of rent due under the remaining term.
Financing
On October 3, 2018, we extended our mortgage loan on our Paramus property. The $68,000,000 interest-only loan has a fixed rate of 4.72% and matures in October 2021. Previously the loan bore interest at a fixed rate of 2.90%. The tenant pays all of the interest on this mortgage loan as part of its rent.
On December 12, 2018, we completed a refinancing of our Rego Park II shopping center in the amount of $252,544,000. The interest-only loan is at LIBOR plus 1.35% (3.15% as of December 31, 2019) and matures in December 2025. As of December 31, 2019, we have a participation in the mortgage in the amount of $195,708,000 which for GAAP purposes is netted against the mortgage balance. Therefore, the balance sheet amount of the mortgage loan is $56,836,000. On February 14, 2020, we reduced our participation in the mortgage loan to $50,000,000 and received cash proceeds of approximately $145,000,000.
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Overview - continued
Significant Tenant
Bloomberg accounted for revenue of $109,113,000, $107,356,000, and $105,224,000 in the years ended December 31, 2019, 2018 and 2017, respectively, representing approximately 48%, 46% and 46% of our total revenues in each year, respectively. No other tenant accounted for more than 10% of our total revenues. If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition. In order to assist us in our continuing assessment of Bloomberg’s creditworthiness, we receive certain confidential financial information and metrics from Bloomberg. In addition, we access and evaluate financial information regarding Bloomberg from other private sources, as well as publicly available data.
On June 28, 2019, we entered into a lease agreement with Bloomberg for an additional 49,000 square feet at our 731 Lexington Avenue property.
Critical Accounting Policies and Estimates
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements. This summary should be read in conjunction with a more complete discussion of our accounting policies included in Note 2 – Summary of Significant Accounting Policies, to the consolidated financial statements in this Annual Report on Form 10-K.
Real Estate
Real estate is carried at cost, net of accumulated depreciation and amortization. As of December 31, 2019 and 2018, the carrying amount of our real estate, net of accumulated depreciation and amortization, was $716,843,000 and $730,270,000, respectively. Maintenance and repairs are expensed as incurred. Depreciation requires an estimate by management of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components. If we do not allocate these costs appropriately or incorrectly estimate the useful lives of our real estate, depreciation expense may be misstated. We capitalize all property operating expenses directly associated with and attributable to, the development and construction of a project, including interest expense. The capitalization period begins when development activities are underway and ends when it is determined that the asset is substantially complete and ready for its intended use, which is typically evidenced by the receipt of a temporary certificate of occupancy. General and administrative costs are expensed as incurred.
Our properties, including properties to be developed in the future, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset, including an estimated terminal value calculated using an appropriate capitalization rate. 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.
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Critical Accounting Policies and Estimates - continued
Revenue Recognition
Our rental revenues include revenues from the leasing of space to tenants at our properties and revenues from parking and tenant services. We have the following revenue recognition policies:
• Lease revenues from the leasing of space to tenants at our properties. Revenues derived from base rent are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements. We commence rental revenue recognition when the underlying asset is available for use by the lessee. 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. Revenues derived from the reimbursement of real estate taxes, insurance expenses and common area maintenance expenses are generally recognized in the same period as the related expenses are incurred. As lessor, we have elected to combine the lease components (base and variable rent), non-lease components (reimbursements of common area maintenance expenses) and reimbursement of real estate taxes and insurance expenses from our operating lease agreements and account for the components as a single lease component in accordance with ASC Topic 842, Leases (“ASC 842”).
• Parking revenue arising from the rental of parking spaces at our properties. This income is recognized as the services are transferred in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).
• | Tenant services is revenue arising from sub-metered electric, elevator and other services provided to tenants at their request. This revenue is recognized as the services are transferred in accordance with ASC 606. |
Income Taxes
We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856 – 860 of the Internal Revenue Code of 1986, as amended (the “Code”). In order to maintain our qualification as a REIT under the Code, we must distribute at least 90% of our taxable income to stockholders each year. We distribute to our stockholders 100% of our taxable income and therefore, no provision for Federal income taxes is required. If we fail to distribute the required amount of income to our stockholders, or fail to meet other REIT requirements, we may fail to qualify as a REIT, which may result in substantial adverse tax consequences.
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Results of Operations – Year Ended December 31, 2019 compared to December 31, 2018
Rental Revenues
Rental revenues were $226,350,000 in the year ended December 31, 2019, compared to $232,825,000 in the prior year, a decrease of $6,475,000. This decrease was primarily due to the Sears vacancy effective October 2018 at our Rego Park I property.
Operating Expenses
Operating expenses were $89,738,000 in the year ended December 31, 2019, compared to $93,775,000 in the prior year, a decrease of $4,037,000. This decrease was primarily due to bad debt expense in the prior year of $4,459,000, primarily due to the Sears bankruptcy and lease termination.
Depreciation and Amortization
Depreciation and amortization was $31,351,000 in the year ended December 31, 2019, compared to $33,089,000 in the prior year, a decrease of $1,738,000. This decrease was primarily due to acceleration of depreciation and amortization in the prior year related to the Toys “R” Us, Inc. (“Toys”) bankruptcy and lease termination at our Rego Park II property.
General and Administrative Expenses
General and administrative expenses were $5,772,000 in the year ended December 31, 2019, compared to $5,343,000 in the prior year, an increase of $429,000. This increase was primarily due to higher professional fees.
Interest and Other Income, net
Interest and other income, net was $8,244,000 in the year ended December 31, 2019, compared to $12,546,000 in the prior year, a decrease of $4,302,000. This decrease was primarily due to (i) $7,126,000 of interest income in the prior year from our Rego Park II loan participation (on December 12, 2018, we refinanced our $252,544,000 Rego Park II shopping center mortgage loan and GAAP required that our $195,708,000 loan participation be treated as an extinguishment of debt), partially offset by (ii) $1,364,000 of higher interest income due to an increase in average interest rates and (iii) $1,600,000 of expense in the prior year from a litigation settlement.
Interest and Debt Expense
Interest and debt expense was $38,901,000 in the year ended December 31, 2019, compared to $44,533,000 in the prior year, a decrease of $5,632,000. This decrease was primarily due to $7,178,000 of lower interest expense due to the refinancing of our Rego Park II shopping center loan, partially offset by $1,810,000 of higher interest expense resulting from an increase in average interest rates.
Change in Fair Value of Marketable Securities
Change in fair value of marketable securities was an expense of $8,757,000 in the year ended December 31, 2019, resulting from Macerich’s closing share prices of $26.92 and $43.28 as of December 31, 2019 and 2018, respectively, on 535,265 shares owned. Change in fair value of marketable securities was an expense of $11,990,000 in the prior year, resulting from Macerich’s closing share prices of $43.28 and $65.68 as of December 31, 2018 and 2017, respectively.
Loss from Discontinued Operations
Loss from discontinued operations was $23,797,000 in the year ended December 31, 2018. The loss was due to an expense for potential additional real property transfer taxes from the 2012 sale of Kings Plaza. See Note 6 – Discontinued Operations, to our consolidated financial statements in this Annual Report on Form 10-K.
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Results of Operations – Year Ended December 31, 2018 compared to December 31, 2017
Rental Revenues
Rental revenues were $232,825,000 in the year ended December 31, 2018, compared to $230,574,000 in the prior year, an increase of $2,251,000. This increase was primarily due to (i) higher revenue from a new restaurant tenant at our 731 Lexington property and (ii) higher expense reimbursements, partially offset by (iii) lower revenue from Sears at our Rego Park I property and Toys at our Rego Park II property.
Operating Expenses
Operating expenses were $93,775,000 in the year ended December 31, 2018, compared to $85,127,000 in the prior year, an increase of $8,648,000. This increase was primarily due to (i) higher bad debt expense of $4,406,000, (ii) higher real estate taxes of $2,180,000 and (iii) higher operating expenses of $1,664,000.
Depreciation and Amortization
Depreciation and amortization was $33,089,000 in the year ended December 31, 2018, compared to $34,925,000 in the prior year, a decrease of $1,836,000. This decrease was primarily due to additional depreciation and amortization of tenant improvements and deferred leasing costs of $2,444,000 related to a tenant lease termination at our 731 Lexington Avenue property in 2017.
General and Administrative Expenses
General and administrative expenses were $5,343,000 in the year ended December 31, 2018, compared to $5,255,000 in the prior year, an increase of $88,000.
Interest and Other Income, net
Interest and other income, net was $12,546,000 in the year ended December 31, 2018, compared to $6,716,000 in the prior year, an increase of $5,830,000. This increase was primarily due to (i) $4,673,000 of higher interest income from the Rego Park II loan participation entered into in July 2017 and (ii) $3,693,000 of higher interest income due to an increase in average interest rates, partially offset by (iii) $1,600,000 of expense in 2018 from a litigation settlement and (iv) $760,000 of lower interest income due to lower average investment balances.
Interest and Debt Expense
Interest and debt expense was $44,533,000 in the year ended December 31, 2018, compared to $31,474,000 in the prior year, an increase of $13,059,000. This increase was primarily due to (i) $8,482,000 resulting from an increase in average interest rates, (ii) $2,620,000 resulting from the refinancing of the office portion of 731 Lexington Avenue on June 1, 2017 for $500,000,000 at LIBOR plus 0.90% (previously a $300,000,000 loan at LIBOR plus 0.95%) and (iii) $1,641,000 of higher amortization of debt issuance costs.
Change in Fair Value of Marketable Securities
Change in fair value of marketable securities was an expense of $11,990,000 in the year ended December 31, 2018, resulting from Macerich’s closing share prices of $43.28 and $65.68 as of December 31, 2018 and 2017, respectively, on 535,265 shares owned.
Loss from Discontinued Operations
Loss from discontinued operations was $23,797,000 in the year ended December 31, 2018. The loss was due to an expense for potential additional real property transfer taxes from the 2012 sale of Kings Plaza. See Note 6 – Discontinued Operations, to our consolidated financial statements in this Annual Report on Form 10-K.
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Related Party Transactions
Vornado
As of December 31, 2019, Vornado owned 32.4% of our outstanding common stock. We are managed by, and our properties are leased and developed by, Vornado, pursuant to various agreements, which expire in March of each year and are automatically renewable. These agreements are described in Note 4 – Related Party Transactions, to our consolidated financial statements in this Annual Report on Form 10-K.
Steven Roth is the Chairman of our Board of Directors and Chief Executive Officer, the Managing General Partner of Interstate Properties (“Interstate”), a New Jersey general partnership, and the Chairman of the Board of Trustees and Chief Executive Officer of Vornado. As of December 31, 2019, 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, 26.1% of our outstanding common stock, in addition to the 2.3% they indirectly own through Vornado. Joseph Macnow, our Treasurer, is the Executive Vice President - Chief Financial Officer and Chief Administrative Officer of Vornado. Matthew Iocco, our Chief Financial Officer, is the Executive Vice President - Chief Accounting Officer of Vornado.
Toys
Our affiliate, Vornado, owned 32.5% of Toys as of December 31, 2018. On February 1, 2019, in connection with the Toys Chapter 11 bankruptcy, the plan of reorganization for Toys was declared effective and Vornado’s ownership in Toys was canceled and Toys’ Board of Directors was dissolved. Joseph Macnow, Vornado’s Executive Vice President and Chief Financial Officer and Wendy A. Silverstein, a member of our Board of Directors, represented Vornado as members of Toys’ Board of Directors. Also in connection with the Toys Chapter 11 bankruptcy, Toys rejected its 47,000 square foot lease at our Rego Park II shopping center ($2,600,000 of annual revenue) effective June 30, 2018 and possession of the space was returned to us.
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 and capital expenditures.
Dividends
On January 15, 2020, we set our regular quarterly dividend to $4.50 per share (an indicated annual rate of $18.00 per share). The dividend, if declared by the Board of Directors for all of 2020, would require us to pay out approximately $92,100,000.
Financing Activities and Contractual Obligations
On October 3, 2018, we extended our mortgage loan on our Paramus property. The $68,000,000 interest-only loan has a fixed rate of 4.72% and matures in October 2021. Previously the loan bore interest at a fixed rate of 2.90%. The tenant pays all of the interest on this mortgage loan as part of its rent.
On December 12, 2018, we completed a refinancing of our Rego Park II shopping center in the amount of $252,544,000. The interest-only loan is at LIBOR plus 1.35% (3.15% as of December 31, 2019) and matures in December 2025. As of December 31, 2019, we have a participation in the mortgage in the amount of $195,708,000 which for GAAP purposes is netted against the mortgage balance. Therefore, the balance sheet amount of the mortgage loan is $56,836,000. On February 14, 2020, we reduced our participation in the mortgage loan to $50,000,000 and received cash proceeds of approximately $145,000,000.
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Liquidity and Capital Resources - continued
Below is a summary of our outstanding debt and maturities as of December 31, 2019. We may refinance our maturing debt as it comes due or choose to repay it.
Balance | Interest Rate | Maturity | |||||||
(Amounts in thousands) | |||||||||
Paramus | $ | 68,000 | 4.72 | % | Oct. 2021 | ||||
731 Lexington Avenue, retail condominium(1) | 350,000 | 3.10 | % | Aug. 2022 | |||||
731 Lexington Avenue, office condominium(2) | 500,000 | 2.64 | % | Jun. 2024 | |||||
Rego Park II shopping center(3) | 56,836 | 3.15 | % | Dec. 2025 | |||||
Total | 974,836 | ||||||||
Deferred debt issuance costs, net of accumulated amortization of $14,362 | (3,875 | ) | |||||||
Total, net | $ | 970,961 | |||||||
(1) Interest at LIBOR plus 1.40%. Maturity date represents the extended maturity based on our conditional right to extend. | |||||||||
(2) Interest at LIBOR plus 0.90%. Maturity date represents the extended maturity based on our unilateral right to extend. | |||||||||
(3) Interest at LIBOR plus 1.35%. The amount of this loan is net of our $195,708 loan participation (see Note 2 - Summary of Significant Accounting Policies, to our consolidated financial statements in this Annual Report on Form 10-K). | |||||||||
Below is a summary of our contractual obligations and commitments as of December 31, 2019.
Less than | One to | Three to | More than | |||||||||||||||||||
(Amounts in thousands) | Total | One Year | Three Years | Five Years | Five Years | |||||||||||||||||
Contractual obligations(1) (principal and interest)(2): | ||||||||||||||||||||||
Long-term debt obligations(3) | $ | 1,079,915 | $ | 29,525 | $ | 469,147 | $ | 522,592 | $ | 58,651 | ||||||||||||
Operating lease obligations | 5,600 | 800 | 1,600 | 1,600 | 1,600 | |||||||||||||||||
$ | 1,085,515 | $ | 30,325 | $ | 470,747 | $ | 524,192 | $ | 60,251 | |||||||||||||
Commitments: | ||||||||||||||||||||||
Standby letters of credit | $ | 1,030 | $ | 960 | $ | 70 | $ | — | $ | — | ||||||||||||
(1) | Excludes committed tenant-related obligations as timing and amounts of payments are uncertain and may only be due upon satisfactory performance of certain conditions. | |||||||||||||||||||||
(2) | Principal repayments based on extended loan maturity dates. Interest on variable rate debt is computed using rates in effect as of December 31, 2019. | |||||||||||||||||||||
(3) | Net of loan participation and related interest. | |||||||||||||||||||||
Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties.
Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Act of 2002, as amended to date and which has been extended through December 2027. Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence and in the aggregate. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $268,000 deductible and 20% of the balance of a covered loss, and the Federal government is responsible for the remaining 80% of a covered loss. We are ultimately responsible for any loss incurred by FNSIC.
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Liquidity and Capital Resources - continued
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism or other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material.
Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.
Paramus
In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA. The lease has a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 4.72%, which matures in October 2021. The annual triple-net rent is the sum of $700,000 plus the amount of interest on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.
Rego Park I Litigation
In June 2014, Sears filed a lawsuit in the Supreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to space that Sears leased at our Rego Park I property alleging that the defendants are liable for harm that Sears has suffered as a result of (a) water intrusions into the premises, (b) two fires in February 2014 that caused damages to those premises, and (c) alleged violations of the Americans with Disabilities Act in the premises’ parking garage. Sears asserted various causes of actions for damages and sought to compel compliance with landlord’s obligations to repair the premises and to provide security, and to compel us to abate a nuisance that Sears claims was a cause of the water intrusions into its premises. In addition to injunctive relief, Sears sought, among other things, damages of not less than $4,000,000 and future damages it estimated would not be less than $25,000,000. In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $650,000 based on information provided by Sears. We intend to defend the remaining claim vigorously. The amount or range of reasonable possible losses, if any, is not expected to be greater than $650,000. On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief resulting in an automatic stay of this case.
Tenant Matter
On April 13, 2019, Kohl’s closed its 133,000 square foot store at our Rego Park II shopping center. On January 24, 2020, Kohl’s subleased its store to At Home and remains obligated under its lease which expires in January 2031.
Letters of Credit
Approximately $1,030,000 of standby letters of credit were issued and outstanding as of December 31, 2019.
Other
There are various other legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial position, results of operations or cash flows.
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Liquidity and Capital Resources - continued
Cash Flows for the Year Ended December 31, 2019
Cash and cash equivalents and restricted cash were $313,977,000 at December 31, 2019, compared to $289,495,000 at December 31, 2018, an increase of $24,482,000. This increase resulted from (i) $126,070,000 of net cash provided by operating activities, partially offset by (ii) $92,139,000 of net cash used in financing activities and (iii) $9,449,000 of net cash used in investing activities.
Net cash provided by operating activities of $126,070,000 was comprised of (i) net income of $60,075,000, (ii) adjustments for non-cash items of $48,079,000 and (iii) the net change in operating assets and liabilities of $17,916,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $36,515,000, (ii) the change in fair value of marketable securities of $8,757,000, (iii) straight-lining of rental income of $2,413,000 and (iv) stock-based compensation expense of $394,000.
Net cash used in financing activities was primarily comprised of dividends paid of $92,124,000.
Net cash used in investing activities was comprised of construction in progress and real estate additions of $9,449,000.
Cash Flows for the Year Ended December 31, 2018
Cash and cash equivalents and restricted cash were $289,495,000 at December 31, 2018, compared to $393,279,000 at December 31, 2017, a decrease of $103,784,000. This decrease resulted from (i) $176,185,000 of net cash used in financing activities and (ii) $1,137,000 of net cash used in investing activities, partially offset by (iii) $73,538,000 of net cash provided by operating activities.
Net cash used in financing activities of $176,185,000 was primarily comprised of net debt repayments of $81,896,000 (primarily the refinancing and subsequent repayment of the mortgage loan on our Rego Park I shopping center) and dividends paid of $92,100,000.
Net cash used in investing activities of $1,137,000 was comprised of construction in progress and real estate additions of $3,966,000, partially offset by repayment of Rego Park II loan participation of $2,829,000.
Net cash provided by operating activities of $73,538,000 was comprised of (i) net income of $32,844,000 and (ii) adjustments for non-cash items of $56,807,000, partially offset by (iii) the net change in operating assets and liabilities of $16,113,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $38,499,000, (ii) the change in fair value of marketable securities of $11,990,000, (iii) straight-lining of rental income of $5,924,000 and (iv) stock-based compensation expense of $394,000.
Cash Flows for the Year Ended December 31, 2017
Cash and cash equivalents and restricted cash were $393,279,000 at December 31, 2017, compared to $374,678,000 at December 31, 2016, an increase of $18,601,000. This increase resulted from (i) $123,426,000 of net cash provided by operating activities and (ii) $97,146,000 of net cash provided by financing activities, partially offset by (iii) $201,971,000 of net cash used in investing activities.
Net cash provided by operating activities of $123,426,000 was comprised of (i) net income of $80,509,000 and (ii) adjustments for non-cash items of $43,372,000, partially offset by (iii) the net change in operating assets and liabilities of $455,000. The adjustments for non-cash items were comprised of (i) depreciation and amortization (including amortization of debt issuance costs) of $38,681,000, (ii) straight-lining of rental income of $4,297,000 and (iii) stock-based compensation expense of $394,000.
Net cash provided by financing activities of $97,146,000 was primarily comprised of (i) $500,000,000 of proceeds from the refinancing of the office portion of 731 Lexington Avenue, partially offset by (ii) debt repayments of $303,707,000 (primarily the repayment of the former loan on the office portion of 731 Lexington Avenue) and (iii) dividends paid of $86,961,000.
Net cash used in investing activities of $201,971,000 was comprised of (i) Rego Park II loan participation of $200,000,000 and (ii) construction in progress and real estate additions of $3,434,000, partially offset by (iii) principal repayment proceeds from the Rego Park II loan participation of $1,463,000.
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Funds from Operations (“FFO”) (non-GAAP)
FFO is computed in accordance with the December 2018 restated 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 depreciable real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets and other specified items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. A reconciliation of our net income to FFO is provided below.
FFO (non-GAAP) for the years and quarters ended December 31, 2019 and 2018
FFO (non-GAAP) for the year ended December 31, 2019 was $99,670,000, or $19.47 per diluted share, compared to $77,429,000, or $15.13 per diluted share for the year ended December 31, 2018. FFO (non-GAAP) for the year ended December 31, 2018 included $23,797,000, or $4.65 per diluted share, of expense for the potential additional New York City real property transfer taxes on the 2012 sale of Kings Plaza.
FFO (non-GAAP) for the quarter ended December 31, 2019 was $24,626,000, or $4.81 per diluted share, compared to $24,158,000, or $4.72 per diluted share for the quarter ended December 31, 2018.
The following table reconciles our net income to FFO (non-GAAP):
For the Year Ended | For the Three Months Ended | |||||||||||||||
(Amounts in thousands, except share and per share amounts) | December 31, | December 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income | $ | 60,075 | $ | 32,844 | $ | 14,434 | $ | 9,971 | ||||||||
Depreciation and amortization of real property | 30,838 | 32,595 | 7,692 | 7,758 | ||||||||||||
Change in fair value of marketable securities | 8,757 | 11,990 | 2,500 | 6,429 | ||||||||||||
FFO (non-GAAP) | $ | 99,670 | $ | 77,429 | $ | 24,626 | $ | 24,158 | ||||||||
FFO per diluted share (non-GAAP) | $ | 19.47 | $ | 15.13 | $ | 4.81 | $ | 4.72 | ||||||||
Weighted average shares used in computing FFO per diluted share | 5,118,198 | 5,116,838 | 5,118,698 | 5,117,347 | ||||||||||||
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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.
2019 | 2018 | |||||||||||||||
December 31, Balance | Weighted Average Interest Rate | Effect of 1% Change in Base Rates | December 31, Balance | Weighted Average Interest Rate | ||||||||||||
(Amounts in thousands, except per share amounts) | ||||||||||||||||
Variable rate | $ | 906,836 | 2.85% | $ | 9,068 | $ | 906,836 | 3.55% | ||||||||
Fixed rate | 68,000 | 4.72% | — | 68,000 | 4.72% | |||||||||||
$ | 974,836 | 2.98% | $ | 9,068 | $ | 974,836 | 3.64% | |||||||||
Total effect on diluted earnings per share | $ | 1.77 | ||||||||||||||
As of December 31, 2019 we had an interest rate cap with a notional amount of $500,000,000 that caps LIBOR at a rate of 6.0%.
Fair Value of Debt
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, 2019 and 2018, the estimated fair value of our consolidated debt was $974,000,000 and $969,000,000, 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
Index to Consolidated Financial Statements | Page Number | |
Report of Independent Registered Public Accounting Firm | ||
Consolidated Balance Sheets as of December 31, 2019 and 2018 | ||
Consolidated Statements of Income for the | ||
Years Ended December 31, 2019, 2018 and 2017 | ||
Consolidated Statements of Comprehensive Income for the | ||
Years Ended December 31, 2019, 2018 and 2017 | ||
Consolidated Statements of Changes in Equity for the | ||
Years Ended December 31, 2019, 2018 and 2017 | ||
Consolidated Statements of Cash Flows for the | ||
Years Ended December 31, 2019, 2018 and 2017 | ||
Notes to Consolidated Financial Statements | ||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Alexander’s, Inc.
Paramus, New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Alexander’s, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedules listed in the Index at Item 15 (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 18, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate - Refer to Note 2 to the financial statements
Critical Audit Matter Description
The Company’s real estate assets are evaluated for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company’s evaluation of the recoverability of real estate assets involves the comparison of undiscounted future cash flows expected to be generated by each real estate asset over the Company’s estimated holding period to the respective carrying amount. The Company’s undiscounted future cash flow analyses require management to make certain estimates, including estimated terminal values determined using appropriate capitalization rates.
37
Given that the Company’s estimated capitalization rates used in the evaluation of impairment of real estate assets is a significant assumption made by management, performing audit procedures to evaluate the reasonableness of management’s undiscounted future cash flow analyses required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of capitalization rates included the following, among others:
• | We tested the design and operating effectiveness of controls over impairment, including those of determining the appropriate capitalization rates. |
• | With the assistance of our fair value specialists, we evaluated the capitalization rates for real estate assets with possible impairment indicators by evaluating the source information and assumptions used by management. |
• | We evaluated the reasonableness of management’s capitalization rates used by developing independent estimates of capitalization rates, focusing on geographical location and property type, and comparing our independent estimates to those used by the Company. |
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 18, 2020
We have served as the Company’s auditor since 1969.
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ALEXANDER’S, INC. AND SUBSIDIARIES | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
(Amounts in thousands, except share and per share amounts) | |||||||
December 31, | |||||||
ASSETS | 2019 | 2018 | |||||
Real estate, at cost: | |||||||
Land | $ | $ | |||||
Buildings and leasehold improvements | |||||||
Development and construction in progress | |||||||
Total | |||||||
Accumulated depreciation and amortization | ( | ) | ( | ) | |||
Real estate, net | |||||||
Cash and cash equivalents | |||||||
Restricted cash | |||||||
Marketable securities | |||||||
Tenant and other receivables | |||||||
Receivable arising from the straight-lining of rents | |||||||
Deferred lease and other property costs, net, including unamortized leasing fees to Vornado of | |||||||
$32,374 and $31,039, respectively | |||||||
Other assets | |||||||
$ | $ | ||||||
LIABILITIES AND EQUITY | |||||||
Mortgages payable, net of deferred debt issuance costs | $ | $ | |||||
Amounts due to Vornado | |||||||
Accounts payable and accrued expenses | |||||||
Other liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies | |||||||
Preferred stock: $1.00 par value per share; authorized, 3,000,000 shares; | |||||||
issued and outstanding, none | |||||||
Common stock: $1.00 par value per share; authorized, 10,000,000 shares; | |||||||
issued, 5,173,450 shares; outstanding, 5,107,290 shares | |||||||
Additional capital | |||||||
Retained earnings | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Treasury stock: 66,160 shares, at cost | ( | ) | ( | ) | |||
Total equity | |||||||
$ | $ | ||||||
See notes to consolidated financial statements.
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ALEXANDER’S, INC. AND SUBSIDIARIES | |||||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||
(Amounts in thousands, except share and per share amounts) | |||||||||||
Year Ended December 31, | |||||||||||
2019 | 2018 | 2017 | |||||||||
REVENUES | |||||||||||
Rental revenues | $ | $ | $ | ||||||||
EXPENSES | |||||||||||
Operating, including fees to Vornado of $5,386, $4,700 and $4,671, respectively | ( | ) | ( | ) | ( | ) | |||||
Depreciation and amortization | ( | ) | ( | ) | ( | ) | |||||
General and administrative, including management fees to Vornado of $2,380 | |||||||||||
in each year | ( | ) | ( | ) | ( | ) | |||||
Total expenses | ( | ) | ( | ) | ( | ) | |||||
Interest and other income, net | |||||||||||
Interest and debt expense | ( | ) | ( | ) | ( | ) | |||||
Change in fair value of marketable securities (see Note 5) | ( | ) | ( | ) | |||||||
Income from continuing operations | |||||||||||
Loss from discontinued operations (see Note 6) | ( | ) | |||||||||
Net income | $ | $ | $ | ||||||||
Income per common share - basic and diluted: | |||||||||||
Income from continuing operations | $ | $ | $ | ||||||||
Loss from discontinued operations (see Note 6) | ( | ) | |||||||||
Net income per common share | $ | $ | $ | ||||||||
Weighted average shares outstanding- basic and diluted | |||||||||||
See notes to consolidated financial statements.
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ALEXANDER’S, INC. AND SUBSIDIARIES | |||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||
(Amounts in thousands) | |||||||||||
Year Ended December 31, | |||||||||||
2019 | 2018 | 2017 | |||||||||
Net income | $ | $ | $ | ||||||||
Other comprehensive income (loss): | |||||||||||
Change in fair value of marketable securities (see Note 5) | ( | ) | |||||||||
Change in value of interest rate cap | ( | ) | ( | ) | |||||||
Comprehensive income | $ | $ | $ | ||||||||
See notes to consolidated financial statements.
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ALEXANDER’S, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||
Common Stock | Additional Capital | Retained Earnings | Treasury Stock | Total Equity | ||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||
Balance, December 31, 2016 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||||||||
Dividends paid ($17.00 per common share) | — | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||
Change in fair value of marketable securities | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||
Change in fair value of interest rate cap | — | — | — | — | ( | ) | — | ( | ) | |||||||||||||||||
Deferred stock unit grants | — | — | — | — | — | |||||||||||||||||||||
Other | — | — | ( | ) | — | — | ||||||||||||||||||||
Balance, December 31, 2017 | ( | ) | ||||||||||||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||||||||
Dividends paid ($18.00 per common share) | — | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||
Cumulative effect of change in accounting | ||||||||||||||||||||||||||
principle | — | — | — | ( | ) | — | ||||||||||||||||||||
Change in fair value of interest rate cap | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||
Deferred stock unit grants | — | — | — | — | — | |||||||||||||||||||||
Balance, December 31, 2018 | ( | ) | ( | ) | ||||||||||||||||||||||
Net income | — | — | — | — | — | |||||||||||||||||||||
Dividends paid ($18.00 per common share) | — | — | — | ( | ) | — | — | ( | ) | |||||||||||||||||
Change in fair value of interest rate cap | — | — | — | — | — | |||||||||||||||||||||
Deferred stock unit grants | — | — | — | — | — | |||||||||||||||||||||
Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
See notes to consolidated financial statements.
42
ALEXANDER’S, INC. AND SUBSIDIARIES | |||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
(Amounts in thousands) | |||||||||||
Year Ended December 31, | |||||||||||
2019 | 2018 | 2017 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net income | $ | $ | $ | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization, including amortization of debt issuance costs | |||||||||||
Straight-lining of rental income | |||||||||||
Stock-based compensation expense | |||||||||||
Change in fair value of marketable securities | |||||||||||
Change in operating assets and liabilities: | |||||||||||
Tenant and other receivables, net | ( | ) | ( | ) | |||||||
Other assets | ( | ) | ( | ) | |||||||
Amounts due to Vornado | ( | ) | |||||||||
Accounts payable and accrued expenses | ( | ) | ( | ) | |||||||
Other liabilities | ( | ) | ( | ) | |||||||
Net cash provided by operating activities | |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
Construction in progress and real estate additions | ( | ) | ( | ) | ( | ) | |||||
Rego Park II loan participation | ( | ) | |||||||||
Repayment of Rego Park II loan participation | |||||||||||
Net cash used in investing activities | ( | ) | ( | ) | ( | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
Dividends paid | ( | ) | ( | ) | ( | ) | |||||
Debt issuance costs | ( | ) | ( | ) | ( | ) | |||||
Debt repayments | ( | ) | ( | ) | |||||||
Proceeds from borrowing | |||||||||||
Net cash (used in) provided by financing activities | ( | ) | ( | ) | |||||||
Net increase (decrease) in cash and cash equivalents and restricted cash | ( | ) | |||||||||
Cash and cash equivalents and restricted cash at beginning of year | |||||||||||
Cash and cash equivalents and restricted cash at end of year | $ | $ | $ | ||||||||
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | |||||||||||
Cash and cash equivalents at beginning of year | $ | $ | $ | ||||||||
Restricted cash at beginning of year | |||||||||||
Cash and cash equivalents and restricted cash at beginning of year | $ | $ | $ | ||||||||
Cash and cash equivalents at end of year | $ | $ | $ | ||||||||
Restricted cash at end of year | |||||||||||
Cash and cash equivalents and restricted cash at end of year | $ | $ | $ | ||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
Cash payments for interest | $ | $ | $ | ||||||||
NON-CASH TRANSACTIONS | |||||||||||
Lease liability arising from the recognition of right-of-use asset | $ | $ | $ | ||||||||
Liability for real estate additions, including $18, $125 and $21 for development fees due to | |||||||||||
Vornado in 2019, 2018 and 2017, respectively | |||||||||||
Reclassification of prepaid real estate taxes to construction in progress for property in | |||||||||||
redevelopment | |||||||||||
Write-off of fully amortized and/or depreciated assets | |||||||||||
Derecognition of Rego Park II loan participation asset (see Note 2) | |||||||||||
See notes to consolidated financial statements.
43
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping its properties. All references to “we,” “us,” “our,” “Company” and “Alexander’s” refer to Alexander’s, Inc. and its consolidated subsidiaries. We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE: VNO).
We have seven properties in the greater New York City metropolitan area consisting of:
Operating properties
• | 731 Lexington Avenue, a |
• | Rego Park I, a |
• | Rego Park II, a |
• | The Alexander apartment tower, located above our Rego Park II shopping center, contains |
• | Paramus, located at the intersection of Routes 4 and 17 in Paramus, New Jersey, consists of |
• | Flushing, a |
Property to be developed
• | Rego Park III, a |
We have determined that our properties have similar economic characteristics and meet the criteria that permit the properties to be aggregated into one reportable segment (the leasing, management, development and redeveloping of properties in the greater New York City metropolitan area). Our chief operating decision-maker assesses and measures segment operating results based on a performance measure referred to as net operating income at the individual operating segment. Net operating income for each property represents net rental revenues less operating expenses.
44
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – The accompanying consolidated financial statements include our accounts and those of our consolidated subsidiaries. All intercompany amounts have been eliminated. Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Certain prior year balances have been reclassified in order to conform to the current year presentation.
Subsequent to the issuance of our consolidated financial statements for the year ended December 31, 2018, we determined that the $195,708,000 participation in our Rego Park II shopping center mortgage loan was incorrectly classified as an asset, presented as “Rego Park II loan participation,” instead of as a reduction to “mortgages payable, net of deferred debt issuance costs” on our consolidated balance sheet as of December 31, 2018. On December 12, 2018, we refinanced this mortgage loan and the interest rate on the existing loan participation was adjusted to equal the interest rate on the refinanced loan. Consequently, we should have considered $195,708,000 of the Rego Park II shopping center mortgage loan liability extinguished as the participation interest is considered the reacquisition of our debt. Accordingly, our consolidated balance sheet for the year ended December 31, 2018 has been restated to reclassify $195,708,000 from “Rego Park II loan participation” to “mortgages payable, net of deferred debt issuance costs.” This reclassification had no material impact to our consolidated statements of income, comprehensive income, changes in equity or statement of cash flows for the year ended December 31, 2018.
Certain prior year balances have been reclassified in order to conform to the current period presentation. For the years ended December 31, 2018 and 2017, “property rentals” of $152,795,000 and $152,857,000 , respectively, and “expense reimbursements” of $80,030,000 and $77,717,000 , respectively, were grouped into “rental revenues” on our consolidated statements of income in accordance with Accounting Standards Codification (“ASC”) Topic 205 Presentation of Financial Statements.
Recently Issued Accounting Literature – In February 2016, the Financial Accounting Standards Board (“FASB”) issued an update (“ASU 2016-02”) establishing ASC Topic 842, Leases (“ASC 842”), as amended by subsequent ASUs on the topic, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to apply a two- method approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase. Lessees are required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months. Lease liabilities equal the present value of future lease payments. Right-of-use assets equal the lease liabilities adjusted for accrued rent expense, initial direct costs, lease incentives and prepaid lease payments. Leases with a term of 12 months or less will be accounted for similar to the previously existing guidance for operating leases. Lessees will recognize expense based on the effective interest method for finance leases or on a straight-line basis for operating leases. The accounting applied by the lessor is largely unchanged from that applied under ASC Topic 840, Leases (“ASC 840”). We adopted this standard effective January 1, 2019 using the modified retrospective approach. In transitioning to ASC 842, we elected to use the practical expedient package available to us and did not elect to use hindsight. These elections have been applied consistently to all of our leases. On January 1, 2019, for our Flushing property ground lease, which is classified as an operating lease, we recorded a right- of-use asset of $5,058,000 (included in “other assets”) and a lease liability of $5,428,000 (included in “other liabilities”) (see Note 9 - Leases).
In June 2016, the FASB issued an update (“ASU 2016-13”) Measurement of Credit Losses on Financial Instruments establishing ASC Topic 326, Financial Instruments - Credit Losses, as amended by subsequent ASUs on the topic. ASU 2016-13 changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current “incurred loss” model with an “expected loss” model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the financial asset. ASU 2016-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. We are currently evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements, but do not believe the adoption of this standard will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued an update (“ASU 2018-13”) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement to ASC Topic 820, Fair Value Measurement (“ASC 820”). ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, and/or adding certain disclosures. ASU 2018-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. We elected to early adopt ASU 2018-13 effective January 1, 2019. The adoption of this update did not have a material impact on our consolidated financial statements and disclosures.
45
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In October 2018, the FASB issued an update (“ASU 2018-16”) Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes to ASC 815. ASU 2018-16 expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting by adding the OIS rate based on SOFR as an eligible benchmark interest rate. ASU 2018-16 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted this update effective January 1, 2019. The adoption of this update did not have a material impact on our consolidated financial statements.
Real Estate – Real estate is carried at cost, net of accumulated depreciation and amortization. As of December 31, 2019 and 2018, the carrying amount of our real estate, net of accumulated depreciation and amortization, was $716,843,000 and $730,270,000 , respectively. Maintenance and repairs are expensed as incurred. Depreciation requires an estimate by management of the useful life of each property and improvement as well as an allocation of the costs associated with a property to its various components. We capitalize all property operating expenses directly associated with and attributable to, the development and construction of a project, including interest expense. The capitalization period begins when development activities are underway and ends when it is determined that the asset is substantially complete and ready for its intended use, which is typically evidenced by the receipt of a temporary certificate of occupancy. General and administrative costs are expensed as incurred.
Our properties, including properties to be developed in the future, are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset, including an estimated terminal value calculated using an appropriate capitalization rate. 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.
Cash and Cash Equivalents – Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less and are carried at cost, which approximates fair value, due to their short-term maturities. The majority of our cash and cash equivalents consist of (i) deposits at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation limit, (ii) United States Treasury Bills, (iii) money market funds, which invest in United States Treasury Bills and (iv) certificates of deposit placed through an account registry service (“CDARS”). To date we have not experienced any losses on our invested cash.
Restricted Cash – Restricted cash primarily consists of security deposits and other cash escrowed under loan agreements, including for debt service, real estate taxes, property insurance and capital improvements.
Marketable Securities – Our marketable securities consist of common shares of The Macerich Company (“Macerich”) (NYSE: MAC), which are classified as available-for-sale. Available-for-sale securities are presented at fair value on our consolidated balance sheets. Prior to January 1, 2018, unrealized gains and losses resulting from the mark-to-market of these securities were included in “other comprehensive income (loss).” Effective January 1, 2018, changes in the fair value of these securities are recognized in current period earnings in accordance with ASC Topic 825 (“ASC 825”), Financial Instruments (see Note 5).
Deferred Charges – Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest and debt expense. Direct costs related to leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. All other deferred charges are amortized on a straight-line basis, which approximates the effective interest rate method, in accordance with the terms of the agreements to which they relate.
46
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income Taxes – We operate in a manner intended to enable us to continue to qualify as a REIT under Sections 856 – 860 of the Internal Revenue Code of 1986, as amended (the “Code”). In order to maintain our qualification as a REIT under the Code, we must distribute at least 90 % of our taxable income to stockholders each year. We distribute to our stockholders 100 % of our taxable income and therefore, no provision for Federal income taxes is required. Dividends distributed for the year ended December 31, 2019 were characterized, for federal income tax purposes, as 99.6 % ordinary income and 0.4 % long-term capital gain income. Dividends distributed for the year ended December 31, 2018 were characterized, for federal income tax purposes, as 100.0 % ordinary income. Dividends distributed for the year ended December 31, 2017 were categorized, for federal income tax purposes, as 99.5 % ordinary income and 0.5 % long-term capital gain income.
The following table reconciles our net income to estimated taxable income for the years ended December 31, 2019, 2018 and 2017.
(Unaudited and in thousands) | Year Ended December 31, | ||||||||||
2019 | 2018 | 2017 | |||||||||
Net income | $ | $ | $ | ||||||||
Straight-line rent adjustments | |||||||||||
Depreciation and amortization timing differences | ( | ) | |||||||||
Change in fair value of marketable securities (see Note 5) | |||||||||||
Loss from discontinued operations (see Note 6) | |||||||||||
Other | ( | ) | |||||||||
Estimated taxable income | $ | $ | $ | ||||||||
47
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REVENUE RECOGNITION
Our rental revenues include revenues from the leasing of space to tenants at our properties and revenues from parking and tenant services. We have the following revenue recognition policies:
• | Lease revenues from the leasing of space to tenants at our properties. Revenues derived from base rent are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements. We commence rental revenue recognition when the underlying asset is available for use by the lessee. 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. Revenues derived from the reimbursement of real estate taxes, insurance expenses and common area maintenance expenses are generally recognized in the same period as the related expenses are incurred. As lessor, we have elected to combine the lease components (base and variable rent), non-lease components (reimbursements of common area maintenance expenses) and reimbursement of real estate taxes and insurance expenses from our operating lease agreements and account for the components as a single lease component in accordance with ASC 842. |
• Parking revenue arising from the rental of parking spaces at our properties. This income is recognized as the services are transferred in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).
• | Tenant services is revenue arising from sub-metered electric, elevator and other services provided to tenants at their request. This revenue is recognized as the services are transferred in accordance with ASC 606. |
For the Year Ended December 31, | ||||||||||||
(Amounts in thousands) | 2019 | 2018 | 2017 | |||||||||
Lease revenues | $ | $ | $ | |||||||||
Parking revenue | ||||||||||||
Tenant services | ||||||||||||
Rental revenues | $ | $ | $ | |||||||||
The components of lease revenues for the year ended December 31, 2019 are as follows:
(Amounts in thousands) | For the Year Ended December 31, 2019 | |||
Fixed lease revenues | $ | |||
Variable lease revenues | ||||
Lease revenues | $ | |||
48
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS
Vornado
As of December 31, 2019, Vornado owned 32.4 % of our outstanding common stock. We are managed by, and our properties are leased and developed by, Vornado, pursuant to the agreements described below, which expire in March of each year and are automatically renewable.
Steven Roth is the Chairman of our Board of Directors and Chief Executive Officer, the Managing General Partner of Interstate Properties (“Interstate”), a New Jersey general partnership, and the Chairman of the Board of Trustees and Chief Executive Officer of Vornado. As of December 31, 2019, 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, 26.1 % of our outstanding common stock, in addition to the 2.3 % they indirectly own through Vornado. Joseph Macnow, our Treasurer, is the Executive Vice President - Chief Financial Officer and Chief Administrative Officer of Vornado. Matthew Iocco, our Chief Financial Officer, is the Executive Vice President - Chief Accounting Officer of Vornado.
Management and Development Agreements
We pay Vornado an annual management fee equal to the sum of (i) $2,800,000 , (ii) 2 % of gross revenue from the Rego Park II shopping center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue, and (iv) $324,000 , escalating at 3 % per annum, for managing the common area of 731 Lexington Avenue. Vornado is also entitled to a development fee equal to 6 % of development costs, as defined.
Leasing and Other Agreements
Vornado also provides us with leasing services for a fee of 3 % of rent for the first ten years of a lease term, 2 % of rent for the eleventh through the twentieth year of a lease term, and 1 % of rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by tenants. In the event third-party real estate brokers are used, the fees to Vornado increase by 1 % and Vornado is responsible for the fees to the third-party real estate brokers.
Vornado is also entitled to a commission upon the sale of any of our assets equal to 3 % of gross proceeds, as defined, for asset sales less than $50,000,000 and 1 % of gross proceeds, as defined, for asset sales of $50,000,000 or more.
We also have agreements with Building Maintenance Services, a wholly owned subsidiary of Vornado, to supervise (i) cleaning, engineering and security services at our Lexington Avenue property and (ii) security services at our Rego Park I and Rego Park II properties and The Alexander apartment tower.
The following is a summary of fees to Vornado under the various agreements discussed above.
Year Ended December 31, | |||||||||||
(Amounts in thousands) | 2019 | 2018 | 2017 | ||||||||
Company management fees | $ | $ | $ | ||||||||
Development fees | |||||||||||
Leasing fees | |||||||||||
Property management, cleaning, engineering | |||||||||||
and security fees | |||||||||||
$ | $ | $ | |||||||||
As of December 31, 2019, the amounts due to Vornado were $795,000 for management, property management, cleaning, engineering and security fees; $563,000 for leasing fees; and $68,000 for development fees. As of December 31, 2018, the amounts due to Vornado were $549,000 for management, property management, cleaning, engineering and security fees; $146,000 for development fees; and $13,000 for leasing fees.
49
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS - continued
Toys “R” Us, Inc. (“Toys”)
5. MARKETABLE SECURITIES
As of December 31, 2019 and 2018, we owned 535,265 common shares of Macerich. These shares have an economic cost of $56.05 per share, or $30,000,000 in the aggregate. As of December 31, 2019 and 2018, the fair value of these shares was $14,409,000 and $23,166,000 , respectively, based on Macerich’s closing share price of $26.92 per share and $43.28 per share, respectively. These shares are included in “marketable securities” on our consolidated balance sheets and are classified as available-for-sale. Available-for-sale securities are presented at fair value on our consolidated balance sheets and gains and losses resulting from the mark-to-market of these securities are recognized in current period earnings. Prior to January 1, 2018, unrealized gains and losses resulting from the mark-to-market of these securities were included in “other comprehensive income (loss).” Effective January 1, 2018, changes in the fair value of these securities are recognized in current period earnings in accordance with ASC 825.
6. DISCONTINUED OPERATIONS
In 2012, we sold the Kings Plaza Regional Shopping Center (“Kings Plaza”) and paid real property transfer taxes to New York City in connection with the sale. In 2015, the New York City Department of Finance (“NYC DOF”) issued a Notice of Determination to us assessing an additional New York City real property transfer tax amount, including interest.
In 2014, in a case with similar facts, the NYC DOF issued a Notice of Determination to a Vornado joint venture assessing an additional New York City real property transfer tax amount, including interest. In January 2017, a New York City administrative law judge made a determination upholding the Vornado joint venture’s position that such additional real property transfer taxes were not due. On February 16, 2018, the New York City Tax Appeals Tribunal (the “Tribunal”) overturned the January 2017 determination. The Vornado joint venture appealed the Tribunal’s decision to the Appellate Division of the Supreme Court of the
State of New York and on April 25, 2019, the Tribunal’s decision was unanimously upheld. The Vornado joint venture filed a motion to reargue the Appellate Division’s decision or for leave to appeal to the New York State Court of Appeals. On December 12, 2019, that motion was denied and the case can no longer be appealed.
50
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. MORTGAGES PAYABLE
On October 3, 2018, we extended our mortgage loan on our Paramus property. The $68,000,000 interest-only loan has a fixed rate of 4.72 % and matures in October 2021. Previously the loan bore interest at a fixed rate of 2.90 %. The tenant pays all of the interest on this mortgage loan as part of its rent.
On December 12, 2018, we completed a refinancing of our Rego Park II shopping center in the amount of $252,544,000 . The interest-only loan is at LIBOR plus 1.35 % (3.15 % as of December 31, 2019) and matures in December 2025. As of December 31, 2019, we have a participation in the mortgage in the amount of $195,708,000 which for GAAP purposes is netted against the mortgage balance. Therefore, the balance sheet amount of the mortgage loan is $56,836,000 . On February 14, 2020, we reduced our participation in the mortgage loan to $50,000,000 and received cash proceeds of approximately $145,000,000 .
The following is a summary of our outstanding mortgages payable. We may refinance our maturing debt as it comes due or choose to repay it.
Interest Rate at December 31, 2019 | Balance at December 31, | ||||||||||||
(Amounts in thousands) | Maturity | 2019 | 2018 | ||||||||||
First mortgages secured by: | |||||||||||||
Paramus | Oct. 2021 | $ | $ | ||||||||||
731 Lexington Avenue, retail condominium(1) | Aug. 2022 | ||||||||||||
731 Lexington Avenue, office condominium(2) | Jun. 2024 | ||||||||||||
Rego Park II shopping center(3) | Dec. 2025 | ||||||||||||
Total | |||||||||||||
Deferred debt issuance costs, net of accumulated | |||||||||||||
amortization of $14,362 and $9,212, respectively | ( | ) | ( | ) | |||||||||
$ | $ | ||||||||||||
(1) | Interest at LIBOR plus 1.40%. Maturity date represents the extended maturity based on our conditional right to extend. | ||||||||||||
(2) | Interest at LIBOR plus 0.90%. Maturity date represents the extended maturity based on our unilateral right to extend. | ||||||||||||
(3) | Interest at LIBOR plus 1.35%. The amount of this loan is net of our $195,708 loan participation (see Note 2 - Summary of Significant Accounting Policies). | ||||||||||||
All of our debt is secured by mortgages and/or pledges of the stock of the subsidiaries holding the properties. The net carrying value of real estate collateralizing the debt amounted to $573,975,000 as of December 31, 2019. Our existing financing documents contain covenants that limit our ability to incur additional indebtedness on these properties, and in certain circumstances, provide for lender approval of tenants’ leases and yield maintenance to prepay them. As of December 31, 2019, the principal repayments (based on the extended loan maturity dates) for the next five years and thereafter are as follows:
(Amounts in thousands) | ||||
Year Ending December 31, | Amount | |||
2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
51
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. FAIR VALUE MEASUREMENTS
ASC 820 defines fair value and establishes a framework for measuring fair value. ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value.
Financial Assets and Liabilities Measured at Fair Value
Financial assets measured at fair value on our consolidated balance sheets as of December 31, 2019 and 2018 consist of marketable securities, which are presented in the table below based on their level in the fair value hierarchy, and an interest rate cap, which fair value was insignificant as of December 31, 2019 and 2018. There were no financial liabilities measured at fair value as of December 31, 2019 and 2018.
As of December 31, 2019 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Marketable securities | $ | $ | $ | $ | |||||||||||
As of December 31, 2018 | |||||||||||||||
(Amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||
Marketable securities | $ | $ | $ | $ | |||||||||||
Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents and mortgages payable. Cash equivalents are carried at cost, which approximates fair value due to their short-term maturities and are classified as Level 1. The fair value of our mortgages payable 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, and is classified as Level 2. The table below summarizes the carrying amount and fair value of these financial instruments as of December 31, 2019 and 2018.
As of December 31, 2019 | As of December 31, 2018 | ||||||||||||||
Carrying | Fair | Carrying | Fair | ||||||||||||
(Amounts in thousands) | Amount | Value | Amount | Value | |||||||||||
Assets: | |||||||||||||||
Cash equivalents | $ | $ | $ | $ | |||||||||||
Liabilities: | |||||||||||||||
Mortgages payable (excluding deferred debt issuance costs, net) | $ | $ | $ | $ | |||||||||||
52
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LEASES
As Lessor
We lease space to tenants under operating leases in an office building and in retail centers. The rental terms range from approximately 5 to 25 years. The leases provide for the payment of fixed base rents payable monthly in advance as well as reimbursements of real estate taxes, insurance and maintenance costs. Retail leases may also provide for the payment by the lessee of additional rents based on a percentage of their sales. We also lease residential space at The Alexander apartment tower with 1 or 2 year lease terms. We have elected to account for lease revenues (including fixed and variable rent) and the reimbursement of common area maintenance expenses as a single lease component presented as “rental revenues” in our consolidated statements of income.
Under ASC 842, we must assess on an individual lease basis whether it is probable that we will collect the future lease payments. We consider the tenant’s payment history and current credit status when assessing collectability. When collectability is not deemed probable, we write-off the tenant’s receivables, including straight-line rent receivable, and limit lease income to cash received. Changes to the collectability of our operating leases are recorded as adjustments to “rental revenues” on our consolidated statements of income, which resulted in a decrease in income of $209,000 for the year ended December 31, 2019. As a result, there is no allowance for doubtful accounts as of December 31, 2019. The table below summarizes our allowance for doubtful accounts as of December 31, 2018 and 2017.
(Amounts in thousands) | Balance at Beginning of Year | Additions: Charged Against Operations | Deductions: Uncollectible Accounts Written Off | Balance at End of Year | ||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||
Year Ended December 31, 2018 | $ | $ | $ | ( | ) | $ | ||||||||||
Year Ended December 31, 2017 | $ | $ | $ | ( | ) | $ | ||||||||||
Future undiscounted cash flows under our non-cancelable operating leases are as follows:
Under ASC 842 | ||||
(Amounts in thousands) | As of December 31, 2019 | |||
For the year ending December 31, | ||||
2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Under ASC 840 | ||||
(Amounts in thousands) | As of December 31, 2018 | |||
For the year ending December 31, | ||||
2019 | $ | |||
2020 | ||||
2021 | ||||
2022 | ||||
2023 | ||||
Thereafter | ||||
These amounts do not include reimbursements or additional rents based on a percentage of retail tenants’ sales.
53
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LEASES - continued
Bloomberg accounted for revenue of $109,113,000 , $107,356,000 , and $105,224,000 in the years ended December 31, 2019, 2018 and 2017, respectively, representing approximately 48 %, 46 % and 46 % of our total revenues in each year, respectively. No other tenant accounted for more than 10% of our total revenues. If we were to lose Bloomberg as a tenant, or if Bloomberg were to be unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition. In order to assist us in our continuing assessment of Bloomberg’s creditworthiness, we receive certain confidential financial information and metrics from Bloomberg. In addition, we access and evaluate financial information regarding Bloomberg from other private sources, as well as publicly available data.
On June 28, 2019, we entered into a lease agreement with Bloomberg for an additional 49,000 square feet at our 731 Lexington Avenue property
As Lessee
We are the lessee under a ground lease at our Flushing property, classified as an operating lease, which expires in 2027 and has one 10 -year extension option. On January 1, 2019, we recorded a right-of-use asset and lease liability related to this ground lease equal to the present value of the remaining minimum lease payments. As of December 31, 2019, the right-of-use asset of $4,529,000 and the lease liability of $4,845,000 , are included in “other assets” and “other liabilities,” respectively, on our consolidated balance sheet. The discount rate applied to measure the right-of-use asset and lease liability is based on the incremental borrowing rate (“IBR”) for the property of 4.53 %. We initially consider the general economic environment and factor in various financing and asset specific adjustments so that the IBR is appropriate to the intended use of the underlying lease. As we did not elect to apply hindsight, the lease term assumption determined under ASC 840 was carried forward and applied in calculating our lease liability recorded under ASC 842.
Future lease payments under this operating lease, excluding the extension option, are as follows:
Under ASC 842 | ||||
(Amounts in thousands) | As of December 31, 2019 | |||
For the year ending December 31, | ||||
2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total undiscounted cash flows | ||||
Present value discount | ( | ) | ||
Lease liability as of December 31, 2019 | $ | |||
Under ASC 840 | ||||
(Amounts in thousands) | As of December 31, 2018 | |||
For the year ending December 31, | ||||
2019 | $ | |||
2020 | ||||
2021 | ||||
2022 | ||||
2023 | ||||
Thereafter | ||||
We recognize rent expense as a component of “operating” expenses on our consolidated statements of income on a straight-line basis. Rent expense was $746,000 in each of the years ended December 31, 2019, 2018 and 2017, respectively. Cash paid for rent expense was $800,000 , $800,000 and $792,000 in the years ended December 31, 2019, 2018 and 2017, respectively.
54
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK-BASED COMPENSATION
We account for stock-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation. Our 2016 Omnibus Stock Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, deferred stock units (“DSUs”) and performance shares, as defined, to the directors, officers and employees of the Company and Vornado.
11. COMMITMENTS AND CONTINGENCIES
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and per property, and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for acts of terrorism, with sub-limits for certain perils such as floods and earthquakes on each of our properties.
Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Act of 2002, as amended to date and which has been extended through December 2027. Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence and in the aggregate. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies and the Federal government with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $268,000 deductible and 20 % of the balance of a covered loss, and the Federal government is responsible for the remaining 80 % of a covered loss. We are ultimately responsible for any loss incurred by FNSIC.
We continue to monitor the state of the insurance market and the scope and costs of coverage for acts of terrorism or other events. However, we cannot anticipate what coverage will be available on commercially reasonable terms in the future. We are responsible for uninsured losses and for deductibles and losses in excess of our insurance coverage, which could be material.
Our mortgage loans are non-recourse to us and contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future. Further, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance or refinance our properties.
Paramus
In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a purchase option in 2021 for $75,000,000 . The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 4.72 %, which matures in October 2021. The annual triple-net rent is the sum of $700,000 plus the amount of interest on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000 . If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20 -year lease term.
55
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES - continued
Rego Park I Litigation
In June 2014, Sears Roebuck and Co. (“Sears”) filed a lawsuit in the Supreme Court of the State of New York against Vornado and us (and certain of our subsidiaries) with regard to space that Sears leased at our Rego Park I property alleging that the defendants are liable for harm that Sears has suffered as a result of (a) water intrusions into the premises, (b) two fires in February 2014 that caused damages to those premises, and (c) alleged violations of the Americans with Disabilities Act in the premises’ parking garage. Sears asserted various causes of actions for damages and sought to compel compliance with landlord’s obligations to repair the premises and to provide security, and to compel us to abate a nuisance that Sears claims was a cause of the water intrusions into its premises. In addition to injunctive relief, Sears sought, among other things, damages of not less than $4,000,000 and future damages it estimated would not be less than $25,000,000 . In March 2016, Sears withdrew its claim for future damages leaving a remaining claim for property damages, which we estimate to be approximately $650,000 based on information provided by Sears. We intend to defend the remaining claim vigorously. The amount or range of reasonably possible losses, if any, is not expected to be greater than $650,000 .
On April 4, 2017, Sears closed its 195,000 square foot store at the property ($10,300,000 of annual revenue). On October 15, 2018, Sears filed for Chapter 11 bankruptcy relief and rejected its lease.
Letters of Credit
Approximately $1,030,000 of standby letters of credit were issued and outstanding as of December 31, 2019.
Other
There are various other legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial position, results of operations or cash flows.
12. MULTIEMPLOYER BENEFIT PLANS
Our subsidiaries make contributions to certain multiemployer defined benefit plans (“Multiemployer Pension Plans”) and health plans (“Multiemployer Health Plans”) for our union represented employees, pursuant to the respective collective bargaining agreements.
Multiemployer Pension Plans
Multiemployer Pension Plans differ from single-employer pension plans in that (i) contributions to multiemployer plans may be used to provide benefits to employees of other participating employers and (ii) if other participating employers fail to make their contributions, each of our subsidiaries may be required to bear their pro rata share of unfunded obligations. If a participating subsidiary withdraws from a plan in which it participates, it may be subject to a withdrawal liability. As of December 31, 2019, our subsidiaries’ participation in these plans were not significant to our consolidated financial statements.
In the years ended December 31, 2019, 2018 and 2017 our subsidiaries contributed $172,000 , $161,000 and $162,000 , respectively, towards Multiemployer Pension Plans. Our subsidiaries’ contributions did not represent more than 5% of total employer contributions in any of these plans for the years ended December 31, 2019, 2018 and 2017.
Multiemployer Health Plans
Multiemployer Health Plans in which our subsidiaries participate provide health benefits to eligible active and retired employees. In the years ended December 31, 2019, 2018 and 2017 our subsidiaries contributed $686,000 , $649,000 and $619,000 , respectively, towards these plans.
56
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted income per share, including a reconciliation of net income and the number of shares used in computing basic and diluted income per share. Basic income per share is determined using the weighted average shares of common stock (including DSUs) outstanding during the period. Diluted income per share is determined using the weighted average shares of common stock (including DSUs) outstanding during the period, and assumes all potentially dilutive securities were converted into common shares at the earliest date possible. There were no potentially dilutive securities outstanding during the years ended December 31, 2019, 2018 and 2017.
For the Year Ended December 31, | |||||||||||
(Amounts in thousands, except share and per share amounts) | 2019 | 2018 | 2017 | ||||||||
Income from continuing operations | $ | $ | $ | ||||||||
Loss from discontinued operations (see Note 6) | ( | ) | |||||||||
Net income | $ | $ | $ | ||||||||
Weighted average shares outstanding – basic and diluted | |||||||||||
Income from continuing operations | $ | $ | $ | ||||||||
Loss from discontinued operations (see Note 6) | ( | ) | |||||||||
Net income per common share – basic and diluted | $ | $ | $ | ||||||||
14. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
Net Income (Loss) Per Common Share(1) | |||||||||||||||||
(Amounts in thousands, except per share amounts) | Revenues | Net Income (Loss) | Basic | Diluted | |||||||||||||
2019 | |||||||||||||||||
December 31 | $ | $ | $ | $ | |||||||||||||
September 30 | |||||||||||||||||
June 30 | |||||||||||||||||
March 31 | |||||||||||||||||
2018 | |||||||||||||||||
December 31 | $ | $ | $ | $ | |||||||||||||
September 30 | |||||||||||||||||
June 30 | |||||||||||||||||
March 31 | ( | ) | (2) | ( | ) | (2) | ( | ) | (2) | ||||||||
_______________________ | |||||||||||||||||
(1) | The total for the year may differ from the sum of the quarters as a result of weighting. | ||||||||||||||||
(2) | Includes $23,797, or $4.65 per common share, of expense for potential additional New York City real property transfer taxes on the 2012 sale of Kings Plaza. | ||||||||||||||||
57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures – Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
Internal Control Over Financial Reporting – There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during the fourth quarter of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
58
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The management of Alexander’s, Inc., together with its consolidated subsidiaries (the “Company”), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2019, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2019 is effective.
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing on page 60 of this Annual Report on Form 10-K, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Alexander’s, Inc.
Paramus, New Jersey
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Alexander’s, Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 18, 2020, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 18, 2020
60
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to our directors, including our audit committee and audit committee financial expert, will be contained in a definitive Proxy Statement involving the election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. We will file the Proxy Statement with the Securities and Exchange Commission no later than 120 days after December 31, 2019. Such information is incorporated by reference herein. Also incorporated herein by reference is the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement.
Executive Officers of the Registrant
The following is a list of the names, ages, principal occupations and positions with us of our executive officers and the positions held by such officers during the past five years.
PRINCIPAL OCCUPATION, POSITION AND OFFICE | ||||
Name | Age | (Current and during past five years with the Company unless otherwise stated) | ||
Steven Roth | 78 | Chairman of the Board since May 2004 and Chief Executive Officer since March 1995; Chairman of the Board of Vornado Realty Trust since May 1989; Chief Executive Officer of Vornado Realty Trust since April 2013 and from May 1989 to May 2009; a Trustee of Vornado Realty Trust since 1979; and Managing General Partner of Interstate Properties. | ||
Matthew Iocco | 49 | Chief Financial Officer since April 2017; Executive Vice President - Chief Accounting Officer of Vornado Realty Trust since May 2015; and Senior Vice President - Chief Accounting Officer of Vornado Realty Trust from May 2012 to May 2015. | ||
We have a code of business conduct and ethics that applies to, among others, our Chief Executive Officer and Chief Financial Officer. The code is posted on our website at www.alx-inc.com. We intend to satisfy our disclosure obligation regarding amendments and waivers of this code applicable to our Chief Executive Officer and Chief Financial Officer by posting such information on our website.
61
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation will be contained in the Proxy Statement referred to in “Item 10. Directors, Executive Officers and Corporate Governance” of this Annual Report on Form 10-K. Such information is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information relating to security ownership of certain beneficial owners and management and related stockholder matters, except as set forth below, will be contained in the Proxy Statement referred to in “Item 10. Directors, Executive Officers and Corporate Governance” of this Annual Report on Form 10-K. Such information is incorporated by reference herein.
Equity Compensation Plan Information
The following table provides information as of December 31, 2019, regarding our equity compensation.
Plan Category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||
Equity compensation plans approved by security holders | 11,408 | $ | — | 494,379 | ||||||
Equity compensation plans not approved by security holders | N/A | N/A | N/A | |||||||
Total | 11,408 | $ | — | 494,379 | ||||||
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information relating to certain relationships and related transactions and director independence will be contained in the Proxy Statement referred to in “Item 10. Directors, Executive Officers and Corporate Governance” of this Annual Report on Form 10-K. Such information is incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information relating to principal accounting fees and services will be contained in the Proxy Statement referred to in “Item 10. Directors, Executive Officers and Corporate Governance” of this Annual Report on Form 10-K. Such information is incorporated by reference herein.
62
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K.
1. The consolidated financial statements are set forth in Item 8 of this Annual Report on Form 10-K.
2. The following financial statement schedule should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K.
Pages in this Annual Report on Form 10-K | |
Schedule III – Real Estate and Accumulated Depreciation as of | |
December 31, 2019, 2018 and 2017 | 64-65 |
All other financial statement schedules are omitted because they are not applicable, not required, or the information is included elsewhere in the consolidated financial statements or the notes thereto.
63
ALEXANDER’S, INC. AND SUBSIDIARIES | |||||||||||||||||||||||||||||||||||||||||
SCHEDULE III | |||||||||||||||||||||||||||||||||||||||||
REAL ESTATE AND ACCUMULATED DEPRECIATION | |||||||||||||||||||||||||||||||||||||||||
December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||
(Amounts in thousands) | |||||||||||||||||||||||||||||||||||||||||
COLUMN A | COLUMN B | COLUMN C | COLUMN D | COLUMN E | COLUMN F | COLUMN G | COLUMN H | COLUMN I | |||||||||||||||||||||||||||||||||
Gross Amount at Which | Life on which Depreciation in Latest Income Statement is Computed | ||||||||||||||||||||||||||||||||||||||||
Initial Cost to Company(1) | Costs Capitalized Subsequent to Acquisition | Carried at Close of Period | Accumulated Depreciation and Amortization | ||||||||||||||||||||||||||||||||||||||
Buildings and Leasehold Improvements | Buildings and Leasehold Improvements | Development and Construction In Progress | |||||||||||||||||||||||||||||||||||||||
Date of Construction | Date Acquired(1) | ||||||||||||||||||||||||||||||||||||||||
Description | Encumbrances(2) | Land | Land | Total(3) | |||||||||||||||||||||||||||||||||||||
New York, NY | |||||||||||||||||||||||||||||||||||||||||
Rego Park I | $ | $ | $ | $ | $ | $ | $ | $ | $ | 3-39 years | |||||||||||||||||||||||||||||||
Rego Park II | (4) | 3-40 years | |||||||||||||||||||||||||||||||||||||||
The Alexander apartment tower | 3-39 years | ||||||||||||||||||||||||||||||||||||||||
Rego Park III | N/A | 5-15 years | |||||||||||||||||||||||||||||||||||||||
Flushing | ( | ) | 1975(5) | N/A | |||||||||||||||||||||||||||||||||||||
Lexington Avenue | 9-39 years | ||||||||||||||||||||||||||||||||||||||||
Paramus, NJ | N/A | N/A | |||||||||||||||||||||||||||||||||||||||
Other Properties | ( | ) | N/A | N/A | |||||||||||||||||||||||||||||||||||||
TOTAL | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
(1) Initial cost is as of May 15, 1992 (the date on which the Company commenced its real estate operations). | |||||||||||||||||||||||||||||||||||||||||
(2) Excludes deferred debt issuance costs, net of $3,875. | |||||||||||||||||||||||||||||||||||||||||
(3) The net basis of the Company’s assets and liabilities for tax purposes is approximately $171,331 lower than the amount reported for financial statement purposes. | |||||||||||||||||||||||||||||||||||||||||
(4) The amount of this loan is net of our $195,708 loan participation. | |||||||||||||||||||||||||||||||||||||||||
(5) Represents the date the lease was acquired. | |||||||||||||||||||||||||||||||||||||||||
64
ALEXANDER’S, INC. AND SUBSIDIARIES | ||||||||||||
SCHEDULE III | ||||||||||||
REAL ESTATE AND ACCUMULATED DEPRECIATION | ||||||||||||
(Amounts in thousands) | ||||||||||||
December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
REAL ESTATE: | ||||||||||||
Balance at beginning of period | $ | $ | $ | |||||||||
Changes during the period: | ||||||||||||
Land | ||||||||||||
Buildings and leasehold improvements | ||||||||||||
Development and construction in progress | ||||||||||||
Less: Fully depreciated assets | ( | ) | ||||||||||
Balance at end of period | $ | $ | $ | |||||||||
ACCUMULATED DEPRECIATION: | ||||||||||||
Balance at beginning of period | $ | $ | $ | |||||||||
Additions charged to operating expenses | ||||||||||||
Less: Fully depreciated assets | ( | ) | ||||||||||
Balance at end of period | $ | $ | $ | |||||||||
65
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES - continued
(b) Exhibits
Exhibit No. | |||||
- | Amended and Restated Certificate of Incorporation. Incorporated herein by reference from Exhibit 3.1 to the registrant’s Registration Statement on Form S-3 filed on September 20, 1995 | * | |||
- | By-laws, as amended. Incorporated herein by reference from Exhibit 3(ii) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 | * | |||
- | Description of the Alexander’s, Inc. securities registered pursuant to Section 12 of the Securities Exchange Act | *** | |||
10.1 | - | Real Estate Retention Agreement dated as of July 20, 1992, between Vornado Realty Trust and Keen Realty Consultants, Inc., each as special real estate consultants, and the Company. Incorporated herein by reference from Exhibit 10(i)(O) to the registrant’s Annual Report on Form 10-K for the fiscal year ended July 25, 1992 | * | ||
- | Extension Agreement to the Real Estate Retention Agreement, dated as of February 6, 1995, between the Company and Vornado Realty Trust. Incorporated herein by reference from Exhibit 10(i)(G)(2) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 1994 | * | |||
- | Agreement of Lease dated as of April 30, 2001 between Seven Thirty One Limited Partnership, landlord, and Bloomberg L.P., tenant. Incorporated herein by reference from Exhibit 10(v) B to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, filed on August 2, 2001 | * | |||
- | Lease dated as of October 2, 2001 by and between ALX of Paramus LLC, as Landlord, and IKEA Property, Inc. as Tenant. Incorporated herein by reference from Exhibit 10(v)(C)(4) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 13, 2002 | * | |||
- | First Amendment to Real Estate Retention Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc. and Vornado Realty, L.P. Incorporated herein by reference from Exhibit 10(i)(E)(3) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 7, 2002 | * | |||
- | 59th Street Real Estate Retention Agreement, dated as of July 3, 2002, by and between Vornado Realty, L.P., 731 Residential LLC and 731 Commercial LLC. Incorporated herein by reference from Exhibit 10(i)(E)(4) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 7, 2002 | * | |||
- | Amended and Restated Management and Development Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. Incorporated herein by reference from Exhibit 10(i)(F)(1) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 7, 2002 | * | |||
- | Limited Liability Company Operating Agreement of 731 Residential LLC, dated as of July 3, 2002, among 731 Residential Holding LLC, as the sole member, Domenic A. Borriello, as an Independent Manager and Kim Lutthang, as an Independent Manager. Incorporated herein by reference from Exhibit 10(i)(A)(1) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 7, 2002 | * | |||
- | Limited Liability Company Operating Agreement of 731 Commercial LLC, dated as of July 3, 2002, among 731 Commercial Holding LLC, as the sole member, Domenic A. Borriello, as an Independent Manager and Kim Lutthang, as an Independent Manager. Incorporated herein by reference from Exhibit 10(i)(A)(2) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 7, 2002 | * | |||
___________________ | |||||
* | Incorporated by reference. | ||||
*** | Filed herewith. | ||||
66
- | Reimbursement Agreement, dated as of July 3, 2002, by and between Alexander’s, Inc., 731 Commercial LLC, 731 Residential LLC and Vornado Realty, L.P. Incorporated herein by reference from Exhibit 10(i)(C)(8) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 7, 2002 | * | |||
- | First Amendment of Lease, dated as of April 19, 2002, between Seven Thirty One Limited Partnership, landlord and Bloomberg L.P., tenant. Incorporated herein by reference from Exhibit 10(v)(B)(2) to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002, filed on August 7, 2002 | * | |||
- | Second Amendment to Real Estate Retention Agreement, dated as of January 1, 2007, by and between Alexander’s, Inc. and Vornado Realty L.P. Incorporated herein by reference from Exhibit 10.64 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on February 26, 2007 | * | |||
- | Amendment to 59th Street Real Estate Retention agreement, dated as of January 1, 2007, by and among Vornado Realty L.P., 731 Retail One LLC, 731 Restaurant LLC, 731 Office One LLC and 731 Office Two LLC. Incorporated herein by reference from Exhibit 10.65 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2006, filed on February 26, 2007 | * | |||
- | First Amendment to Amended and Restated Management and Development Agreement, dated as of July 6, 2005, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. Incorporated herein by reference from Exhibit 10.52 to the registrant’s Annual Report on Form 10-K, for the year ended December 31, 2007, filed on February 25, 2008 | * | |||
- | Second Amendment to Amended and Restated Management and Development Agreement, dated as of December 20, 2007, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. Incorporated herein by reference from Exhibit 10.53 to the registrant’s Annual Report on Form 10-K, for the year ended December 31, 2007, filed on February 25, 2008 | * | |||
- | Third Amendment to Real Estate Retention Agreement, dated as of December 20, 2007, by and between Alexander’s, Inc., and Vornado Realty L.P. Incorporated herein by reference from Exhibit 10.55 to the registrant’s Annual Report on Form 10-K, for the year ended December 31, 2007, filed on February 25, 2008 | * | |||
- | Loan Agreement dated as of March 10, 2009 between Alexander’s Rego Shopping Center Inc., as Borrower and U.S. Bank National Association, as Lender. Incorporated herein by reference from Exhibit 10.55 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed on May 4, 2009 | * | |||
- | Amended and Restated Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rentals by and between Alexander’s Rego Shopping Center, Inc. as Borrower and U.S. Bank National Association as Lender, dated as of March 10, 2009. Incorporated herein by reference from Exhibit 10.56 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed on May 4, 2009 | * | |||
- | Amended and Restated Promissory Note dated as of March 10, 2009, by Alexander’s Rego Shopping Center Inc., in favor of U.S. Bank National Association. Incorporated herein by reference from Exhibit 10.57 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed on May 4, 2009 | * | |||
- | Cash Pledge Agreement dated as of March 10, 2009, executed by Alexander’s Rego Shopping Center Inc. to and for the benefit of U.S. Bank National Association. Incorporated herein by reference from Exhibit 10.58 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed on May 4, 2009 | * | |||
- | Lease dated as of February 7, 2005, by and between 731 Office One LLC, as Landlord, and Citibank, N.A., as Tenant. Incorporated herein by reference from Exhibit 10.59 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed on May 4, 2009 | * | |||
__________________ | |||||
* | Incorporated by reference. | ||||
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- | Assignment and Assumption and Consent Agreement, dated as of March 25, 2009, by and between 731 Office One LLC, as Landlord, Citicorp North America, Inc., as Assignor, and Bloomberg L.P., as Assignee. Incorporated herein by reference from Exhibit 10.60 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, filed on May 4, 2009 | * | |||
- | Third Amendment to Amended and Restated Management and Development Agreement, dated as of November 30, 2011, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. Incorporated herein by reference from Exhibit 10.49 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2011, filed on February 27, 2012 | * | |||
- | First Omnibus Loan Modification and Extension Agreement dated March 12, 2012 by and between Alexander’s Rego Shopping Center, Inc., as Borrower and U.S. Bank National Association, as Lender. Incorporated herein by reference from Exhibit 10.55 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 7, 2012 | * | |||
- | Mortgage Modification Agreement dated March 12, 2012 by and between Alexander’s Rego Shopping Center, Inc., as Mortgagor and U.S. Bank National Association, as Mortgagee. Incorporated herein by reference from Exhibit 10.56 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed on May 7, 2012 | * | |||
- | Fourth Amendment to Amended and Restated Management and Development Agreement, dated as of August 1, 2012, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. Incorporated herein by reference from Exhibit 10.2 to the registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed on November 1, 2012 | * | |||
- | Contribution Agreement and Joint Escrow Instructions, dated as of October 21, 2012, by and between Alexander’s Kings Plaza LLC, Alexander’s of Kings LLC and Kings Parking LLC, and Brooklyn Kings Plaza LLC. Incorporated herein by reference from Exhibit 10.53 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 26, 2013 | * | |||
- | Fifth Amendment to Amended and Restated Management and Development Agreement, dated as of December 1, 2012, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. Incorporated herein by reference from Exhibit 10.54 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, filed on February 26, 2013 | * | |||
- | Second Omnibus Loan Modification and Extension Agreement, dated March 8, 2013, by and between Alexander’s Rego Shopping Center, Inc., as Borrower and U.S. Bank National Association, as Lender. Incorporated herein by reference from Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed on May 6, 2013 | * | |||
- | Second Mortgage Modification Agreement, dated March 8, 2013, by and between Alexander’s Rego Shopping Center, Inc., as Mortgagor and U.S. Bank National Association, as Mortgagee. Incorporated herein by reference from Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, filed on May 6, 2013 | * | |||
- | Loan Agreement, date as of February 28, 2014, by and between 731 Office One LLC, as Borrower, and German American Capital Corporation, as Lender. Incorporated herein by reference from Exhibit 10.1 to the registrant’s Quarterly report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Consolidated, Amended and Restated Promissory Note, dated as of February 28, 2014, by and between 731 Office One LLC, as Borrower, and German American Capital Corporation, as Lender. Incorporated herein by reference from Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Amended and Restated Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of February 28, 2014, by and between 731 Office One LLC, as Mortgagor, and German American Capital Corporation, as Mortgagee. Incorporated herein by reference from Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
__________________ | |||||
* | Incorporated by reference. | ||||
68
- | Assignment of Leases and Rents dated as of February 28, 2014, by and between 731 Office One LLC, as Assignor, and German American Capital Corporation, as Assignee. Incorporated herein by reference from Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Guaranty of Recourse Obligations dated as of February 28, 2014, by and between Alexander’s, Inc., as Guarantor, and German American Capital Corporation, as Lender. Incorporated herein by reference from Exhibit 10.5 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Environmental Indemnity Agreement dated as of February 28, 2014, by and between 731 Office One LLC, as Indemnitor, and German American Capital Corporation, as Indemnitee. Incorporated herein by reference from Exhibit 10.6 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Termination Agreement dated as of February 28, 2014, by and among 731 Office One LLC, Alexander’s Management LLC, Vornado Realty L.P., 731 Office Two LLC, 731 Residential LLC, 731 Commercial LLC, 731 Retail One LLC and 731 Restaurant LLC. Incorporated herein by reference from Exhibit 10.7 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Real Estate Sub-Retention Agreement dated as of February 28, 2014, by and between Alexander’s Management LLC, as Agent, and Vornado Realty L.P., as Sub-Agent. Incorporated herein by reference from Exhibit 10.8 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Sixth Amendment to Amended and Restated Management and Development Agreement, dated as of March 21, 2014, by and between Alexander’s, Inc., the subsidiaries party thereto and Vornado Management Corp. Incorporated herein by reference from Exhibit 10.9 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Rego Park II Residential Management and Development Agreement, dated as of March 21, 2014 by and between Alexander’s of Rego Residential LLC and Vornado Management Corp. Incorporated herein by reference from Exhibit 10.10 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 5, 2014 | * | |||
- | Fourth Amendment to Real Estate Retention Agreement, dated December 22, 2014 by and between Alexander’s, Inc. and Vornado Realty, L.P. Incorporated herein by reference from Exhibit 10.56 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 17, 2015 | * | |||
- | Second Amendment to 59th Street Real Estate Retention Agreement, dated December 22, 2014 by and between 731 Retail One LLC, 731 Restaurant LLC, 731 Office Two LLC and Vornado Realty, L.P. Incorporated herein by reference from Exhibit 10.57 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 17, 2015 | * | |||
- | First Amendment to Rego II Real Estate Sub-Retention Agreement, dated December 22, 2014 by and between Alexander’s, Inc. and Vornado Realty L.P. Incorporated herein by reference from Exhibit 10.58 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 17, 2015 | * | |||
- | First Amendment to Real-Estate Sub-Retention Agreement, dated December 22, 2014 by and between Alexander’s Management LLC and Vornado Realty, L.P. Incorporated herein by reference from Exhibit 10.59 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed on February 17, 2015 | * | |||
- | Third Omnibus Loan Modification and Extension Agreement, dated March 10, 2015, by and between Alexander’s Rego Shopping Center, Inc., as Borrower and U.S. Bank National Association, as Lender. Incorporated herein by reference from Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 4, 2015 | * | |||
- | Third Mortgage Modification Agreement, dated March 10, 2015, by and between Alexander’s Rego Shopping Center, Inc., as Mortgagor and U. S. Bank National Association, as Mortgagee. Incorporated herein by reference from Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 4, 2015 | * | |||
__________________ | |||||
* | Incorporated by reference. | ||||
69
- | Loan Agreement, dated as of August 5, 2015, by and between 731 Retail One LLC and 731 Commercial LLC, as Borrower, and JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., and Landesbank Baden-Württemberg, New York Branch, as Lenders. Incorporated herein by reference from Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed on November 2, 2015 | * | |||
+ | - | Second Amendment of Lease, dated as of the 12th of January 2016 between 731 Office One LLC and Bloomberg L.P. Incorporated herein by reference from Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 2, 2016 | * | ||
- | Fourth Omnibus Loan Modification and Extension Agreement, dated and made effective as of March 8, 2016, by and between Alexander’s Rego Shopping Center and U.S. Bank National Association. Incorporated herein by reference from Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 2, 2016 | * | |||
- | Fourth Mortgage Modification Agreement, dated and made effective as of March 8, 2016, by and between Alexander’s Rego Shopping Center and U.S. Bank National Association. Incorporated herein by reference from Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 2, 2016 | * | |||
** | - | Form of Alexander’s Inc. 2016 Omnibus Stock Plan Deferred Stock Unit Grant Agreement between the Company and certain employees. Incorporated herein by reference from Exhibit 10.4 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed on August 1, 2016 | * | ||
- | Loan Agreement, dated as of June 1, 2017, between 731 Office One LLC, as Borrower, and Deutsche Bank AG, New York Branch and Citigroup Global Markets Realty Corp. collectively, as Lender. Incorporated herein by reference from Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed on July 31, 2017 | * | |||
- | Fifth Omnibus Loan Modification and Extension Agreement, dated and made effective as of March 12, 2018, by and between Alexander’s Rego Shopping Center, Inc., as Borrower, and U.S. Bank National Association, as Lender. Incorporated herein by reference from Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed on April 30, 2018 | * | |||
- | Sixth Omnibus Loan Modification and Extension Agreement, dated and made effective as of April 12, 2018, by and between Alexander’s Rego Shopping Center, Inc., as Borrower, and U.S. Bank National Association, as Lender. Incorporated herein by reference from Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed on April 30, 2018 | * | |||
- | Amended and Restated Loan and Security Agreement, dated and made effective as of December 12, 2018, by and between Rego II Borrower LLC, as Borrower, and Bank of China, New York Branch, as Lender. Incorporated herein by reference from Exhibit 10.55 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 11, 2019 | * | |||
- | Second Amended and Restated Promissory Note, dated December 12, 2018, by and between Rego II Borrower LLC, as Maker, and Bank of China, New York Branch, as Lender. Incorporated herein by reference from Exhibit 10.56 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 11, 2019 | * | |||
- | Second Amended and Restated Mortgage, Assignment of Leases and Rents and Security Agreement, dated December 12, 2018, by and between Rego II Borrower LLC, as Mortgagor, and Bank of China, New York Branch, as Mortgagee. Incorporated herein by reference from Exhibit 10.57 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 11, 2019 | * | |||
__________________ | |||||
* | Incorporated by reference. | ||||
** | Management contract or compensatory agreement. | ||||
+ | Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission under Rule 24b-2. The omitted confidential material has been filed separately. The location of the redacted confidential information is indicated in the exhibit as “redacted.” | ||||
70
- | Amended and Restated Guaranty of Recourse Carveouts, dated December 12, 2018, by Alexander’s, Inc., as Guarantor, to and for the benefit of Bank of China, New York Branch, as Lender. Incorporated herein by reference from Exhibit 10.58 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 11, 2019 | * | |||
- | Amended and Restated Environmental Indemnity Agreement, dated December 12, 2018, among Rego II Borrower LLC and Alexander’s, Inc., individually or collectively as Indemnitor, in favor of Bank of China, New York Branch, as Lender. Incorporated herein by reference from Exhibit 10.59 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 11, 2019 | * | |||
- | Amended and Restated Participation and Servicing Agreement for Amended and Restated Loan and Security Agreement, dated December 12, 2018, between Bank of China, New York Branch, individually as Lender, Initial A-1 Holder and as the Agent for the Holders, and Alexander’s of Rego Park II Participating Lender LLC, individually as Initial A-2 Holder. Incorporated herein by reference from Exhibit 10.60 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 11, 2019 | * | |||
- | Waiver and Amendment No. 1 to Loan Agreement, dated October 10, 2019, by and among 731 Retail One LLC and 731 Commercial LLC, as Borrower, and JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., and Landesbank Baden-Württemberg, New York Branch, as Lenders | *** | |||
- | Subsidiaries of Registrant | *** | |||
- | Consent of Independent Registered Public Accounting Firm | *** | |||
- | Rule 13a-14 (a) Certification of the Chief Executive Officer | *** | |||
- | Rule 13a-14 (a) Certification of the Chief Financial Officer | *** | |||
- | Section 1350 Certification of the Chief Executive Officer | *** | |||
- | Section 1350 Certification of the Chief Financial Officer | *** | |||
101 | - | The following financial information from the Alexander’s, Inc. Annual Report on Form 10-K for the year ended December 31, 2019 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of changes in equity, (v) consolidated statements of cash flows and (vi) the notes to the consolidated financial statements | *** | ||
104 | - | The cover page from the Alexander’s, Inc. Annual Report on Form 10-K for the year ended December 31, 2019, formatted as Inline XBRL and contained in Exhibit 101 | *** | ||
__________________ | |||||
* | Incorporated by reference. | ||||
*** | Filed herewith. | ||||
71
ITEM 16. FORM 10-K SUMMARY
None.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALEXANDER’S, INC. | |||||
(Registrant) | |||||
Date: February 18, 2020 | By: | /s/ Matthew Iocco | |||
Matthew Iocco, Chief Financial Officer | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||||||
By: | /s/Steven Roth | Chairman of the Board of Directors and | February 18, 2020 | |||||
(Steven Roth) | Chief Executive Officer | |||||||
(Principal Executive Officer) | ||||||||
By: | /s/Matthew Iocco | Chief Financial Officer | February 18, 2020 | |||||
(Matthew Iocco) | (Principal Financial and Accounting Officer) | |||||||
By: | /s/Thomas R. DiBenedetto | Director | February 18, 2020 | |||||
(Thomas R. DiBenedetto) | ||||||||
By: | /s/David Mandelbaum | Director | February 18, 2020 | |||||
(David Mandelbaum) | ||||||||
By: | /s/Wendy Silverstein | Director | February 18, 2020 | |||||
(Wendy Silverstein) | ||||||||
By: | /s/Arthur Sonnenblick | Director | February 18, 2020 | |||||
(Arthur Sonnenblick) | ||||||||
By: | /s/Richard R. West | Director | February 18, 2020 | |||||
(Richard R. West) | ||||||||
By: | /s/Russell B. Wight Jr. | Director | February 18, 2020 | |||||
(Russell B. Wight Jr.) | ||||||||
73
EXHIBIT 4
DESCRIPTION OF THE ALEXANDER'S, INC. SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT
The following descriptions are summaries of the material terms and provisions of Alexander’s preferred stock and common stock contained in Alexander’s certificate of incorporation and Alexander’s by-laws. Copies of the certificate of incorporation and by-laws are filed as exhibits to this Annual Report on Form 10-K. Please note that the terms “we,” “us,” “our,” “Company” and “Alexander’s” refer to Alexander’s, Inc. and its consolidated subsidiaries, unless the context requires otherwise.
General
Our certificate of incorporation authorizes the issuance of up to 26,000,000 shares of capital stock, consisting of 10,000,000 shares of common stock, $1.00 par value per share (the “common stock”), 3,000,000 shares of preferred stock, $1.00 par value per share (the “preferred stock”) and 13,000,000 shares of excess stock, $1.00 par value per share (the “excess stock”). As of December 31, 2019, 5,173,450 and 5,107,290 shares of common stock were issued and outstanding, respectively. No shares of preferred stock or shares of excess stock are issued and outstanding as of the date of this Annual Report on Form 10-K.
Dividend and Voting Rights of Holders of Common Stock
Holders of our common stock are entitled to receive dividends when, if and as authorized by our board of directors out of assets legally available to pay dividends.
Each common share entitles the holder to one vote on all matters voted on by stockholders, including elections of directors. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding common stock can elect all of the directors then standing for election.
Our certificate of incorporation requires the affirmative vote of two-thirds of the outstanding shares of our stock entitled to vote before we may merge with another corporation.
Holders of common stock do not have any conversion, redemption or preemptive rights to subscribe to any securities of our Company. In the event of our dissolution, liquidation or winding-up, after the payment or provision of our debts and other liabilities and the preferential amounts to which holders of our preferred stock are entitled, if any such preferred stock is outstanding, the holders of the common stock are entitled to share ratably in any assets remaining for distribution to stockholders.
The common stock has equal dividend, distribution, liquidation and other rights, and there are no preference, appraisal or exchange rights applicable thereto. All outstanding shares of common stock are, and any shares of common stock offered, upon issuance, will be, fully paid and nonassessable.
American Stock Transfer & Trust Company, LLC, is the transfer agent for the common stock.
1
Restrictions on Ownership of Common Stock
The Common Stock Beneficial Ownership Limit. Our certificate of incorporation contains a number of provisions that restrict the ownership and transfer of shares and are designed to safeguard us against an inadvertent loss of REIT status. These provisions also seek to deter non-negotiated acquisitions of, and proxy fights for, us by third parties. In order to maintain our qualification as a REIT under the Internal Revenue Code, not more than 50% of the value of our outstanding shares of capital stock may be owned, directly or constructively, by five or fewer individuals at any time during the last half of a taxable year and the shares of capital stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year. The Internal Revenue Code defines “individuals” to include some entities for purposes of the preceding sentence. All references to a holder’s ownership of common stock in this section assumes application of the applicable attribution rules of the Internal Revenue Code under which, for example, a holder is deemed to own shares owned by his or her spouse.
Our certificate of incorporation contains a limitation that restricts stockholders from owning more than 4.9% of the outstanding shares of common stock. In certain circumstances, our board of directors may reduce the common stock beneficial ownership limit to as little as 2%, but only if any person who owns shares in excess of such new limit could continue to do so. Our board of directors has, subject to certain conditions and limitations, exempted our manager, Vornado Realty Trust, and certain of its affiliates from the common stock beneficial ownership limit. As a result, it is less likely as a practical matter that another holder of common stock could obtain an exemption.
Attribution Rules. Investors should be aware that under the applicable attribution rules of the Internal Revenue Code, events other than a purchase or other transfer of common stock can result in ownership of common stock in excess of the common stock beneficial ownership limit. For instance, if two stockholders, each of whom owns 3% of the outstanding common stock, were to marry, then after their marriage both stockholders would be deemed to own 6% of the outstanding shares of common stock, which is in excess of the common stock beneficial ownership limit. Similarly, if a stockholder who owns 4% of the outstanding common stock were to purchase a 50% interest in a corporation which owns 3% of the outstanding common stock, then the stockholder would be deemed to own 5.5% of the outstanding shares of common stock.
The Constructive Ownership Limit. Under the Internal Revenue Code, rental income received by a REIT from persons with respect to which the REIT is treated, under the applicable attribution rules of the Internal Revenue Code, as owning a 10% or greater interest does not constitute qualifying income for purposes of the income requirements that REITs must satisfy. For these purposes, a REIT is treated as owning any stock owned, under the applicable attribution rules of the Internal Revenue Code, by a person that owns 10% or more of the value of the outstanding shares of the REIT. The attribution rules of the Internal Revenue Code applicable for these purposes are different from those applicable with respect to the common stock beneficial ownership limit. All references to a stockholder’s ownership of common stock in this section assume application of the applicable attribution rules of the Internal Revenue Code.
2
In order to ensure that our rental income will not be treated as non-qualifying income under the rule described in the preceding paragraph, and thus to ensure that we will not inadvertently lose our REIT status as a result of the ownership of shares of a tenant, or a person that holds an interest in a tenant, our certificate of incorporation contains an ownership limit that restricts, with certain exceptions, stockholders from owning more than 9.9% of the outstanding shares of any class (the “common stock beneficial ownership limit”).
Stockholders should be aware that events other than a purchase or other transfer of shares can result in ownership, under the applicable attribution rules of the Internal Revenue Code, of shares in excess of the constructive ownership limit. As the attribution rules that apply with respect to the constructive ownership limit differ from those that apply with respect to the common stock beneficial ownership limit, the events other than a purchase or other transfer of shares which can result in share ownership in excess of the constructive ownership limit can differ from those which can result in share ownership in excess of the common stock beneficial ownership limit.
Issuance of Excess Stock if the Ownership Limits Are Violated. Our certificate of incorporation provides that a transfer of shares of common stock that would otherwise result in ownership, under the applicable attribution rules of the Internal Revenue Code, of common stock in excess of the common stock beneficial ownership limit or the constructive ownership limit, or which would cause the shares of capital stock of Alexander’s to be beneficially owned by fewer than 100 persons, would have no effect and the purported transferee would acquire no rights or economic interest in such common stock. In addition, common stock that would otherwise be owned, under the applicable attribution rules of the Internal Revenue Code, in excess of the common stock beneficial ownership limit or the constructive ownership limit will be automatically exchanged for shares of excess stock. These shares of excess stock would be transferred, by operation of law, to us as trustee of a trust for the exclusive benefit of a beneficiary designated by the purported transferee or purported holder. While held in trust, the trustee shall vote the shares of excess stock in the same proportion as the holders of the outstanding shares of common stock have voted. Any dividends or distributions received by the purported transferee or other purported holder of the excess stock before our discovery of the automatic exchange for shares of excess stock must be repaid to us upon demand.
If the purported transferee or purported holder elects to designate a beneficiary of an interest in the trust with respect to the excess stock, he or she may only designate a person whose ownership of the shares will not violate the common stock beneficial ownership limit or the constructive ownership limit. When the designation is made, the excess stock will be automatically exchanged for common stock. Our certificate of incorporation contains provisions designed to ensure that the purported transferee or other purported holder of shares of excess stock may not receive in return for transferring an interest in the trust with respect to the excess stock, an amount that reflects any appreciation in the shares of common stock for which the shares of excess stock were exchanged during the period that the shares of excess stock were outstanding but will bear the burden of any decline in value during that period. Any amount received by a purported transferee or other purported holder for designating a beneficiary in excess of the amount permitted to be received must be turned over to us. Our certificate of incorporation provides that we may purchase any shares of excess stock that have been automatically exchanged for shares of common stock as a result of a purported transfer or other event. The price at which we may purchase the excess stock will be equal to the lesser of:
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• | in the case of shares of excess stock resulting from a purported transfer for value, the price per share in the purported transfer that resulted in the automatic exchange for shares of excess stock or, in the case of excess stock resulting from some other event, the market price of the shares of common stock exchanged on the date of the automatic exchange for excess stock, and |
• | the market price of the shares of common stock exchanged for the excess stock on the date that we accept the deemed offer to sell the excess stock. |
Our purchase right with respect to excess stock will exist for 90 days, beginning on the date that the automatic exchange for shares of excess stock occurred or, if we did not receive a notice concerning the purported transfer that resulted in the automatic exchange for shares of excess stock, the date that our board of directors determines in good faith that an exchange for excess stock has occurred.
Other Provisions Concerning the Restrictions on Ownership. Our board of directors may exempt certain persons from the common stock beneficial ownership limit or the constructive ownership limit if evidence satisfactory to our board of directors is presented showing that such exemption will not jeopardize our status as a REIT under the Internal Revenue Code. Before granting an exemption of this kind, our board of directors may require a ruling from the Internal Revenue Service, an opinion of counsel satisfactory to it and representations and undertakings from the applicant with respect to preserving our REIT status.
Our board of directors has, subject to certain conditions and limitations, exempted our manager, Vornado Realty Trust, and certain of its affiliates from the common stock beneficial ownership limit. As a result, it is less likely as a practical matter that another holder of common stock could obtain an exemption.
The foregoing restrictions on ownership and transfer will not apply if our board of directors determines that it is no longer in our best interests to attempt to qualify, or continue to qualify, as a REIT. Sections 382 and 383 of the Internal Revenue Code impose limitations upon the utilization of a corporation’s net operating loss and credit carryforwards and certain other tax attributes, following significant changes in the corporation’s stock ownership. In order to preserve our ability to use net operating loss carryforwards, if any, to reduce taxable income, our certificate of incorporation also contains additional provisions restricting the ownership of our outstanding shares (the “Section 382 ownership restrictions”). The Section 382 ownership restrictions merely reduce the risk of certain occurrences that could cause such a limitation to arise. It is still possible that, due to transfers (either directly or indirectly) of our outstanding shares, we could become subject to a limitation under Section 382 or 383.
Our certificate of incorporation provides, in general, that, subject to the exceptions described in the next paragraph, no person may acquire shares of our Company, or options or warrants to acquire such shares, if as a result such person (or another person to which such shares were attributed under certain complex attribution rules, which differ in certain respects from those that apply for purposes of the common stock beneficial ownership limit or the constructive ownership limit) would own, directly or under such attribution rules, 5% or more of the class of such outstanding shares (hereinafter, such person’s “ownership interest percentage”). In addition, subject to the exceptions described in the next paragraph, no person whose ownership interest percentage of a class of shares equals or exceeds 5% can acquire or transfer such shares, or options or warrants to acquire such shares. The foregoing restrictions apply independently to each class of our outstanding stock.
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The foregoing restrictions do not apply to (i) acquisitions and transfers of shares of common stock by certain persons and their affiliates whose ownership interest percentage of common stock on September 21, 1993 was 5% or more, (ii) transfers of shares pursuant to an offering by us, to the extent determined by our board of directors, and (iii) other transfers of shares specifically approved by our board of directors.
Transfers of shares, options or warrants in violation of the Section 382 ownership restrictions would be void, and the transferee would acquire no rights in such shares, options or warrants. Thus, a purported acquiror would have no right to vote such shares or to receive dividends. Moreover, upon our demand, a purported acquiror of shares, options or warrants would be required to transfer them to an agent designated by us. The agent, generally, would sell such shares, options or warrants, remit the proceeds thereof to the purported acquiror to the extent of such person’s purchase price for the shares and, to the extent possible, remit the balance of the proceeds to such person’s transferor. A similar procedure would be applied to any dividends paid to, and to the proceeds of any resale of shares, options or warrants by, the purported acquiror.
Our board of directors has the authority to designate a date as of which the Section 382 ownership restrictions will no longer apply.
All certificates representing shares of common stock will bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the applicable attribution rules of the Internal Revenue Code, more than 2% of the shares of outstanding common stock must give a written notice to us containing the information specified in our certificate of incorporation by January 31 of each year. In addition, each stockholder shall upon demand be required to disclose to us such information as we may request, in good faith, in order to determine our status as a REIT or to comply with Treasury Regulations promulgated under the REIT provisions of the Internal Revenue Code.
Important Provisions of Delaware Law and Our Certificate of Incorporation and By-Laws
The following is a summary of important provisions of Delaware law and our certificate of incorporation and by-laws which affect us and our stockholders. The description below is intended as only a summary. You can access complete information by referring to Delaware General Corporation Law and our certificate of incorporation and by-laws.
Business Combinations with Interested Stockholders Under Delaware Law. Section 203 of the Delaware General Corporation Law prevents a publicly held corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:
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• | before the date on which the person became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction in which the person became an interested stockholder, |
• | the interested stockholder owned at least 85% of the outstanding voting stock of the corporation at the beginning of the transaction in which it became an interested stockholder, excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide participants with the rights to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or |
• | after the date on which the interested stockholder became an interested stockholder, the business combination is approved by the board of directors and the holders of two-thirds of the outstanding voting stock of the corporation voting at a meeting, excluding the voting stock owned by the interested stockholder. |
As defined in Section 203, an “interested stockholder” is generally a person owning 15% or more of the outstanding voting stock of the corporation. As defined in Section 203, a “business combination” includes mergers, consolidations, stock and assets sales and other transactions with the interested stockholder.
The provisions of Section 203 may have the effect of delaying, deferring or preventing a change of control of Alexander’s, Inc.
Amendment of Our Certificate of Incorporation and By-Laws. Amendments to our certificate of incorporation must be approved by our board of directors. Unless otherwise required by law, our board of directors may amend our by-laws by a majority vote of the directors then in office.
Meetings of Stockholders. Under our by-laws, we will hold annual meetings of our stockholders at a date and time as determined by our board of directors, chairman, vice chairman or president. Our by-laws require advance notice for our stockholders to make nominations of candidates for our board of directors or bring other business before an annual meeting of our stockholders. The chairman or vice chairman shall call special meetings of our stockholders whenever stockholders owning at least a majority of our issued and outstanding shares entitled to vote on matters to be submitted to stockholders shall request in writing such a meeting.
Board of Directors. Our board of directors is divided into three classes. As the term of each class expires, directors in that class will be elected for a term of three years and until their successors are duly elected and qualified. These staggered terms may reduce the possibility of an attempt to change control of Alexander’s.
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EXHIBIT 10.61
WAIVER AND AMENDMENT NO. 1 TO LOAN AGREEMENT
by and among
731 RETAIL ONE LLC and 731 COMMERCIAL LLC
as Borrower
THE LENDERS PARTY HERETO
as Lenders,
and
JPMORGAN CHASE BANK, N.A.
as Administrative Agent
Date: As of October 10, 2019
WAIVER AND AMENDMENT NO. 1 TO LOAN AGREEMENT
This WAIVER AND AMENDMENT NO. 1 TO LOAN AGREEMENT (this “Amendment”) is entered into as of October 10, 2019 among 731 RETAIL ONE LLC (“731 Retail”), a Delaware limited liability company, and 731 COMMERCIAL LLC (“731 Commercial”), a Delaware limited liability company (731 Retail and 731 Commercial are jointly, severally and collectively, “Borrower”); the Lenders party to the Loan Agreement hereinafter described (individually, a “Lender” and, collectively, the “Lenders”); and JPMORGAN CHASE BANK, N.A., as administrative agent for the Lenders (in such capacity, “Administrative Agent”).
W I T N E S S E T H :
WHEREAS, Borrower, Administrative Agent and the Lenders entered into a certain Loan Agreement, dated as of August 5, 2015 (the “Loan Agreement”) (all capitalized terms used but not defined in this Amendment shall have the meanings ascribed to them in the Loan Agreement, as amended hereby);
WHEREAS, pursuant to and subject to the terms of the Loan Agreement, the Lenders made certain Loans to Borrower secured by, among other things, the Project;
WHEREAS, a DSCR Trigger Event has occurred as a result of the Debt Service Coverage Ratio being less than the Required DSCR as of the two (2) immediately preceding DSCR Calculation Dates, and a Cash Management Period has therefore commenced (such Cash Management Period being herein referred to as the “Existing Cash Management Period”);
WHEREAS, Borrower has requested that the Lenders and Administrative Agent waive the imposition of certain so-called “hard lockbox” procedures set forth in the Loan Agreement upon the commencement of the Existing Cash Management Period; and
WHEREAS, the Lenders and Administrative Agent are willing to agree to Borrower’s request upon and subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements contained herein and ten ($10.00) dollars and other good and valuable consideration, the receipt of which is hereby acknowledged, Borrower, the Lenders and Administrative Agent hereby agree as follows:
1. Incorporation of Recitals. The foregoing Recitals are incorporated herein as if fully set forth herein.
2. Waiver.
(a) The Lenders and Administrative Agent hereby waive, effective as of the commencement of the Existing Cash Management Period, the requirements that, during the Existing Cash Management Period, (i) all available funds on deposit in the Restricted Account be transferred on each Business Day from the Restricted Account to the Cash Management Account in accordance with Section 4.1(5) of the Loan Agreement, (ii) the funds deposited from time to
time into the Cash Management Account be disbursed in accordance with Sections 4.2(5) and 4.2(6) of the Loan Agreement, and (iii) Borrower deposit with Administrative Agent Monthly Insurance Premium Deposits, Monthly Tax Deposits and Monthly Condominium Charges Deposits in accordance with Sections 3.1(8), 9.2(2) and 9.28 of the Loan Agreement, respectively (the “Waiver”).
(b) The Waiver shall terminate upon the occurrence of any Event of Default. In addition, Administrative Agent shall have the right, at its option (exercised by written notice to Borrower and the Lenders), to terminate the Waiver upon the occurrence any Potential Default, including, without limitation, any failure by Borrower to comply with its obligations under Sections 4.4, 8.1 and/or 9.22 of the Loan Agreement (as modified by this Amendment). If the Waiver terminates as provided above, (1) Administrative Agent shall notify Restricted Account Bank that a Cash Management Period is in effect and that all available funds on deposit in the Restricted Account shall thereafter be disbursed on each Business Day to the Cash Management Account and (2) Borrower will commence making (or causing to be made) Monthly Insurance Premium Deposits, Monthly Tax Deposits and Monthly Condominium Charges Deposits in accordance with Sections 3.1(8), 9.2(2) and 9.28 of the Loan Agreement on the Payment Date immediately following such termination (or, if such termination occurred within ten (10) Business Days of such Payment Date, on or prior to such tenth (10th) Business Day).
(c) This Amendment shall not waive or modify any of the terms and provisions of the Loan Agreement except as expressly waived or modified pursuant to this Amendment, including, without limitation, Borrower’s obligations during the Existing Cash Management Period to establish and maintain the Cash Management Account in accordance with Section 4.2 of the Loan Agreement and to provide budgets in accordance with Section 8.4 of the Loan Agreement.
3. Amendments. The Loan Agreement is hereby amended as follows, effective as of the commencement of the Existing Cash Management Period and continuing until the earlier to occur of (i) such time (if any) as the Waiver shall be terminated as provided above or (ii) the expiration of the Existing Cash Management Period (after which time the following amendments shall no longer be in effect):
(a) The following definitions are added to Section 1.1 in the appropriate alphabetical order:
“Actual Operating Revenues” means, with respect to the month in question, all revenues actually received by Borrower during such month from the use, ownership and operation of the Project, as determined on a cash basis.
“Actual Operating Expenses” means, with respect to the month in question, all expenses actually paid by Borrower during such month in connection with the operation, management, maintenance, repair and use of the Project (including, without limitation, leasing costs, capital expenditures and Approved Extraordinary Expenses), as determined on a cash basis.
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“Excess Cash Flow” means, with respect to any month, the amount by which (i) Actual Operating Revenues received during such month shall exceed (ii) the sum of (x) Actual Operating Expenses (including Approved Extraordinary Expenses) paid by Borrower during such month (excluding, however, any amounts released from the Excess Cash Flow Sweep Account with respect to such month in accordance with Section 4.4 hereof) and (y) actual debt service in respect of the Loans for such month.
“Excess Cash Flow Sweep Account” means a “blocked” account established and maintained at JPMCB, which account shall be in the name of Borrower for the benefit of Administrative Agent, on behalf of the Lenders, provided that (i) Borrower shall be the owner of all funds on deposit in such accounts for federal and applicable state and local tax purposes and such account shall be assigned the tax identification number of Borrower and (ii) such account shall be under the sole and exclusive dominion and control of Administrative Agent and, except as may be expressly provided in this Agreement, neither Borrower, Manager nor any other party claiming on behalf of, or through, Borrower or Manager shall have any right to transfer, withdraw, access or otherwise direct the disposition of funds on deposit in such account or have any other right or power with respect to such account.
(b) Section 4.4 is deleted in its entirety and the following new Section 4.4 is inserted in lieu thereof:
Section 4.4 Debt Service Coverage Ratio.
For purposes of this Agreement, a “DSCR Trigger Event” shall occur if the Debt Service Coverage Ratio as of two (2) consecutive DSCR Calculation Dates shall be less than the Required DSCR (it being acknowledged and agreed that a DSCR Trigger Event occurred as of June 30, 2019), and shall continue in effect until such time as (i) the Debt Service Coverage Ratio as of two (2) consecutive DSCR Calculation Dates shall be equal to or greater than the Required DSCR or (ii) when the amount on deposit in the Excess Cash Flow Sweep Account equals or exceeds an amount equal to the DSCR Shortfall (Cash Management Test). Notwithstanding the foregoing, a DSCR Trigger Event shall not be deemed to have occurred if Borrower shall deposit with Administrative Agent, not later than ten (10) days after Administrative Agent shall notify Borrower that a DSCR Trigger Event has occurred cash or a Qualified Letter of Credit in an amount equal to the DSCR Shortfall (Cash Management Test). During the existence of a DSCR Trigger Event, Borrower shall, not later than twelve (12) Business Days after the end of each calendar month, deposit all Excess Cash Flow with respect to such month into the Excess Cash Flow Sweep Account. All amounts deposited into the Excess Cash Flow Sweep Account and all amounts and other collateral otherwise deposited with Administrative Agent pursuant this Section shall be deemed Additional Collateral. All calculations to be made under this Section 4.4 shall be made by Borrower based on the information and documentation delivered to Administrative Agent pursuant to Section 8.1 hereof and shall be subject to Administrative Agent’s review and approval, which review and approval shall be conclusive and binding on Borrower absent manifest error. Any Additional Collateral held by Administrative Agent pursuant to this Section 4.4 at the time of payment in full of the Indebtedness shall be promptly returned to Borrower after the Indebtedness has been paid in full. If any Additional Collateral is provided to Administrative Agent pursuant to this Section 4.4, and thereafter the Debt Service Coverage Ratio shall be equal to or greater than the Required DSCR
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as of two (2) consecutive DSCR Calculation Dates without taking into account the Additional Collateral then held by Administrative Agent pursuant to this Section 4.4, then Administrative Agent shall release such Additional Collateral to Borrower within ten (10) days after Borrower’s written request therefor and Administrative Agent’s confirmation of the satisfaction of Borrower’s compliance with such condition, provided that no Event of Default then exists and except to the extent such Additional Collateral constitutes Restricted Collateral. In addition, Administrative Agent shall release portions of the amounts held in the Excess Cash Flow Sweep Account to pay Actual Operating Expenses provided for in the Approved Annual Budget and Approved Extraordinary Expenses incurred by Borrower in connection with the Project from time to time (but not more frequently than once per month), within ten (10) days after Borrower’s written request therefor and Administrative Agent’s receipt and approval of documentation evidencing the costs and expenses included in such request.
(c) Section 8.1(4) is deleted in its entirety and the following new Section 8.1(4) is inserted in lieu thereof:
(4)Monthly Operating Statements. During a Cash Management Period, no later than twelve (12) Business Days after the end of each calendar month, a certificate executed by a Responsible Person of Borrower, in form and substance reasonably satisfactory to Administrative Agent, (i) setting forth the Actual Operating Revenues and Actual Operating Expenses (including leasing costs, capital expenditures and Approved Extraordinary Expenses) paid by Borrower during such month), as well as the Excess Cash Flow with respect to such month, (ii) comparing such Actual Operating Expenses with the Approved Operating Expenses and Approved Extraordinary Expenses for such month. The certificate executed by the Responsible Person of Borrower shall certify that, to the best of his or her knowledge, the information included in such certificate is true and correct, in all material respects, as of the date of the certificate, and shall be accompanied by such back-up information and documentation as Administrative Agent shall reasonably require.
4. Conditions Precedent. On or prior to the date hereof, Borrower shall perform or satisfy all of the conditions precedent to the agreement of Administrative Agent and the Lenders to the terms and provisions of this Amendment, including, without limitation, the following:
(a) Administrative Agent shall have received (i) this Amendment duly executed by Borrower, Guarantor, Administrative Agent and the Lenders and (ii) an Assignment of Deposit Account substantially in the form attached hereto as Exhibit A duly executed by Borrower and Administrative Agent; and
(b) Borrower shall have paid all reasonable, out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Administrative Agent in connection with this Amendment
5. Defaults; Set Offs; Counterclaims. Borrower acknowledges and agrees that it has no defenses, rights of set off or counterclaims with respect to any of its obligations under the Loan Agreement and the other Loan Documents, as modified by this Amendment, and further
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represents that no Potential Default or Event of Default exists under the Loan Agreement and the other Loan Documents, as modified by this Amendment.
6. Loan Documents Ratified. As modified by this Amendment, the Loan Agreement and the other Loan Documents are hereby ratified and confirmed, and remain in full force and effect in accordance with the terms thereof.
7. Reaffirmation of Representations and Warranties. Borrower represents and warrants that, except as set forth on Schedule I attached hereto, all of the representations and warranties set forth in the Loan Agreement and the other Loan Documents are true and correct in all material respects as of the date hereof, except to the extent such representations and warranties are matters which by their nature can no longer be true and correct as a result of the passage of time or changes in facts or circumstances that were not caused by a breach or default by Borrower under the Loan Agreement or any other Loan Documents.
8. Counterparts. This Amendment may be executed in any number of identical counterparts, each of which for all purposes is to be deemed an original, but all of which shall constitute collectively one agreement. Delivery of an executed counterpart of a signature page of this Amendment by telecopy, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement.
9. Successors and Assigns. The terms and provisions of this Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.
10. Governing Law. This Amendment is and shall be deemed to be a contract entered into pursuant to the internal laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with such laws.
[Document continues on next page]
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IN WITNESS WHEREOF, the parties hereto have executed this Waiver and Amendment No. 1 to Loan Agreement as of the day and year first above written.
ADMINISTRATIVE AGENT: | JPMORGAN CHASE BANK, N.A. |
By: /s/ Natalya M. Robles
Name: Natalya M. Robles
Title: Authorized Signatory
[Signature page for Waiver and
Amendment No. 1 to Loan
Amendment No. 1 to Loan
Agreement continued]
LENDER: | JPMORGAN CHASE BANK, N.A. |
By: /s/ Natalya M. Robles
Name: Natalya M. Robles
Title: Authorized Signatory
[Signature page for Waiver and
Amendment No. 1 to Loan
Amendment No. 1 to Loan
Agreement continued]
LENDER: | WELLS FARGO BANK, N.A. |
By: /s/ Erich Horeis
Name: Erich Horeis
Title: Vice President
[Signature page for Waiver and
Amendment No. 1 to Loan
Amendment No. 1 to Loan
Agreement continued]
LENDER: | LANDESBANK BADEN-WÜRTTEMBERG, NEW YORK Branch |
By: /s/ Lisa Komm Name: Lisa Komm Title: Director By: /s/ Chase Cassidy Name: Chase Cassidy Title: Associate Director | |
[Signature page for Waiver and
Amendment No. 1 to Loan
Amendment No. 1 to Loan
Agreement continued]
LENDER: | THE BANK OF NEW YORK MELLON |
By: /s/ Rick Laudisi Name: Rick Laudisi Title: Managing Director | |
[Signature page for Waiver and
Amendment No. 1 to Loan
Amendment No. 1 to Loan
Agreement continued]
BORROWER: | 731 RETAIL ONE LLC, a Delaware limited liability company, |
By: | 731 Commercial LLC, a Delaware limited liability company its sole member |
By: | 731 Commercial Holding LLC, a Delaware limited liability company, its sole member |
By: | Alexander’s Inc., a Delaware corporation, its sole member |
By: /s/ Alan J. Rice
Name: Alan J. Rice
Title: Secretary
731 COMMERCIAL LLC,
a Delaware limited liability company,
By: | 731 Commercial Holding LLC, a Delaware limited liability company, its sole member |
By: | Alexander’s Inc., a Delaware corporation, its sole member |
By: /s/ Alan J. Rice
Name: Alan J. Rice
Title: Secretary
[Signature page for Waiver and
Amendment No. 1 to Loan
Amendment No. 1 to Loan
Agreement continued]
The undersigned Guarantor is executing this Amendment for the sole purpose of evidencing its consent to the terms hereof.
GUARANTOR: | ALEXANDER’S, INC., a Delaware corporation |
By: /s/ Alan J. Rice Name: Alan J. Rice Title: Secretary | |
EXHIBIT A
Assignment of Deposit Account | |
Dated as of October ___, 2019
731 RETAIL ONE LLC and 731 COMMERCIAL LLC, each a Delaware limited liability company, whose address is c/o Vornado Realty Trust, 210 Route 4 East, Paramus, New Jersey 07652 (collectively, the “Assignor” or the “Borrower”), pledge, assign, transfer and grant a security interest
to JPMORGAN CHASE BANK, N.A., whose address is 237 Park Avenue, 6th Floor, New York, New York 10172, as Administrative Agent for the Lenders under the Loan Agreement (as defined below) (together with its successors and assigns, the “Bank”), in the Account (as defined below) owned by the Assignor, all of the Account in which Assignor has rights or power to transfer rights and all of the Account in which the Assignor later acquires ownership, other rights or the power to transfer rights. “Account” means each and all of Account No. 641000257, any interest, additions and proceeds due or to become due on the Account and any substitutions, which Account is held at JPMorgan Chase Bank, N.A. (together with its successors and assigns, “Financial Institution”) and includes all of the above described deposits, deposit accounts, payment intangibles, financial assets and other obligations of the Financial Institution, whether they are deposit accounts, negotiable or non-negotiable or book entry certificates of deposit, book entry investment time deposits, savings accounts, money market accounts, transaction accounts, time deposits, negotiable order of withdrawal accounts, share draft accounts, demand deposit accounts, instruments, general intangibles, chattel paper or otherwise, and all funds held in or represented by any of the foregoing, and any successor Account howsoever numbered, and all Accounts issued in renewal, extension or increase or decrease of or replacement or substitution for any of the foregoing; and all promissory notes, checks, cash, certificates of deposit, passbooks, deposit receipts, instruments, certificates and other records from time to time representing or evidencing the Account described above and any supporting obligations relating to any of the foregoing property.
This Assignment secures the payment and performance of the Liabilities (as hereinafter defined).
Control Agreement with Financial Institution and Power of Attorney. The Bank’s presentation of a copy of this Assignment to the financial institution holding or issuer of the Account, including Financial Institution, is the Assignor’s authentication of an irrevocable instruction to that financial institution or issuer now or hereafter maintaining the Account to follow the Bank’s instructions with respect to any of the Account without the Assignor’s further consent concerning (1) the payment or reinvestment of cash dividends, dividends or distributions and (2) the redemption, transfer, sale or any other disposition or transaction concerning the Account or the income and principal proceeds, substitutions and reinvestment of Account and (3) any other matter relating to the Account. The Bank is given an irrevocable power of attorney coupled with an interest that survives death or disability of the Assignor to execute any control agreement in the Assignor’s name with the Financial Institution or other institution or issuer in form and substance satisfactory to the Bank and to perform any obligation of the Assignor under this Assignment. The Assignor also irrevocably authorizes and directs each financial institution or issuer including the Financial Institution to send all notices, statements and all other communications concerning the Account to the Bank upon request of the Bank. The Bank is authorized at any time to restyle the Account or any portion thereof in its name or its nominee’s name. Each financial institution and issuer, including Financial Institution, is directed to follow all of the Bank’s instructions without investigating the reason for any action taken by the Bank or the existence of any default and may rely on the instructions of the Bank without any liability to the Assignor. The rights and powers granted to the Bank in this Assignment are powers coupled with an interest and will neither be affected by the death, dissolution, termination of existence or bankruptcy of the undersigned nor by the lapse of time.
Liabilities. The term “Liabilities” in this Assignment means the Indebtedness (as defined in the Loan Agreement). The term “Loan Agreement” in this Assignment means that certain Loan Agreement among
the Assignor, the Bank and the Lenders party thereto dated as of August 5, 2015, as amended from time to time.
Representations, Warranties and Covenants. The Assignor represents, warrants and covenants that it will not withdraw any moneys from the Account and that it has not and will not assign the Account or any part of it. The passbook, certificate or other evidence of the Account has been delivered to the Bank. If at any time any part of the Account includes an International Banking Facility Time Deposit (as defined in Regulation D of the Board of Governors of the Federal Reserve System), any extensions of credit made by the Bank in reliance on this Assignment and that part of the Account shall be used only to support the undersigned’s non-U.S. activities and that of its foreign affiliates. If any person or entity other than the Assignor acquires a present right of withdrawal as to any or all of the Account, whether by contract, operation of law or otherwise, the Assignor will immediately notify (a) that person or entity of the Bank’s security interest, lien and assignment in the Account and (b) the Bank of that person’s or entity’s acquisition of a right of withdrawal and of the Assignor’s notification to that person or entity of the Bank’s interest.
Default/Remedies. If an Event of Default (as such term is defined in the Loan Agreement) has occurred and is continuing, then the Bank shall have the right immediately, without notice, at the Bank’s option, to withdraw (even if an early withdrawal penalty is imposed as a result) all or any portion of the Account and apply those moneys to the Liabilities whether or not the Liabilities have been declared to be due and owing, provided that, to the extent any Liabilities consist of extensions of credit to the Borrower by the issuance of letters of credit or other like obligations of the Bank to third parties which have not then been utilized, such proceeds shall be held by the Bank in a cash collateral account as security for the Liabilities.
Preferential Payments. The Assignor agrees that to the extent any payment or transfer is received by the Bank in connection with the Liabilities, and all or any part of such payment or transfer is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be transferred or repaid by the Bank or transferred to or paid over to a trustee, receiver or any other person or entity, whether under any bankruptcy act or otherwise (any such payment or transfer is hereinafter referred to as a “Preferential Payment”), then this Assignment shall continue to be effective or shall be reinstated, as the case may be, and whether or not the Bank is in possession of this Assignment or whether this Assignment has been marked paid, cancelled, released or returned to the Assignor, and, to the extent of the payment or repayment or other transfer by the Bank, the Liabilities or part intended to be satisfied by the Preferential Payment shall be revived and continued in full force and effect as if the Preferential Payment had not been made. If this Assignment must be reinstated, the Assignor agrees to execute and deliver to the Bank any new assignments and agreements, if necessary or if requested by the Bank, in form and substance acceptable to the Bank, covering the Account.
Miscellaneous. The Assignor consents to any extension, postponement or renewal of any Liabilities, the release or discharge of all or any part of any security for the Liabilities, and the release or discharge or suspension of any rights and remedies against any person who may be liable for any of the Liabilities. The Bank does not have to look to any other right, any other collateral, or any other person for payment before it exercises its rights under this Assignment. The Assignor’s obligations to the Bank under this Assignment are not subject to any condition, precedent or subsequent. If more than one person or entity signs this Assignment as Assignor, their obligations, covenants, representations and warranties are joint and several and the Account includes any property that is owned by any one or more, individually or jointly with any other person or entity. This Assignment is binding on the Assignor and its heirs, successors and assigns, and is for the benefit of the Bank and its successors and assigns. The use of section headings shall not limit the provisions of this Assignment. The Assignor authorizes the Bank to take whatever actions, and to execute any agreement, document or instrument, which the Bank deems necessary or desirable to accomplish the purposes of this Assignment. A carbon, photographic or other reproduction of this Assignment is sufficient as, and can be filed as, a financing statement. The Assignor authorizes the Bank to file one or more financing statements related to the security interests created by this Assignment and further authorizes the Bank, instead of the Assignor, to sign such financing statements (to the extent that a signature is required thereto).
2
Assignment in Addition to Other Assignments. This Assignment is in addition to and not in substitution or replacement of any other assignment executed by the Assignor in favor of the Bank, and the Bank’s rights under this Assignment and any such other assignment are cumulative.
Governing Law and Venue. This Assignment shall be governed by and construed in accordance with the laws of the State of New York (without giving effect to its laws of conflicts), and to the extent applicable, federal law, except to the extent that the laws regarding the perfection and priority of security interests of the state(s) in which either the Assignor or any property securing the Liabilities is located, are applicable. The Assignor agrees that any legal action or proceeding with respect to any of its obligations under this Assignment may be brought by the Bank in any state or federal court located in the State of New York, as the Bank in its sole discretion may elect. By the execution and delivery of this Assignment, the Assignor submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Assignor waives any claim that the State of New York is not a convenient forum or the proper venue for any such suit, action or proceeding.
WAIVER OF SPECIAL DAMAGES. THE ASSIGNOR WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
JURY WAIVER. THE ASSIGNOR AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN THE ASSIGNOR AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN.
This Assignment may be executed in any number of identical counterparts, each of which for all purposes is to be deemed an original, but all of which shall constitute collectively one assignment. Delivery of an executed counterpart of a signature page of this Assignment by telecopy, emailed pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Assignment.
Assignor:
731 RETAIL ONE LLC,
a Delaware limited liability company,
By: | 731 Commercial LLC, a Delaware limited liability company its sole member |
By: | 731 Commercial Holding LLC, a Delaware limited liability company, its sole member |
By: | Alexander’s Inc., a Delaware corporation, its sole member |
By: _________________________
Name:
Title:
3
731 COMMERCIAL LLC,
a Delaware limited liability company,
By: | 731 Commercial LLC, a Delaware limited liability company its sole member |
By: | 731 Commercial Holding LLC, a Delaware limited liability company, its sole member |
By: | Alexander’s Inc., a Delaware corporation, its sole member |
By: _________________________
Name:
Title:
The Bank acknowledges that the Account has been assigned to the Bank and is subject to a lien, security interest, pledge and assignment in the Bank’s favor and that the Bank has control of the Account and has recorded the Bank’s interest in the Account in the books and records of JPMorgan Chase Bank, N.A. and the Bank will follow the Bank’s instructions without the Assignor’s further consent.
Bank: |
JPMORGAN CHASE BANK, N.A., as Administrative Agent By:__________________________ Name: Title: |
4
SCHEDULE I
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
[None]
EXHIBIT 21
ALEXANDER’S, INC.
SUBSIDIARIES OF REGISTRANT
Name of Subsidiary | State of Organization | |
731 Commercial Holding LLC | Delaware | |
731 Commercial LLC | Delaware | |
731 Office One Holding LLC | Delaware | |
731 Office One LLC | Delaware | |
731 Office Two Holding LLC | Delaware | |
731 Office Two LLC | Delaware | |
731 Restaurant, LLC | Delaware | |
731 Retail One, LLC | Delaware | |
Alexander’s Construction LLC | Delaware | |
Alexander’s Kings Plaza, LLC | Delaware | |
Alexander’s Management LLC | Delaware | |
Alexander’s of Brooklyn, Inc. | Delaware | |
Alexander’s of Flushing, Inc. | Delaware | |
Alexander’s of Rego Park II, Inc. | Delaware | |
Alexander’s of Rego Park III, Inc. | Delaware | |
Alexander’s Rego Shopping Center Inc. | Delaware | |
Alexander's of Rego Park II Participating Lender LLC | Delaware | |
Alexander's of Rego Residential LLC | Delaware | |
ALX of Paramus LLC | Delaware | |
Fifty Ninth Street Insurance Company LLC | Vermont | |
Kings Parking, LLC | Delaware | |
Kings Plaza TEP LLC | Delaware | |
Rego II Borrower LLC | Delaware | |
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-224054 on Form S-3 and Registration Statement No. 333-212838 on Form S-8 of our reports dated February 18, 2020, relating to the financial statements and financial statement schedules of Alexander’s, Inc., and the effectiveness of Alexander’s, Inc.'s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Alexander’s, Inc. for the year ended December 31, 2019.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
February 18, 2020
EXHIBIT 31.1
CERTIFICATION
I, Steven Roth, certify that:
1. | I have reviewed this Annual Report on Form 10‑K of Alexander’s, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
February 18, 2020 | |
/s/ Steven Roth | |
Steven Roth | |
Chairman of the Board and | |
Chief Executive Officer | |
EXHIBIT 31.2
CERTIFICATION
I, Matthew Iocco, certify that:
1. | I have reviewed this Annual Report on Form 10‑K of Alexander’s, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
February 18, 2020 | |
/s/ Matthew Iocco | |
Matthew Iocco | |
Chief Financial Officer | |
EXHIBIT 32.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of Alexander’s, Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that:
The Annual Report on Form 10-K for year ended December 31, 2019 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 18, 2020 | /s/ Steven Roth | |||
Name: | Steven Roth | |||
Title: | Chairman of the Board and | |||
Chief Executive Officer | ||||
EXHIBIT 32.2
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of Alexander’s, Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that:
The Annual Report on Form 10-K for year ended December 31, 2019 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 18, 2020 | /s/ Matthew Iocco | |||
Name: | Matthew Iocco | |||
Title: | Chief Financial Officer | |||