UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) |
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For the quarterly period ended: |
June 30, 2011 |
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Or
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) |
For the transition period from: |
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to |
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Commission File Number: |
001-6064 |
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ALEXANDER’S, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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51-0100517 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
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210 Route 4 East, Paramus, New Jersey |
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07652 |
(Address of principal executive offices) |
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(Zip Code) |
(201) 587-8541
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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. x Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
o Large Accelerated Filer |
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x Accelerated Filer |
o Non-Accelerated Filer (Do not check if smaller reporting company) |
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o Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of June 30, 2011, there were 5,105,936 shares of common stock, par value $1 per share, outstanding.
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ALEXANDER’S, INC. |
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INDEX |
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Page Number |
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PART I. |
Financial Information |
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Item 1. |
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Financial Statements: |
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Consolidated Balance Sheets (Unaudited) as of |
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June 30, 2011 and December 31, 2010 |
3 |
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Consolidated Statements of Income (Unaudited) for the |
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Three and Six Months Ended June 30, 2011 and 2010 |
4 |
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Consolidated Statements of Changes in Equity (Unaudited) for the |
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Six Months Ended June 30, 2011 and 2010 |
5 |
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Consolidated Statements of Cash Flows (Unaudited) for the |
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Six Months Ended June 30, 2011 and 2010 |
6 |
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Notes to Consolidated Financial Statements (Unaudited) |
7 |
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Report of Independent Registered Public Accounting Firm |
13 |
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Item 2. |
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Management’s Discussion and Analysis of |
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Financial Condition and Results of Operations |
14 |
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Item 3. |
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Quantitative and Qualitative Disclosures about Market Risk |
22 |
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Item 4. |
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Controls and Procedures |
22 |
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PART II. |
Other Information |
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Item 1. |
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Legal Proceedings |
23 |
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Item 1A. |
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Risk Factors |
23 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
23 |
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Item 3. |
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Defaults Upon Senior Securities |
23 |
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Item 5. |
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Other Information |
23 |
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Item 6. |
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Exhibits |
23 |
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Signatures |
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24 |
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Exhibit Index |
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25 |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALEXANDER’S, INC. AND SUBSIDIARIES |
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CONSOLIDATED BALANCE SHEETS |
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(UNAUDITED) |
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(Amounts in thousands, except share and per share amounts) |
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June 30, |
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December 31, |
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ASSETS |
2011 |
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2010 |
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Real estate, at cost: |
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Land |
$ |
74,974 |
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$ |
74,974 |
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Buildings and leasehold improvements |
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978,842 |
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934,782 |
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Development and construction in progress |
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1,367 |
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40,535 |
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Total |
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1,055,183 |
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1,050,291 |
Accumulated depreciation and amortization |
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(170,877) |
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(157,232) |
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Real estate, net |
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884,306 |
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893,059 |
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Cash and cash equivalents |
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490,950 |
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397,220 |
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Short-term investments |
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- |
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23,000 |
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Restricted cash |
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88,150 |
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85,567 |
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Accounts receivable, net of allowance for doubtful accounts of $1,070 and $1,047, respectively |
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2,789 |
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4,224 |
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Receivable arising from the straight-lining of rents |
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182,762 |
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175,680 |
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Deferred lease and other property costs, net (including unamortized leasing fees to Vornado of |
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$50,169 and $48,949, respectively) |
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68,666 |
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68,835 |
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Deferred debt issuance costs, net of accumulated amortization of $13,788, and $18,855, respectively |
11,159 |
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8,167 |
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Other assets |
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43,193 |
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23,548 |
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$ |
1,771,975 |
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$ |
1,679,300 |
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LIABILITIES AND EQUITY |
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Notes and mortgages payable |
$ |
1,339,321 |
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$ |
1,246,411 |
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Amounts due to Vornado |
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43,316 |
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43,785 |
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Accounts payable and accrued expenses |
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34,754 |
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41,610 |
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Liability for income taxes and other |
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3,737 |
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3,718 |
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Total liabilities |
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1,421,128 |
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1,335,524 |
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Commitments and contingencies |
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Preferred stock: $1.00 par value per share; authorized, 3,000,000 shares; |
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issued and outstanding, none |
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- |
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- |
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Common stock: $1.00 par value per share; authorized, 10,000,000 shares; |
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issued, 5,173,450 shares; outstanding, 5,105,936 shares |
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5,173 |
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5,173 |
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Additional capital |
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31,801 |
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31,501 |
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Retained earnings |
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311,783 |
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304,055 |
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348,757 |
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340,729 |
Treasury stock: 67,514 shares, at cost |
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(375) |
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(375) |
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Total Alexander’s equity |
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348,382 |
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340,354 |
Noncontrolling interest in consolidated subsidiary |
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2,465 |
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3,422 |
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Total equity |
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350,847 |
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343,776 |
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$ |
1,771,975 |
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$ |
1,679,300 |
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See notes to consolidated financial statements (unaudited). |
3
ALEXANDER’S, INC. AND SUBSIDIARIES | ||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||
(UNAUDITED) | ||||||||||||||
(Amounts in thousands, except share and per share amounts) | ||||||||||||||
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Three Months Ended |
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Six Months Ended | ||||||||
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June 30, |
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June 30, | ||||||||
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2011 |
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2010 |
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2011 |
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2010 | ||||
REVENUES |
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Property rentals |
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$ |
43,424 |
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$ |
40,790 |
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$ |
86,889 |
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$ |
81,005 | |
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Expense reimbursements |
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18,612 |
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18,376 |
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38,019 |
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36,705 | |
Total revenues |
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62,036 |
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59,166 |
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124,908 |
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117,710 | ||
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EXPENSES |
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Operating (including fees to Vornado of $1,217, $1,266 |
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$2,553 and $2,508, respectively) |
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19,951 |
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18,817 |
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41,138 |
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37,873 |
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Depreciation and amortization |
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8,577 |
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7,801 |
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16,811 |
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15,248 | |
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General and administrative (including |
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management fees to Vornado of $540 and |
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$1,080 in each three and six-month period) |
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700 |
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1,313 |
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1,799 |
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2,437 |
Total expenses |
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29,228 |
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27,931 |
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59,748 |
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55,558 | ||
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OPERATING INCOME |
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32,808 |
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31,235 |
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65,160 |
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62,152 | ||
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Interest and other income, net |
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1,715 |
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204 |
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1,820 |
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|
487 | |
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Interest and debt expense |
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(14,319) |
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(15,131) |
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(29,124) |
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(29,877) | |
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Net loss on early extinguishment of debt |
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- |
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- |
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- |
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(1,238) | |
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Income before income taxes |
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20,204 |
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16,308 |
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37,856 |
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31,524 | |
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Income tax (expense) benefit |
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(9) |
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(159) |
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151 |
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(259) | |
Net income |
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20,195 |
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16,149 |
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38,007 |
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31,265 | ||
Net (income) loss attributable to the noncontrolling interest |
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(38) |
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(600) |
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357 |
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(602) | ||
Net income attributable to Alexander’s |
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$ |
20,157 |
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$ |
15,549 |
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$ |
38,364 |
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$ |
30,663 | ||
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Net income per common share – basic and diluted |
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$ |
3.95 |
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$ |
3.05 |
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$ |
7.51 |
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$ |
6.01 | ||
Weighted average shares |
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5,106,351 |
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5,105,936 |
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5,106,144 |
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5,105,936 | ||
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Dividends per common share |
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$ |
3.00 |
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$ |
2.50 |
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$ |
6.00 |
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$ |
2.50 | ||
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See notes to consolidated financial statements (unaudited). |
4
ALEXANDER’S, INC. AND SUBSIDIARIES | |||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||
(UNAUDITED) | |||||||||||||||
(Amounts in thousands) | |||||||||||||||
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Non- |
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Common Stock |
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Additional |
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Retained |
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Treasury |
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Alexander’s |
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controlling |
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Total | ||
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Shares |
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Amount |
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Capital |
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Earnings |
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Stock |
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Equity |
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Interest |
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Equity |
Balance, December 31, 2009 |
5,173 |
$ |
5,173 |
$ |
31,501 |
$ |
275,921 |
$ |
(375) |
$ |
312,220 |
$ |
2,406 |
$ |
314,626 |
Net income |
- |
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- |
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- |
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30,663 |
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- |
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30,663 |
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602 |
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31,265 |
Dividends paid |
- |
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- |
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- |
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(12,765) |
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- |
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(12,765) |
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- |
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(12,765) |
Balance, June 30, 2010 |
5,173 |
$ |
5,173 |
$ |
31,501 |
$ |
293,819 |
$ |
(375) |
$ |
330,118 |
$ |
3,008 |
$ |
333,126 |
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Balance, December 31, 2010 |
5,173 |
$ |
5,173 |
$ |
31,501 |
$ |
304,055 |
$ |
(375) |
$ |
340,354 |
$ |
3,422 |
$ |
343,776 |
Net income (loss) |
- |
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- |
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- |
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38,364 |
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- |
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38,364 |
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(357) |
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38,007 |
Dividends paid |
- |
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- |
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- |
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(30,636) |
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- |
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(30,636) |
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- |
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(30,636) |
Distributions |
- |
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- |
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- |
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- |
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- |
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- |
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(600) |
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(600) |
Deferred stock unit grant |
- |
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- |
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300 |
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- |
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- |
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300 |
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- |
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300 |
Balance, June 30, 2011 |
5,173 |
$ |
5,173 |
$ |
31,801 |
$ |
311,783 |
$ |
(375) |
$ |
348,382 |
$ |
2,465 |
$ |
350,847 |
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See notes to consolidated financial statements (unaudited). |
5
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ALEXANDER’S, INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(UNAUDITED) |
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(Amounts in thousands) |
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Six Months Ended |
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June 30, |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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2011 |
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2010 |
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Net income |
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$ |
38,007 |
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$ |
31,265 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization (including amortization of debt issuance costs) |
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18,254 |
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16,982 |
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Straight-lining of rental income |
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(7,082) |
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(7,931) |
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Stock-based compensation expense |
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300 |
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- |
Change in operating assets and liabilities: |
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Accounts receivable, net |
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1,435 |
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294 |
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Other assets |
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(22,642) |
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6,827 |
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Amounts due to Vornado |
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(469) |
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47 |
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Accounts payable and accrued expenses |
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(3,709) |
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(7,247) |
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Income tax liability of taxable REIT subsidiary |
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34 |
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350 |
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Other liabilities |
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(15) |
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(48) |
Net cash provided by operating activities |
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24,113 |
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40,539 |
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CASH FLOW FROM INVESTING ACTIVITIES |
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Proceeds from maturing short-term investments |
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23,000 |
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40,000 |
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Construction in progress and real estate additions |
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(8,039) |
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(23,715) |
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Restricted cash |
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(2,583) |
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|
5,750 |
Net cash provided by investing activities |
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12,378 |
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22,035 |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from borrowings |
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250,000 |
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16,204 |
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Debt repayments |
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(157,090) |
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(35,348) |
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Dividends paid |
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(30,636) |
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(12,765) |
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Debt issuance costs |
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(4,435) |
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- |
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Distributions to noncontrolling interests |
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(600) |
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|
- |
Net cash provided by (used in) financing activities |
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57,239 |
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(31,909) |
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Net increase in cash and cash equivalents |
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|
93,730 |
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|
30,665 |
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Cash and cash equivalents at beginning of period |
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|
397,220 |
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412,734 |
|
Cash and cash equivalents at end of period |
|
$ |
490,950 |
|
$ |
443,399 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
Cash payments for interest (of which $956 was capitalized in 2010) |
|
$ |
28,516 |
|
$ |
26,994 |
|
Cash payments for income taxes |
|
$ |
- |
|
$ |
43 |
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS |
|
|
|
|
|
|
|
|
Non-cash additions to real estate included in accounts payable and accrued expenses |
|
$ |
2,391 |
|
$ |
- |
|
Write-off of fully amortized and depreciated assets |
|
$ |
6,510 |
|
$ |
674 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements (unaudited). |
6
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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).
2. Basis of Presentation
The accompanying consolidated financial statements are unaudited and include the accounts of Alexander’s and its consolidated subsidiaries. All intercompany amounts have been eliminated. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC. We have made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the operating results for the full year.
We currently operate in one business segment.
3. Relationship with Vornado
At June 30, 2011, 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.
Management and Development Agreements
We pay Vornado an annual management fee equal to the sum of (i) $3,000,000, (ii) 3% of gross income from the Kings Plaza Regional Shopping Center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue and (iv) $256,000, escalating at 3% per annum, for managing the common area of 731 Lexington Avenue.
In addition, Vornado is entitled to a development fee of 6% of development costs, as defined, with minimum guaranteed fees of $750,000 per annum.
Leasing 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. The total of these amounts is payable in annual installments in an amount not to exceed $4,000,000, with interest on the unpaid balance at one-year LIBOR plus 1.0% (1.78% at June 30, 2011).
7
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. Relationship with Vornado – continued
Other Agreements
We have also entered into agreements with Building Maintenance Services, a wholly owned subsidiary of Vornado, to supervise cleaning, engineering and security services at our Lexington Avenue and Kings Plaza properties for an annual fee of the cost for such services plus 6%.
The following is a summary of fees to Vornado under the agreements discussed above.
|
|
Three Months Ended |
|
Six Months Ended | |||||||||
|
|
|
June 30, |
|
June 30, | ||||||||
(Amounts in thousands) |
|
2011 |
|
2010 |
|
2011 |
|
2010 | |||||
Company management fees |
|
$ |
750 |
|
$ |
750 |
|
$ |
1,500 |
|
$ |
1,500 | |
Development fees |
|
|
188 |
|
|
189 |
|
|
376 |
|
|
1,044 | |
Leasing fees |
|
|
1,765 |
|
|
1,338 |
|
|
3,280 |
|
|
2,671 | |
Property management fees and payments for cleaning, engineering |
|
|
|
|
|
|
|
|
|
|
|
| |
|
and security services |
|
|
1,007 |
|
|
1,056 |
|
|
2,133 |
|
|
2,088 |
|
|
|
$ |
3,710 |
|
$ |
3,333 |
|
$ |
7,289 |
|
$ |
7,303 |
At June 30, 2011, we owed Vornado $41,885,000 for leasing fees, and $1,431,000 for management, property management and cleaning fees.
4. Notes and Mortgages Payable
The following is a summary of our outstanding notes and mortgages payable. We may refinance our maturing debt as it comes due or choose to repay it at maturity.
|
|
|
|
|
|
|
|
Balance at |
| ||||
|
|
|
|
Interest Rate at June 30, 2011 |
|
|
June 30, 2011 |
|
December 31, 2010 |
| |||
(Amounts in thousands) |
Maturity |
|
|
|
|
| |||||||
First mortgage, secured by the Paramus property |
Oct. 2011 |
|
5.92 |
% |
|
|
$ |
68,000 |
|
$ |
68,000 |
| |
Construction loan, secured by the |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Rego Park II Shopping Center(1) |
Dec. 2011 |
|
1.50 |
% |
|
|
|
277,200 |
|
|
277,200 |
|
First mortgage, secured by the Rego Park I |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Shopping Center (100% cash collateralized) |
Mar. 2012 |
|
0.75 |
% |
|
|
|
78,246 |
|
|
78,246 |
|
First mortgage, secured by the office space |
|
|
|
|
|
|
|
|
|
|
|
| |
|
at the Lexington Avenue property |
Feb. 2014 |
|
5.33 |
% |
|
|
|
345,875 |
|
|
351,751 |
|
First mortgage, secured by the retail space |
|
|
|
|
|
|
|
|
|
|
|
| |
|
at the Lexington Avenue property(2) |
Jul. 2015 |
|
4.93 |
% |
|
|
|
320,000 |
|
|
320,000 |
|
First mortgage, secured by the Kings Plaza |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Regional Shopping Center(3) |
Jun. 2016 |
|
1.95 |
% |
|
|
|
250,000 |
|
|
151,214 |
|
|
|
|
|
|
|
|
|
$ |
1,339,321 |
|
$ |
1,246,411 |
|
___________________ |
|
|
|
|
|
|
|
|
|
|
|
| |
(1) |
This loan bears interest at LIBOR plus 1.20%. |
| |||||||||||
(2) |
In the event of a substantial casualty, as defined, up to $75,000 of this loan may become recourse to us. |
| |||||||||||
(3) |
On June 10, 2011, we completed a $250,000 refinancing of this property. The five-year interest-only loan is at LIBOR plus 1.70%. We retained net proceeds of approximately $95,000 after repaying the existing loan and costs. |
| |||||||||||
|
8
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. Liability for Income Taxes
In accordance with the provisions of Accounting Standards Codification 740, Income Taxes (“ASC 740”), we have an income tax liability of $3,075,000 and $3,041,000 as of June 30, 2011 and December 31, 2010, respectively. This ASC 740 liability, which includes $2,549,000 and $2,466,000 of accrued interest as of June 30, 2011 and December 31, 2010, respectively, is included as a component of “liability for income taxes and other,” on our consolidated balance sheets. If this liability were reversed, it would result in non-cash income and reduce our effective tax rate. Of this liability, $2,523,000 is expected to reverse in the third quarter of 2011 as a result of the expiration of the applicable statute of limitations. Interest expense related to the ASC 740 liability is included as a component of “interest and debt expense” on our consolidated statements of income. We recognized interest of $45,000 and $111,000 in the three months ended June 30, 2011 and 2010, respectively, and $83,000 and $223,000 in the six months ended June 30, 2011 and 2010, respectively.
As of June 30, 2011, Taxable REIT Subsidiary tax returns for the years 2004 through 2010 and REIT tax returns for the years 2007 through 2010 remain open to examination by the major taxing jurisdictions to which we are subject.
6. Fair Value
ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value. The objective of fair value is to determine the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). 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 recorded at fair value in our consolidated financial statements at December 31, 2010 consist solely of short-term investments (CDARS classified as available-for-sale) and are presented in the table below based on their level in the fair value hierarchy. There were no financial assets recorded at fair value at June 30, 2011 and no financial liabilities recorded at fair value at June 30, 2011 and December 31, 2010.
|
|
As of December 31, 2010 |
||||||||||
(Amounts in thousands) |
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|||||
|
Short-term investments |
$ |
23,000 |
|
$ |
23,000 |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Interest and Other Income, net
In the second quarter of 2011, we recognized $1,657,000 of income from the collection of prior period tenant utility costs.
8. Net Loss on Early Extinguishment of Debt
In the first quarter of 2010, we acquired through the open market, $27,500,000 of our Kings Plaza debt for $28,738,000 in cash, which resulted in a net loss of $1,238,000.
9
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. Our Omnibus Stock Plan (the “Plan”) provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights and performance shares, as defined, to the directors, officers and employees of the Company and Vornado.
On May 26, 2011, the Company granted each of the members of its Board of Directors, 131 Deferred Stock Units (“DSUs”). The DSUs entitle the holder to receive shares of the Company’s common stock without the payment of any consideration. The DSUs vested immediately but the shares of common stock underlying the units are not deliverable to the grantee until the grantee is no longer serving on the Company’s Board of Directors. In connection with this grant, we expensed $300,000, representing the fair value of these awards on the date of grant. This expense is included as a component of “general and administrative” expense on our consolidated statements of income for the three and six months ended June 30, 2011.
10. Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods and earthquakes on each of our properties.
In June 2011, we formed Fifty Ninth Street Insurance Company, LLC (“FNSIC”), a wholly owned consolidated subsidiary, to act as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”). Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $275,000 deductible and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by FNSIC.
There can be no assurance that we will be able to maintain similar levels of insurance coverage in the future in amounts and on terms that are commercially reasonable. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.
Our mortgage loans are non-recourse to us, except for $75,000,000 of the $320,000,000 mortgage on our 731 Lexington Avenue property, in the event of a substantial casualty, as defined. Our mortgage loans contain customary covenants requiring us to maintain insurance. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.
Environmental Remediation
In July 2006, we discovered an oil spill at our Kings Plaza Regional Shopping Center. We have notified the New York State Department of Environmental Conservation (“NYSDEC”) about the spill and have developed a remediation plan. The NYSDEC has approved a portion of the remediation plan and clean up is ongoing. The estimated costs associated with the clean up will aggregate approximately $2,500,000. We have paid $500,000 of such amount and the remainder is covered under our insurance policy.
10
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. Commitments and Contingencies - continued
Paramus
In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a 40-year term with a purchase option in 2021 for $75,000,000. We have a $68,000,000 interest only, non-recourse mortgage loan on the property from a third party lender. The fixed interest rate on the debt is 5.92% with interest payable monthly until maturity in October 2011. The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $62,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years must include the debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.
Flushing Property
In the fourth quarter of 2003, we recognized $1,289,000 of income representing a non-refundable deposit of $1,875,000, net of $586,000 of costs associated with the transaction, from a party that had agreed to purchase this property, as such party had not met its obligations under a May 30, 2002 purchase contract. On September 10, 2002, November 7, 2002, and July 8, 2004, we received letters from the party demanding return of the deposit. On December 28, 2005, the party filed a complaint against us in the New York State Court alleging that we failed to honor the terms and conditions of the agreement. The complaint sought specific performance and, if specific performance was denied, it sought a return of the deposit plus interest and $50,000 in costs. In August 2010, the New York State Court entered judgment denying specific performance and ordered us to return the deposit together with accrued interest and fees. On August 12, 2010, we filed a notice of appeal and the judgment was stayed pending the appeal. In June 2011, we settled with the party for $2,400,000, and reversed $807,000 of the $3,207,000 litigation loss accrual. This reversal is included as a reduction of “general and administrative” expenses on our consolidated statements of income for the three and six months ended June 30, 2011.
Letters of Credit
Approximately $7,998,000 of standby letters of credit were issued and outstanding as of June 30, 2011.
Other
There are various other legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial condition, results of operations or cash flows.
11. Significant Tenants
Bloomberg L.P. (“Bloomberg”) accounted for $41,504,000 and $41,169,000, or 33% and 35% of our consolidated revenues in the six months ended June 30, 2011 and 2010, respectively. No other tenant accounted for more than 10% of our consolidated revenues. If we were to lose Bloomberg as a tenant, or if Bloomberg were to fail or become unable to perform its obligations under its lease, it would adversely affect our results of operations and financial condition. We receive and evaluate certain confidential financial information and metrics from Bloomberg on a semi-annual basis. In addition, we access and evaluate financial information regarding Bloomberg from private sources, as well as publicly available data.
11
ALEXANDER’S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. 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 earnings per share. Basic income per share is determined using the weighted average shares of common stock outstanding during the period, including deferred stock units. Diluted income per share is determined using the weighted average shares of common stock outstanding during the period, including deferred stock units, 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 three and six months ended June 30, 2011 and 2010.
|
|
|
|
|
Three Months Ended |
|
Six Months Ended | ||||||||
|
|
|
|
|
June 30, |
|
June 30, | ||||||||
(Amounts in thousands, except share and per share amounts) |
|
2011 |
|
2010 |
|
2011 |
|
2010 | |||||||
|
Net income attributable to common |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
stockholders – basic and diluted |
|
$ |
20,157 |
|
$ |
15,549 |
|
$ |
38,364 |
|
$ |
30,663 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic and diluted |
|
|
5,106,351 |
|
|
5,105,936 |
|
|
5,106,144 |
|
|
5,105,936 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share – basic and diluted |
|
$ |
3.95 |
|
$ |
3.05 |
|
$ |
7.51 |
|
$ |
6.01 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Alexander’s, Inc.
Paramus, New Jersey
We have reviewed the accompanying consolidated balance sheet of Alexander’s, Inc. and subsidiaries (the “Company”) as of June 30, 2011, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2011 and 2010, and consolidated statements of changes in equity and cash flows for the six-month periods ended June 30, 2011 and 2010. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Alexander’s, Inc. and subsidiaries as of December 31, 2010, and the related consolidated statements of income, changes in equity and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
August 1, 2011
13
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 involve risks, uncertainties and assumptions. Our future results, financial condition, results of operations and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q. These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For a further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A - Risk Factors” in our Annual Report on Form 10‑K. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of any document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly, any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
Management’s Discussion and Analysis of Financial Condition and Results of Operations include a discussion of our consolidated financial statements for the three and six months ended June 30, 2011 and 2010. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Critical Accounting Policies
A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2010 in “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and “Note 2 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein. There have been no significant changes to these policies during 2011.
14
Overview
Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping properties. All references to “we,” “us,” “our,” “Company,” and “Alexander’s”, refer to Alexander’s, Inc. and its consolidated subsidiaries. We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE: VNO). We have 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 national and local economies, the financial condition and operating results of current and prospective tenants, the availability and cost of capital, interest rates, construction and renovation costs, taxes, governmental regulations and legislation, population trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels. Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.
On June 10, 2011 we completed a $250,000,000 refinancing of our Kings Plaza property. The five-year interest-only loan is at LIBOR plus 1.70% (1.95% at June 30, 2011). We retained net proceeds of approximately $95,000,000 after repaying the existing loan and costs.
Quarter Ended June 30, 2011
Net income attributable to common stockholders for the quarter ended June 30, 2011 was $20,157,000, or $3.95 per diluted share, compared to $15,549,000, or $3.05 per diluted share, for the quarter ended June 30, 2010. Funds from operations attributable to common stockholders (“FFO”) for the quarter ended June 30, 2011 was $28,596,000, or $5.60 per diluted share, compared to $23,227,000, or $4.55 per diluted share, for the prior year’s quarter. Net income attributable to common stockholders and FFO for the quarter ended June 30, 2011 include $1,657,000 of income from the collection of prior period tenant utility costs and $807,000 of income from the reversal of previously recognized expense in connection with a litigation settlement at our Flushing property. The aggregate of these items increased net income attributable to common stockholders and FFO by $2,464,000, or $0.48 per diluted share, for the quarter ended June 30, 2011.
Six Months Ended June 30, 2011
Net income attributable to common stockholders for the six months ended June 30, 2011 was $38,364,000, or $7.51 per diluted share, compared to $30,663,000, or $6.01 per diluted share, for the six months ended June 30, 2010. FFO for the six months ended June 30, 2011 was $54,900,000, or $10.75 per diluted share, compared to $45,665,000, or $8.94 per diluted share, for the prior year’s six months. Net income attributable to common stockholders and FFO for the six months ended June 30, 2011 include $1,657,000 of income from the collection of prior period tenant utility costs and $807,000 of income from the reversal of previously recognized expense in connection with a litigation settlement at our Flushing property. The aggregate of these items increased net income attributable to common stockholders and FFO by $2,464,000, or $0.48 per diluted share, for the six months ended June 30, 2011. The six months ended June 30, 2010 includes a net loss on the early extinguishment of debt of $1,238,000, or $0.24 per diluted share.
Significant Tenants
Bloomberg L.P. (“Bloomberg”) accounted for $41,504,000 and $41,169,000, or 33% and 35% of our consolidated revenues in the six months ended June 30, 2011 and 2010, respectively. No other tenant accounted for more than 10% of our consolidated revenues. If we were to lose Bloomberg as a tenant, or if Bloomberg were to fail or become unable to perform its obligations under its lease, it would adversely affect our results of operations and financial condition. We receive and evaluate certain confidential financial information and metrics from Bloomberg on a semi-annual basis. In addition, we access and evaluate financial information regarding Bloomberg from private sources, as well as publicly available data.
15
Results of Operations – Three Months Ended June 30, 2011 compared to June 30, 2010
Property Rentals
Property rentals were $43,424,000 in the quarter ended June 30, 2011, compared to $40,790,000 in the prior year’s quarter, an increase of $2,634,000. This increase was primarily attributable to the lease up of space at our Kings Plaza, Rego Park I and Rego Park II properties, portions of which were placed into service subsequent to the second quarter of 2010.
Expense Reimbursements
Tenant expense reimbursements were $18,612,000 in the quarter ended June 30, 2011, compared to $18,376,000 in the prior year’s quarter, an increase of $236,000. This increase was primarily due to higher real estate taxes, partially offset by income in the prior year resulting from a true-up in operating expense billings.
Operating Expenses
Operating expenses were $19,951,000 in the quarter ended June 30, 2011, compared to $18,817,000 in the prior year’s quarter, an increase of $1,134,000. This increase was primarily due to higher real estate taxes of $761,000 and an increase in other non-reimbursable expenses of $444,000, partially offset by a decrease in bad debt expense of $62,000.
Depreciation and Amortization
Depreciation and amortization was $8,577,000 in the quarter ended June 30, 2011, compared to $7,801,000 in the prior year’s quarter, an increase of $776,000. This increase resulted primarily from depreciation on the portion of Rego Park II placed into service subsequent to the second quarter of 2010.
General and Administrative Expenses
General and administrative expenses were $700,000 in the quarter ended June 30, 2011, compared to $1,313,000 in the prior year’s quarter, a decrease of $613,000. This decrease was primarily due to the reversal of a portion of the Flushing litigation loss accrual of $807,000, partially offset by $300,000 of expense resulting from a deferred stock unit (“DSU”) grant to the members of our Board of Directors on May 26, 2011. The DSUs vested immediately but the shares of common stock underlying the units are not deliverable to the grantee until the grantee is no longer serving on the Company’s Board of Directors.
Interest and Other Income, net
Interest and other income, net was $1,715,000 in the quarter ended June 30, 2011, compared to $204,000 in the prior year’s quarter, an increase of $1,511,000. This increase was primarily due to $1,657,000 of income from the collection of prior period tenant utility costs, partially offset by lower average yields on investments (0.03% in the quarter ended June 30, 2011 as compared to 0.12% in the prior year’s quarter).
Interest and Debt Expense
Interest and debt expense was $14,319,000 in the quarter ended June 30, 2011, compared to $15,131,000 in the prior year’s quarter, a decrease of $812,000. This decrease was comprised of $660,000 primarily from lower average interest rates (4.19% in the quarter ended June 30, 2011 as compared to 4.39% in the prior year’s quarter) and $152,000 from lower amortization of deferred debt issuance costs.
Income Tax Expense
In the quarter ended June 30, 2011, income tax expense was $9,000, compared to $159,000 in the prior year’s quarter, a decrease of $150,000. This decrease resulted from lower projected taxable income from our Kings Plaza energy plant joint venture, a taxable REIT subsidiary.
Net Income Attributable to the Noncontrolling Interest
Net income attributable to the noncontrolling interest was $38,000 in the quarter ended June 30, 2011, compared to $600,000 in the prior year’s quarter, and represents our venture partner’s 75% pro rata share of net income from our consolidated partially owned entity, the Kings Plaza energy plant joint venture.
16
Results of Operations – Six Months Ended June 30, 2011 compared to June 30, 2010
Property Rentals
Property rentals were $86,889,000 in the six months ended June 30, 2011, compared to $81,005,000 in the prior year’s six months, an increase of $5,884,000. This increase was primarily attributable to the lease up of space at our Kings Plaza, Rego Park I and Rego Park II properties, portions of which were placed into service subsequent to the second quarter of 2010.
Expense Reimbursements
Tenant expense reimbursements were $38,019,000 in the six months ended June 30, 2011, compared to $36,705,000 in the prior year’s six months, an increase of $1,314,000. This increase was primarily due to higher real estate taxes and reimbursable operating expenses, partially offset by income in the prior year resulting from a true-up in operating expense and real estate tax billings.
Operating Expenses
Operating expenses were $41,138,000 in the six months ended June 30, 2011, compared to $37,873,000 in the prior year’s six months, an increase of $3,265,000. This increase was comprised of higher real estate taxes and reimbursable operating expenses of $2,501,000 and an increase in bad debt expense and other non-reimbursable expenses of $764,000.
Depreciation and Amortization
Depreciation and amortization was $16,811,000 in the six months ended June 30, 2011, compared to $15,248,000 in the prior year’s six months, an increase of $1,563,000. This increase resulted primarily from depreciation on the portion of Rego Park II placed into service subsequent to the second quarter of 2010.
General and Administrative Expenses
General and administrative expenses were $1,799,000 in the six months ended June 30, 2011, compared to $2,437,000 in the prior year’s six months, a decrease of $638,000. This decrease was primarily due to the reversal of a portion of the Flushing litigation loss accrual of $807,000, partially offset by $300,000 of expense resulting from a DSU grant to the members of our Board of Directors on May 26, 2011.
Interest and Other Income, net
Interest and other income, net was $1,820,000 in the six months ended June 30, 2011, compared to $487,000 in the prior year’s six months, an increase of $1,333,000. This increase was primarily due to $1,657,000 of income from the collection of prior period tenant utility costs, partially offset by lower average yields on investments (0.04% in the six months ended June 30, 2011 as compared to 0.13% in the prior year’s six months).
Interest and Debt Expense
Interest and debt expense was $29,124,000 in the six months ended June 30, 2011, compared to $29,877,000 in the prior year’s six months, a decrease of $753,000. This decrease was comprised of (i) $1,418,000 primarily from lower average interest rates (4.30% in the six months ended June 30, 2011 as compared to 4.44% in the prior year’s six months) and (ii) $291,000 from lower amortization of deferred debt issuance costs, partially offset by (iii) $956,000 of lower capitalized interest as a result of placing a portion of the Rego Park II property into service during 2010.
Net Loss on Early Extinguishment of Debt
Net loss on early extinguishment of debt was $1,238,000 in the six months ended June 30, 2010 resulting from the open market purchase of $27,500,000 of our Kings Plaza debt.
17
Results of Operations – Six Months Ended June 30, 2011 compared to June 30, 2010 - continued
Income Tax Benefit (Expense)
In the six months ended June 30, 2011, we had an income tax benefit of $151,000, compared to an expense of $259,000 in the prior year’s six months, a decrease in expense of $410,000. This decrease resulted primarily from a true-up of our estimated income tax liability in the current year and lower projected taxable income from our Kings Plaza energy plant joint venture, a taxable REIT subsidiary.
Net Loss (Income) Attributable to the Noncontrolling Interest
Net loss attributable to the noncontrolling interest was $357,000 in the six months ended June 30, 2011, compared to income of $602,000 in the prior year’s six months, and represents our venture partner’s 75% pro rata share of net income or loss from our consolidated partially owned entity, the Kings Plaza energy plant joint venture.
18
Liquidity and Capital Resources
We anticipate that cash from operations over the next twelve months, together with existing cash balances, will be adequate to fund our business operations, cash dividends to stockholders, debt amortization and recurring capital expenditures.
Cash Flows
Property rental income is our primary source of cash flow and is dependent on a number of factors including the occupancy level and rental rates of our properties, as well as our tenants’ ability to pay their rents. Our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses, interest expense, recurring capital expenditures and cash dividends to stockholders. Other sources of liquidity to fund cash requirements include our existing cash, proceeds from financings, including mortgage or construction loans secured by our properties, and proceeds from asset sales.
During the remainder of 2011, $345,200,000 of our outstanding debt is scheduled to mature. We may refinance our maturing debt as it comes due or choose to repay it at maturity.
Six Months Ended June 30, 2011
Cash and cash equivalents were $490,950,000 at June 30, 2011, compared to $397,220,000 at December 31, 2010, an increase of $93,730,000. This increase resulted from $24,113,000 of net cash provided by operating activities, $12,378,000 of net cash provided by investing activities and $57,239,000 of net cash provided by financing activities.
Net cash provided by operating activities of $24,113,000 was comprised of net income of $38,007,000 and adjustments for non-cash items of $11,472,000, partially offset by the net change in operating assets and liabilities of $25,366,000. The adjustments for non-cash items were comprised of depreciation and amortization of $18,254,000 and stock-based compensation expense of $300,000, partially offset by straight-lining of rental income of $7,082,000. The net change in operating assets and liabilities was primarily due to higher prepaid real estate taxes of $21,740,000.
Net cash provided by investing activities of $12,378,000 was comprised of proceeds from maturing short-term investments of $23,000,000, partially offset by capital expenditures of $8,039,000 (primarily Rego Park II) and a decrease in restricted cash of $2,583,000.
Net cash provided by financing activities of $57,239,000 was primarily comprised of $250,000,000 of proceeds from the refinancing of our Kings Plaza property, partially offset by repayments of borrowings of $157,090,000 (primarily Kings Plaza) and dividends paid on common stock of $30,636,000.
Six Months Ended June 30, 2010
Cash and cash equivalents were $443,399,000 at June 30, 2010, compared to $412,734,000 at December 31, 2009, an increase of $30,665,000. This increase resulted from $40,539,000 of net cash provided by operating activities and $22,035,000 of net cash provided by investing activities, partially offset by $31,909,000 of net cash used in financing activities.
Net cash provided by operating activities of $40,539,000 was comprised of net income of $31,265,000, adjustments for non-cash items of $9,051,000 and the net change in operating assets and liabilities of $223,000. The adjustments for non-cash items were comprised of depreciation and amortization of $16,982,000, partially offset by straight-lining of rental income of $7,931,000.
Net cash provided by investing activities of $22,035,000 was comprised of proceeds from maturing short-term investments of $40,000,000 and restricted cash of $5,750,000, partially offset by capital expenditures of $23,715,000, primarily related to the development of our Rego Park II project.
Net cash used in financing activities of $31,909,000 was comprised of a $27,500,000 purchase of our Kings Plaza debt, dividends paid on common stock of $12,765,000 and debt amortization of $7,848,000, partially offset by $16,204,000 of borrowings under our Rego Park II construction loan.
19
Liquidity and Capital Resources – continued
Commitments and Contingencies
Insurance
We maintain general liability insurance with limits of $300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods and earthquakes on each of our properties.
In June 2011, we formed Fifty Ninth Street Insurance Company, LLC (“FNSIC”), a wholly owned consolidated subsidiary, to act as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”). Coverage for acts of terrorism (including NBCR acts) is up to $1.7 billion per occurrence. Coverage for acts of terrorism (excluding NBCR acts) is fully reinsured by third party insurance companies with no exposure to FNSIC. For NBCR acts, FNSIC is responsible for a $275,000 deductible and 15% of the balance of a covered loss and the Federal government is responsible for the remaining 85% of a covered loss. We are ultimately responsible for any loss borne by FNSIC.
There can be no assurance that we will be able to maintain similar levels of insurance coverage in the future in amounts and on terms that are commercially reasonable. We are responsible for deductibles and losses in excess of our insurance coverage, which could be material.
Our mortgage loans are non-recourse to us, except for $75,000,000 of the $320,000,000 mortgage on our 731 Lexington Avenue property, in the event of a substantial casualty, as defined. Our mortgage loans contain customary covenants requiring us to maintain insurance. If lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance our properties.
Environmental Remediation
In July 2006, we discovered an oil spill at our Kings Plaza Regional Shopping Center. We have notified the New York State Department of Environmental Conservation (“NYSDEC”) about the spill and have developed a remediation plan. The NYSDEC has approved a portion of the remediation plan and clean up is ongoing. The estimated costs associated with the clean up will aggregate approximately $2,500,000. We have paid $500,000 of such amount and the remainder is covered under our insurance policy.
Paramus
In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a 40-year term with a purchase option in 2021 for $75,000,000. We have a $68,000,000 interest only, non-recourse mortgage loan on the property from a third party lender. The fixed interest rate on the debt is 5.92% with interest payable monthly until maturity in October 2011. The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $62,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years must include the debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.
Letters of Credit
Approximately $7,998,000 of standby letters of credit were issued and outstanding as of June 30, 2011.
Other
There are various other legal actions against us in the ordinary course of business. In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial condition, results of operations or cash flows.
20
Funds from Operations (“FFO”)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. A reconciliation of our net income to FFO is provided below.
FFO Attributable to Common Stockholders for the Three and Six Months Ended June 30, 2011 and 2010
FFO attributable to common stockholders for the quarter ended June 30, 2011 was $28,596,000, or $5.60 per diluted share, compared to $23,227,000, or $4.55 per diluted share, for the prior year’s quarter. FFO attributable to common stockholders for the six months ended June 30, 2011 was $54,900,000, or $10.75 per diluted share, compared to $45,665,000, or $8.94 per diluted share, for the prior year’s six months.
The following table reconciles our net income to FFO:
|
|
|
|
Three Months Ended |
|
Six Months Ended | ||||||||
|
|
|
|
June 30, |
|
June 30, | ||||||||
(Amounts in thousands, except share and per share amounts) |
2011 |
|
2010 |
|
2011 |
|
2010 | |||||||
Net income attributable to Alexander’s |
$ |
20,157 |
|
$ |
15,549 |
|
$ |
38,364 |
|
$ |
30,663 | |||
Depreciation and amortization of real property |
|
8,439 |
|
|
7,678 |
|
|
16,536 |
|
|
15,002 | |||
FFO attributable to common stockholders |
$ |
28,596 |
|
$ |
23,227 |
|
$ |
54,900 |
|
$ |
45,665 | |||
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|
|
|
|
|
|
|
|
|
|
|
|
|
FFO attributable to common stockholders per diluted share |
$ |
5.60 |
|
$ |
4.55 |
|
$ |
10.75 |
|
$ |
8.94 | |||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted FFO per share |
|
5,106,351 |
|
|
5,105,936 |
|
|
5,106,144 |
|
|
5,105,936 | |||
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|
|
|
|
|
|
|
|
|
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|
|
|
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21
Item 3. 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.
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Balance as of |
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|
|
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Effect of 1% |
| ||
|
|
June 30, |
|
Weighted-Average |
|
Change in |
| |||
|
(Amounts in thousands, except per share amounts) |
2011 |
|
Interest Rate |
|
Base Rates |
| |||
|
Variable Rate (including $41,885 due to Vornado) |
$ |
569,085 |
|
1.72 |
% |
|
$ |
5,691 |
|
|
Fixed Rate |
|
812,121 |
|
4.78 |
% |
|
|
- |
|
|
|
$ |
1,381,206 |
|
|
|
|
$ |
5,691 |
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|
|
|
|
|
|
|
|
|
|
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Total effect on diluted earnings per share |
|
|
|
|
|
|
$ |
1.11 |
|
The fair value of our consolidated debt is calculated by discounting the future contractual cash flows of our existing debt using the current rates available to borrowers with similar credit ratings for the remaining terms of such debt. As of June 30, 2011, and December 31, 2010, the estimated fair value of our consolidated debt was $1,403,766,000 and $1,315,436,000, 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.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures: Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has 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 Quarterly Report on Form 10-Q. 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.
(b) Internal Control Over Financial Reporting: There have not been any changes in our internal control over financial reporting during the fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are from time to time involved in legal actions arising in the ordinary course of business. In our opinion, the outcome of such matters in the aggregate will not have a material effect on our financial condition, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes in our “Risk Factors” as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-K are filed herewith and are listed in the attached Exhibit Index.
23
SIGNATURES
Pursuant to the requirements 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.
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ALEXANDER’S, INC. |
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(Registrant) |
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Date: August 1, 2011 |
By: |
/s/ Joseph Macnow |
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Joseph Macnow, Executive Vice President and |
24
|
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EXHIBIT INDEX |
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Exhibit |
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No. |
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3.1 |
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- |
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 |
* |
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3.2 |
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- |
By-laws, as amended. Incorporated herein by reference from Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 |
* |
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10.1 |
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- |
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 |
* |
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10.2 |
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- |
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 Form 10-K for the year ended December 31, 1994 |
* |
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10.3 |
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- |
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 |
* |
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10.4 |
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- |
Loan Agreement dated as of October 2, 2001 by and between ALX of Paramus LLC as borrower, and SVENSKA HANDELSBANKEN AB (publ), as lender. Incorporated herein by reference from Exhibit 10(v)(C)(1) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 13, 2002 |
* |
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10.5 |
|
- |
Mortgage, Security Agreement and Fixture Financing Statement dated as of October 2, 2001 by and between ALX of Paramus LLC as borrower, and SVENSKA HANDELSBANKEN AB (publ), as lender. Incorporated herein by reference from Exhibit 10(v)(C)(2) to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 13, 2002 |
* |
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10.6 |
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- |
Environmental undertaking letter dated as of October 2, 2001 by and between ALX of Paramus LLC, as borrower, and SVENSKA HANDELSBANKEN AB (publ), as lender. Incorporated herein by reference from Exhibit 10(v)(C)(3) to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed on March 13, 2002 |
* |
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10.7 |
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- |
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 |
* |
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10.8 |
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- |
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 |
* |
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___________________ |
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* |
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Incorporated by reference. |
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25
10.9 |
|
- |
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 |
* |
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10.10 |
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- |
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 |
* |
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10.11 |
|
- |
Kings Plaza Management Agreement, dated as of May 31, 2001, by and between Alexander’s Kings Plaza LLC and Vornado Management Corp. Incorporated herein by reference from Exhibit 10(i)(F)(3) to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 7, 2002 |
* |
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10.12 |
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- |
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 |
* |
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10.13 |
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- |
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 |
* |
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10.14 |
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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 |
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10.15 |
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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 |
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10.16 |
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Loan and Security Agreement, dated as of February 13, 2004, between 731 Office One LLC, as Borrower and German American Capital Corporation, as Lender. Incorporated herein by reference from Exhibit 10.20 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.17 |
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Amended, Restated and Consolidated Mortgage, Security Agreement, Financing Statement and Assignment of Leases, Rent and Security Deposits by and between 731 Office One LLC as Borrower and German American Capital Corporation as Lender, dated as of February 13, 2004. Incorporated herein by reference from Exhibit 10.21 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.18 |
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Amended, Restated and Consolidated Note, dated as of February 13, 2004, by 731 Office One LLC in favor of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.22 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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___________________ |
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Incorporated by reference. |
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26
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10.19 |
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Assignment of Leases, Rents and Security Deposits from 731 Office One LLC to German American Capital Corporation, dated as of February 13, 2004. Incorporated herein by reference from Exhibit 10.23 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.20 |
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Account and Control Agreement, dated as of February 13, 2004, by and among German American Capital Corporation as Lender, and 731 Office One LLC as Borrower, and JP Morgan Chase as Cash Management Bank. Incorporated herein by reference from Exhibit 10.24 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.21 |
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Manager’s Consent and Subordination of Management Agreement dated February 13, 2004 by 731 Office One LLC and Alexander’s Management LLC and German American Capital Corporation. Incorporated herein by reference from Exhibit 10.25 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.22 |
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Note Exchange Agreement dated as of February 13, 2004 by and between 731 Office One LLC and German American Capital Corporation. Incorporated herein by reference from Exhibit 10.26 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.23 |
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Promissory Note A-1 dated as of February 13, 2004 by 731 Office One LLC in favor of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.27 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.24 |
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Promissory Note A-2 dated as of February 13, 2004 by 731 Office One LLC in favor of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.28 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.25 |
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Promissory Note A-3 dated as of February 13, 2004 by 731 Office One LLC in favor of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.29 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.26 |
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Promissory Note A-4 dated as of February 13, 2004, by 731 Office One LLC in favor of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.30 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.27 |
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Promissory Note A-X dated as of February 13, 2004, by 731 Office One LLC in favor of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.31 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.28 |
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Promissory Note B dated as of February 13, 2004, by 731 Office One LLC in favor of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.32 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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___________________ |
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Incorporated by reference. |
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27
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10.29 |
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Guaranty of Recourse Obligations dated as of February 13, 2004, by Alexander’s, Inc. to and for the benefit of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.33 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.30 |
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Environmental Indemnity dated as of February 13, 2004, by Alexander’s, Inc. and 731 Office One LLC for the benefit of German American Capital Corporation. Incorporated herein by reference from Exhibit 10.34 to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 2, 2004 |
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10.31 |
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Loan Agreement dated as of July 6, 2005, between 731 Retail One LLC, as Borrower and Archon Financial, as Lender. Incorporated herein by reference from Exhibit 10.1 to the registrant’s Current Report on Form 8-K, filed on July 12, 2005 |
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10.32 |
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Form of Stock Option Agreement between the Company and certain employees. Incorporated herein by reference from Exhibit 10.61 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed on October 27, 2005 |
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10.33 |
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Form of Restricted Stock Option Agreement between the Company and certain employees. Incorporated herein by reference from Exhibit 10.62 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed on October 27, 2005 |
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