alx10q2q2013.htm - Generated by SEC Publisher for SEC Filing  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

 

x

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

 

 

For the quarterly period ended:  

June 30, 2013

 

 

Or

 

o

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

 

 

For the transition period from:

 

to

 

 

Commission File Number:

001-6064

 

 

ALEXANDER’S, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

51-0100517

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

210 Route 4 East, Paramus, New Jersey

 

07652

(Address of principal executive offices)

 

(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.

 

x Large Accelerated Filer

 

o Accelerated Filer

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

 

o Smaller Reporting Company

 

 

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

 

As of July 31, 2013, there were 5,106,196 shares of common stock, par value $1 per share, outstanding.

 

      

 


 
 

 

 

ALEXANDER’S, INC.

 

 

 

 

 

 

 

 

INDEX

 

 

 

 

 

 

 

 

 

 

 

 

Page Number

PART I.

Financial Information

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets (Unaudited) as of

 

 

 

 

 

 

June 30, 2013 and December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Income (Unaudited) for the

 

 

 

 

 

 

Three and Six Months Ended June 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the

 

 

 

 

 

 

Three and Six Months Ended June 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Changes in Equity (Unaudited) for the

 

 

 

 

 

 

Six Months Ended June 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the

 

 

 

 

 

 

Six Months Ended June 30, 2013 and 2012

 

 

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

15 

 

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of

 

 

 

 

 

 

Financial Condition and Results of Operations

16 

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

24 

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

24 

 

 

 

 

 

 

 

 

PART II.

Other Information

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

25 

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

25 

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

25 

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

25 

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

25 

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

25 

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

25 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Signatures

 

 

 

26 

 

 

 

 

 

 

 

 

Exhibit Index

 

 

27 

 

2

 


 
 

 

PART I. FINANCIAL INFORMATION

Item 1.      Financial Statements

 

ALEXANDER’S, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(UNAUDITED)

 

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

 

 

 

 

 

 

 

 

 

June 30,

 

 

December 31,

 

ASSETS

 

2013 

 

 

2012 

 

Real estate, at cost:

 

 

 

 

 

Land

 

$

44,971 

 

 

$

44,971 

 

Buildings and leasehold improvements

 

 

867,943 

 

 

864,609 

 

Development and construction in progress

 

 

3,410 

 

 

2,212 

 

Total

 

916,324 

 

 

911,792 

 

Accumulated depreciation and amortization

 

(173,068)

 

 

 

(160,826)

 

Real estate, net

 

743,256 

 

 

 

750,966 

 

Cash and cash equivalents

 

331,873 

 

 

 

353,396 

 

Restricted cash

 

88,964 

 

 

 

90,395 

 

Marketable securities

 

 

32,635 

 

 

 

31,206 

 

Tenant and other receivables, net of allowance for doubtful accounts of $2,125 and $2,219, respectively

 

2,301 

 

 

 

1,953 

 

Receivable arising from the straight-lining of rents

 

175,904 

 

 

 

173,694 

 

Deferred lease and other property costs, net, including unamortized leasing fees to Vornado of

 

 

 

 

 

$38,435 and $39,910, respectively

 

 

52,482 

 

 

54,461 

 

Deferred debt issuance costs, net of accumulated amortization of $18,002 and $16,834, respectively

 

4,429 

 

 

 

5,522 

 

Other assets

 

37,728 

 

 

 

20,217 

 

 

 

 

$

1,469,572 

 

 

$

1,481,810 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Mortgages payable

 

$

1,058,028 

 

 

$

1,065,916 

 

Amounts due to Vornado

 

44,883 

 

 

 

46,445 

 

Accounts payable and accrued expenses

 

29,835 

 

 

 

33,621 

 

Other liabilities

 

3,643 

 

 

 

3,675 

 

 

Total liabilities

 

1,136,389 

 

 

1,149,657 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Preferred stock: $1.00 par value per share; authorized, 3,000,000 shares;

 

 

 

 

 

issued and outstanding, none

 

 

 

 

 

 

Common stock: $1.00 par value per share; authorized, 10,000,000 shares; issued, 5,173,450 shares;

 

 

 

 

outstanding, 5,106,196 shares and 5,105,936 shares, respectively

 

 

5,173 

 

 

5,173 

 

Additional capital

 

29,745 

 

 

 

29,352 

 

Retained earnings

 

296,004 

 

 

 

296,797 

 

Accumulated other comprehensive income

 

 

2,635 

 

 

 

1,206 

 

 

333,557 

 

 

 

332,528 

 

Treasury stock: 67,254 shares and 67,514 shares, respectively, at cost

 

(374)

 

 

 

(375)

 

Total equity

 

333,183 

 

 

332,153 

 

 

 

$

1,469,572 

 

 

$

1,481,810 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

2013 

 

2012 

 

2013 

2012 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property rentals

 

$

33,670 

 

$

33,482 

 

$

67,841 

 

$

67,255 

 

 

Expense reimbursements

 

 

13,632 

 

 

13,396 

 

 

28,236 

 

 

26,924 

 

Total revenues

 

 

47,302 

 

 

46,878 

 

 

96,077 

 

 

94,179 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating, including fees to Vornado of $1,002, $1,053,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1,984 and $2,085, respectively

 

 

14,476 

 

 

14,198 

 

 

30,030 

 

 

28,739 

 

 

Depreciation and amortization

 

 

7,235 

 

 

7,169 

 

 

14,458 

 

 

14,352 

 

 

General and administrative, including

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

management fees to Vornado of $595, $540,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1,190 and $1,080, respectively

 

 

1,700 

 

 

1,670 

 

 

2,773 

 

 

2,776 

 

Total expenses

 

 

23,411 

 

 

23,037 

 

 

47,261 

 

 

45,867 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

23,891 

 

 

23,841 

 

 

48,816 

 

 

48,312 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income, net

 

 

388 

 

 

36 

 

 

773 

 

 

70 

 

 

Interest and debt expense

 

 

(11,140)

 

 

(11,311)

 

 

(22,288)

 

 

(22,784)

 

Income from continuing operations

 

 

13,139 

 

 

12,566 

 

 

27,301 

 

 

25,598 

 

Income from discontinued operations

 

 

 

 

6,672 

 

 

 

 

13,064 

 

Net income

 

 

13,139 

 

 

19,238 

 

 

27,301 

 

 

38,662 

 

Net income attributable to the noncontrolling interest

 

 

 

 

(346)

 

 

 

 

(288)

 

Net income attributable to Alexander’s

 

$

13,139 

 

$

18,892 

 

$

27,301 

 

$

38,374 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per common share – basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

2.57 

 

$

2.46 

 

$

5.34 

 

$

5.01 

 

 

Income from discontinued operations, net

 

 

 

 

1.24 

 

 

 

 

2.50 

 

 

Net income per common share

 

$

2.57 

 

$

3.70 

 

$

5.34 

 

$

7.51 

 

 

Weighted average shares outstanding

 

 

5,108,745 

 

 

5,107,415 

 

 

5,108,383 

 

 

5,107,199 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$

2.75 

 

$

3.75 

 

$

5.50 

 

$

7.50 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

4

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(UNAUDITED)

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

2013 

 

2012 

 

2013 

 

2012 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

13,139 

 

$

19,238 

 

$

27,301 

 

$

38,662 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized net gain on available-for-sale securities

 

 

(1,825)

 

 

 

 

1,429 

 

 

 

Comprehensive income

 

 

11,314 

 

 

19,238 

 

 

28,730 

 

 

38,662 

 

Less comprehensive income attributable to the noncontrolling interest

 

 

 

(346)

 

 

 

 

(288)

 

Comprehensive income attributable to Alexander's

 

$

11,314 

 

$

18,892 

 

$

28,730 

 

$

38,374 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

5

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

(UNAUDITED)

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

Non-

 

 

 

 

 

 

Common Stock

 

Additional

 

Retained

 

Comprehensive

 

Treasury

 

controlling

 

Total

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income

 

Stock

 

Interest

 

Equity

 

Balance, December 31, 2011

5,173 

 

$

5,173 

 

$

31,801 

 

$

322,201 

 

$

 

$

(375)

 

$

4,445 

 

$

363,245 

 

Net income

 

 

 

 

 

 

38,374 

 

 

 

 

 

 

288 

 

 

38,662 

 

Dividends paid

 

 

 

 

 

 

(38,303)

 

 

 

 

 

 

 

 

(38,303)

 

Deferred stock unit grant

 

 

 

 

300 

 

 

 

 

 

 

 

 

 

 

300 

 

Balance, June 30, 2012

5,173 

 

$

5,173 

 

$

32,101 

 

$

322,272 

 

$

 

$

(375)

 

$

4,733 

 

$

363,904 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2012

5,173 

 

$

5,173 

 

$

29,352 

 

$

296,797 

 

$

1,206 

 

$

(375)

 

$

 

$

332,153 

 

Net income

 

 

 

 

 

 

27,301 

 

 

 

 

 

 

 

 

27,301 

 

Dividends paid

 

 

 

 

 

 

(28,094)

 

 

 

 

 

 

 

 

(28,094)

 

Change in unrealized net gain on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale securities

 

 

 

 

 

 

 

 

1,429 

 

 

 

 

 

 

1,429 

 

Deferred stock unit grant

 

 

 

 

394 

 

 

 

 

 

 

 

 

 

 

394 

 

Other

 

 

 

 

(1)

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2013

5,173 

 

$

5,173 

 

$

29,745 

 

$

296,004 

 

$

2,635 

 

$

(374)

 

$

 

$

333,183 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

6

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(UNAUDITED)

 

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

2013 

 

2012 

 

Net income

$

27,301 

 

$

38,662 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization, including amortization of debt issuance costs

 

 

15,660 

 

 

18,970 

 

 

Straight-lining of rental income

 

 

(2,210)

 

 

(2,664)

 

 

Stock-based compensation expense

 

 

394 

 

 

300 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Tenant and other receivables, net

 

 

(348)

 

 

351 

 

 

Other assets

 

 

(17,772)

 

 

(24,935)

 

 

Amounts due to Vornado

 

 

(1,562)

 

 

(860)

 

 

Accounts payable and accrued expenses

 

 

(5,099)

 

 

(577)

 

 

Other liabilities

 

 

(32)

 

 

(1)

 

Net cash provided by operating activities

 

 

16,332 

 

 

29,246 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Construction in progress and real estate additions

 

 

(3,219)

 

 

(5,128)

 

 

Restricted cash

 

 

1,431 

 

 

(855)

 

 

Proceeds from maturing short-term investments

 

 

 

 

5,000 

 

Net cash used in investing activities

 

 

(1,788)

 

 

(983)

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Dividends paid

 

 

(28,094)

 

 

(38,303)

 

 

Debt repayments

 

 

(7,888)

 

 

(7,400)

 

 

Debt issuance costs

 

 

(85)

 

 

(400)

 

Net cash used in financing activities

 

 

(36,067)

 

 

(46,103)

 

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(21,523)

 

 

(17,840)

 

Cash and cash equivalents at beginning of period

 

 

353,396 

 

 

506,619 

 

Cash and cash equivalents at end of period

 

$

331,873 

 

$

488,779 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash payments for interest

 

$

21,107 

 

$

23,967 

 

 

 

 

 

 

 

 

 

 

 

NON-CASH TRANSACTIONS

 

 

 

 

 

 

 

 

Non-cash additions to real estate included in accounts payable and accrued expenses

 

$

2,284 

 

$

1,349 

 

 

Change in unrealized net gain on available-for-sale securities

 

 

1,429 

 

 

 

 

Write-off of fully amortized and depreciated assets

 

 

 

 

624 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements (unaudited).

 

7

 


 

 

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, 2012, 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, 2013 are not necessarily indicative of the operating results for the full year.  Certain prior year balances have been reclassified in order to conform to current year presentation.

 

We currently operate in one business segment.

 

 

3.             Recently Issued Accounting Literature

In February 2013, the Financial Accounting Standards Board issued Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU No. 2013-02”).  ASU No. 2013-02 requires additional disclosures regarding significant reclassifications out of each component of accumulated other comprehensive income, including the effect on the respective line items of net income for amounts that are required to be reclassified into net income in their entirety and cross-references to other disclosures providing additional information for amounts that are not required to be reclassified into net income in their entirety. The adoption of this update as of January 1, 2013, did not have any impact on our consolidated financial statements.

8

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

4.             Relationship with Vornado

At June 30, 2013, Vornado owned 32.4% of our outstanding common stock.  We are managed by, and our properties are leased and developed by, Vornado, pursuant to 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) $2,800,000, (ii) 2% of gross revenue from the Rego Park II shopping center, (iii) $0.50 per square foot of the tenant-occupied office and retail space at 731 Lexington Avenue and (iv) $272,000, 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.

 

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% (1.84% at June 30, 2013).

 

Other Agreements

We also have agreements with Building Maintenance Services, a wholly owned subsidiary of Vornado, to supervise (i) cleaning, engineering and security services at our Lexington Avenue property and (ii) security services at our Rego Park I and Rego Park II properties, for an annual fee equal to the cost of such services plus 6%. 

 

 

The following is a summary of fees to Vornado under the various agreements discussed above, and includes $666,000 and $1,398,000 of property management and leasing fees in the three and six months ended June 30, 2012, respectively, related to the Kings Plaza Regional Shopping Center (“Kings Plaza”), which was sold in November 2012 (see Note 6 – Discontinued Operations). 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 30,

 

June 30,

 

 

(Amounts in thousands)

 

2013 

 

2012 

 

2013 

 

2012 

 

 

Company management fees

 

$

700 

 

$

750 

 

$

1,400 

 

$

1,500 

 

 

Development fees

 

 

 

 

187 

 

 

 

 

375 

 

 

Leasing fees

 

 

292 

 

 

1,006 

 

 

678 

 

 

1,629 

 

 

Property management fees and payments for cleaning, engineering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and security services

 

 

897 

 

 

1,275 

 

 

1,774 

 

 

2,542 

 

 

 

 

 

$

1,889 

 

$

3,218 

 

$

3,852 

 

$

6,046 

 

 

At June 30, 2013, we owed Vornado $44,481,000 for leasing fees and $402,000 for management, property management and cleaning fees.

9

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

5.             Marketable Securities

As of June 30, 2013, we own 535,265 common shares of The Macerich Company (NYSE: MAC) (“Macerich”), which were received in connection with the sale of Kings Plaza to Macerich.  These shares have an economic cost of $56.05 per share, or $30,000,000 in the aggregate.  As of June 30, 2013, these shares have a fair value of $32,635,000, based on Macerich’s closing share price of $60.97 per share.  These shares are included in “marketable securities” on our consolidated balance sheets and are classified as available-for-sale.  Available-for-sale securities are presented at fair value.  Unrealized gains and losses resulting from the mark-to-market of these securities are included in “other comprehensive income.”  The three and six months ended June 30, 2013 include an unrealized loss of $1,825,000 and an unrealized gain of $1,429,000, respectively, from the mark-to-market of these securities.

 

 

6.             Discontinued Operations

In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360, Property, Plant and Equipment, we have reclassified the revenues and expenses of Kings Plaza, which was sold in November 2012, to “income from discontinued operations” for all periods on our consolidated statements of income.  The table below sets forth the results of operations of Kings Plaza for the three and six months ended June 30, 2012.

 

 

Three Months Ended

Six Months Ended

 

 

June 30,

June 30,

(Amounts in thousands)

 

2013 

 

2012 

 

2013 

 

2012 

Total revenues

$

$

16,724 

$

$

33,083 

Total expenses(1)

10,052 

20,019 

Income from discontinued operations

$

$

6,672 

$

$

13,064 

___________________

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes fees to Vornado of $432 and $877 in the three and six months ended June 30, 2012, respectively.

 

 

7.             Significant Tenants

Bloomberg L.P. (“Bloomberg”) accounted for $43,322,000 and $42,395,000, representing 45% of our total revenues in each of the six-month periods ended June 30, 2013 and 2012, respectively.  No other tenant accounted for more than 10% of our total revenues.  If we were to lose Bloomberg as a tenant, or if Bloomberg were to fail or become unable to fulfill 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.

10

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

8.             Mortgages Payable

The following is a summary of our outstanding mortgages payable.  We may refinance our maturing debt as it comes due or choose to repay it at maturity.

 

 

 

 

 

 

 

Balance at

 

 

 

 

 

 

 

Interest Rate at

 

 

June 30,

 

December 31,

 

(Amounts in thousands)

Maturity

June 30, 2013

 

2013 

2012 

 

First mortgages secured by:

 

 

 

 

 

 

 

 

 

 

 

 

 

731 Lexington Avenue, office space

Feb. 2014

 

5.33 

%

 

 

$

320,886 

 

$

327,425 

 

Rego Park I shopping center (100% cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

collateralized)

Mar. 2015

 

0.40 

%

 

 

 

78,246 

 

 

78,246 

 

 

731 Lexington Avenue, retail space(1)

Jul. 2015

 

4.93 

%

 

 

 

320,000 

 

 

320,000 

 

 

Paramus

Oct. 2018

2.90 

%

 

 

68,000 

 

68,000 

 

 

Rego Park II shopping center(2)

Nov. 2018

 

2.05 

%

 

 

 

270,896 

 

 

272,245 

 

 

 

 

 

$

1,058,028 

 

$

1,065,916 

 

 

 

 

 

 

(1)

This loan is non-recourse to us, except for $75,000 in the event of a substantial casualty, as defined.

(2)

This loan bears interest at LIBOR plus 1.85%.

 

 

 

9.             Fair Value Measurements

ASC 820, Fair Value Measurement and Disclosures defines fair value and establishes a framework for measuring fair value.  ASC 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels: Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities; Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and Level 3 – unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty credit risk in our assessment of fair value.

 

Financial Assets and Liabilities Measured at Fair Value

 

Financial assets measured at fair value on our consolidated balance sheets at June 30, 2013 and December 31, 2012, consist solely of marketable securities, which is presented in the table below, based on its level in the fair value hierarchy.  There were no financial liabilities measured at fair value at June 30, 2013 and December 31, 2012.

 

 

 

 

As of June 30, 2013

 

 

(Amounts in thousands)

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

Marketable securities

$

32,635 

 

$

32,635 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

(Amounts in thousands)

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

Marketable securities

$

31,206 

 

$

31,206 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

9.             Fair Value Measurements – continued

Financial Assets and Liabilities not Measured at Fair Value

 

Financial assets and liabilities that are not measured at fair value on our consolidated balance sheets include cash equivalents, mortgages payable and leasing commissions due to Vornado.  Cash equivalents are carried at cost, which approximates fair value due to their short-term maturities.  The fair value of our mortgages payable is calculated by discounting the future contractual cash flows of these instruments using current risk-adjusted rates available to borrowers with similar credit ratings, which are provided by a third-party specialist.  The leasing commissions due to Vornado are carried at cost plus interest at variable rates, which approximate fair value.  The fair value of cash equivalents (primarily U.S. Treasury bills and money market funds) is classified as Level 1 and the fair value of mortgages payable and leasing commissions due to Vornado is classified as Level 2.  The table below summarizes the carrying amounts and fair value of these financial instruments as of June 30, 2013 and December 31, 2012.

 

 

 

 

As of June 30, 2013

 

 

As of December 31, 2012

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

(Amounts in thousands)

 

Amount

 

 

Value

 

 

Amount

 

 

Value

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

$

318,682 

 

$

318,682 

 

$

289,054 

 

$

289,054 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages payable

$

1,058,028 

 

$

1,101,000 

 

$

1,065,916 

 

$

1,097,000 

 

Leasing commissions (included in Amounts due to Vornado)

 

44,481 

 

 

44,000 

 

 

45,803 

 

 

46,000 

 

 

$

1,102,509 

 

$

1,145,000 

 

$

1,111,719 

 

$

1,143,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.          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, deferred stock units (“DSUs”) and performance shares, as defined, to the directors, officers and employees of the Company and Vornado.

 

In May 2013, the Company granted each of the members of its Board of Directors 243 DSUs with a grant date fair value of $56,250 per grant, or $394,000 in the aggregate.  The DSUs entitle the holder to receive shares of the Company’s common stock without the payment of any consideration.  The DSUs vested immediately and accordingly, were expensed on the date of grant, but the shares of common stock underlying the DSUs are not deliverable to the grantee until the grantee is no longer serving on the Company’s Board of Directors.

 

12

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

11.          Commitments and Contingencies

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods and earthquakes on each of our properties.

 

Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“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.

Flushing Property

In 2002, Flushing Expo, Inc. (“Expo”) agreed to purchase the stock of the entity which owns the Flushing property from us (“Purchase of the Property”) and gave us a non-refundable deposit of $1,875,000.  Pursuant to a stipulation of settlement, we settled the action Expo brought against us regarding the Purchase of the Property and in June 2011, deposited the settlement amount with the Court, in exchange for which we received a stipulation of discontinuance, with prejudice, as well as general releases.  In November 2011, Expo filed another action, this time against our tenant at the Flushing property asserting, among other things, that such tenant interfered with Expo’s Purchase of the Property from us and sought $50,000,000 in damages from our tenant, who sought indemnification from us for such amount.  In August 2012, the Court entered judgment denying Expo’s claim for damages.  Expo filed a motion to re-argue the decision, which the Court denied on December 7, 2012.  Expo has appealed the Court’s August 2012 decision.  We believe, after consultation with counsel, that the amount or range of reasonably possible losses, if any, cannot be estimated.

Paramus

In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a 40-year term with a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 2.90%, which matures in October 2018.  The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.

Letters of Credit

Approximately $4,058,000 of standby letters of credit were outstanding as of June 30, 2013.

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.

13

 


 
 

 

ALEXANDER’S, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

 

 

12.          Rego Park II Apartment Tower

We have commenced the construction of an apartment tower, which will contain approximately 300 units aggregating 250,000 square feet, above our Rego Park II shopping center.  The capital expenditures related to the proposed development are expected to be approximately $125,000,000.  There can be no assurance that the project will be completed on schedule, or within budget.

 

 

13.          Earnings Per Share

The following table sets forth the computation of basic and diluted income per share, including a reconciliation of net income and the number of shares used in computing basic and diluted income per share. Basic income per share is determined using the weighted average shares of common stock (including DSUs) outstanding during the period. Diluted income per share is determined using the weighted average shares of common stock (including DSUs) outstanding during the period, and assumes all potentially dilutive securities were converted into common shares at the earliest date possible.  There were no potentially dilutive securities outstanding during the three and six months ended June 30, 2013 and 2012.

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 30,

 

June 30,

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

 

2013 

 

2012 

 

2013 

2012 

 

Income from continuing operations

 

$

13,139 

 

$

12,566 

 

$

27,301 

 

$

25,598 

 

Income from discontinued operations, net of income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to the noncontrolling interest

 

 

 

 

6,326 

 

 

 

 

12,776 

 

Net income attributable to common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stockholders – basic and diluted

 

$

13,139 

 

$

18,892 

 

$

27,301 

 

$

38,374 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic and diluted

 

 

5,108,745 

 

 

5,107,415 

 

 

5,108,383 

 

 

5,107,199 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

2.57 

 

$

2.46 

 

$

5.34 

 

$

5.01 

 

Income from discontinued operations, net

 

 

 

 

1.24 

 

 

 

 

2.50 

 

Net income per common share – basic and diluted

 

$

2.57 

 

$

3.70 

 

$

5.34 

 

$

7.51 

 

14

 


 
 

 

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, 2013, and the related consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2013 and 2012, and changes in equity and cash flows for the six-month periods ended June 30, 2013 and 2012.  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, 2012, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2013, 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, 2012 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 5, 2013

15

 


 
 

 

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

 

Certain statements contained in this Quarterly Report constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties and assumptions.  Our future results, financial condition, results of operations and business may differ materially from those expressed in these forward-looking statements.  You can find many of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in this Quarterly Report on Form 10‑Q.  These forward-looking statements represent our intentions, plans, expectations and beliefs and are subject to numerous assumptions, risks and uncertainties.  Many of the factors that will determine these items are beyond our ability to control or predict.  For a further discussion of factors that could materially affect the outcome of our forward-looking statements, see “Item 1A - Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2012.  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, 2013 and 2012. 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.  The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results for the full year.  Certain prior year balances have been reclassified in order to conform to current year presentation.

 

Critical Accounting Policies

 

A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2012 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Note 2 – Summary of Significant Accounting Policies” to the consolidated financial statements included therein.  There have been no significant changes to these policies during 2013.

 

 

16

 


 
 

 

Overview

 

Alexander’s, Inc. (NYSE: ALX) is a real estate investment trust (“REIT”), incorporated in Delaware, engaged in leasing, managing, developing and redeveloping properties.  All references to “we,” “us,” “our,” “Company,” and “Alexander’s”, refer to Alexander’s, Inc. and its consolidated subsidiaries.  We are managed by, and our properties are leased and developed by, Vornado Realty Trust (“Vornado”) (NYSE: VNO).  We have six properties in the greater New York City metropolitan area.

 

We compete with a large number of property owners and developers.  Our success depends upon, among other factors, trends of national and local economies, the financial condition and operating results of current and prospective tenants, the availability and cost of capital, interest rates, construction and renovation costs, taxes, governmental regulations and legislation, population trends, zoning laws, and our ability to lease, sublease or sell our properties, at profitable levels.  Our success is also subject to our ability to refinance existing debt on acceptable terms as it comes due.

 

 

Quarter Ended June 30, 2013 Financial Results Summary

 

Net income attributable to common stockholders for the quarter ended June 30, 2013 was $13,139,000, or $2.57 per diluted share, compared to $18,892,000, or $3.70 per diluted share for the quarter ended June 30, 2012.  Net income from continuing operations was $13,139,000, or $2.57 per diluted share for the quarter ended June 30, 2013, compared to $12,566,000, or $2.46 per diluted share for the quarter ended June 30, 2012.

 

Funds from operations attributable to common stockholders (“FFO”) for the quarter ended June 30, 2013 was $20,315,000, or $3.98 per diluted share, compared to $27,402,000, or $5.37  per diluted share for the prior year’s quarter.  The prior year’s quarter includes FFO from discontinued operations of $7,727,000, or $1.51 per diluted share.

 

 

Six Months Ended June 30, 2013 Financial Results Summary

 

Net income attributable to common stockholders for the six months ended June 30, 2013 was $27,301,000, or $5.34 per diluted share, compared to $38,374,000, or $7.51 per diluted share for the six months ended June 30, 2012.  Net income from continuing operations was $27,301,000, or $5.34 per diluted share for the  six months ended June 30, 2013, compared to $25,598,000, or $5.01 per diluted share for the six months ended June 30, 2012.

 

FFO for the six months ended June 30, 2013 was $41,654,000, or $8.15 per diluted share, compared to $55,432,000, or $10.85 per diluted share for the prior year’s six months.  The prior year’s six months includes FFO from discontinued operations of $15,594,000, or $3.05 per diluted share.

 

 

Leasing Activity, Square Footage and Occupancy

As of June 30, 2013 and December 31, 2012, our portfolio was comprised of six properties aggregating 2,179,000 square feet that had occupancy rates of 99.2% and 99.1%, respectively.  In the three and six months ended June 30, 2013 we leased 4,234 and 6,562 square feet, respectively, with average initial rents of $485.64 and $346.84 per square foot, respectively, and weighted average lease terms of 5.0 and 6.8 years, respectively.

 

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Overview - continued

 

 

Significant Tenants

 

Bloomberg L.P. (“Bloomberg”) accounted for $43,322,000 and $42,395,000, representing 45% of our total revenues in each of the six-month periods ended June 30, 2013 and 2012, respectively.  No other tenant accounted for more than 10% of our total revenues.  If we were to lose Bloomberg as a tenant, or if Bloomberg were to fail or become unable to fulfill its obligations under its lease, it would adversely affect our results of operations and financial condition.  We receive and evaluate certain confidential financial information and metrics from Bloomberg on a semi-annual basis.  In addition, we access and evaluate financial information regarding Bloomberg from private sources, as well as publicly available data.

 

 

Recently Issued Accounting Literature

 

In February 2013, the Financial Accounting Standards Board issued Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU No. 2013-02”).  ASU No. 2013-02 requires additional disclosures regarding significant reclassifications out of each component of accumulated other comprehensive income, including the effect on the respective line items of net income for amounts that are required to be reclassified into net income in their entirety and cross-references to other disclosures providing additional information for amounts that are not required to be reclassified into net income in their entirety. The adoption of this update as of January 1, 2013, did not have any impact on our consolidated financial statements.

 

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Results of Operations – Three Months Ended June 30, 2013, compared to June 30, 2012

 

Property Rentals

Property rentals were $33,670,000 in the quarter ended June 30, 2013, compared to $33,482,000 in the prior year’s quarter, an increase of $188,000. 

 

Expense Reimbursements

Tenant expense reimbursements were $13,632,000 in the quarter ended June 30, 2013, compared to $13,396,000 in the prior year’s quarter, an increase of $236,000.  This increase was primarily due to higher real estate taxes, partially offset by lower reimbursable operating expenses and a true-up in operating expense billings.

 

Operating Expenses

Operating expenses were $14,476,000 in the quarter ended June 30, 2013, compared to $14,198,000 in the prior year’s quarter, an increase of $278,000.  This increase was comprised of higher real estate taxes of $1,303,000, partially offset by lower reimbursable operating expenses of $373,000 and lower non-reimbursable operating expenses of $652,000 (primarily bad debt expense).

 

Depreciation and Amortization

Depreciation and amortization was $7,235,000 in the quarter ended June 30, 2013, compared to $7,169,000 in the prior year’s quarter, an increase of $66,000. 

 

General and Administrative Expenses

General and administrative expenses were $1,700,000 in the quarter ended June 30, 2013, compared to $1,670,000 in the prior year’s quarter, an increase of $30,000.

 

Interest and Other Income, net

Interest and other income, net was $388,000 in the quarter ended June 30, 2013, compared to $36,000 in the prior year’s quarter, an increase of $352,000.  This increase was primarily due to dividend income on Macerich common shares in the current year’s quarter.

 

Interest and Debt Expense

Interest and debt expense was $11,140,000 in the quarter ended June 30, 2013, compared to $11,311,000 in the prior year’s quarter, a decrease of $171,000.

 

Income from Discontinued Operations

Income from discontinued operations was $6,672,000 in the quarter ended June 30, 2012 and represents the net income from the Kings Plaza Regional Shopping Center (“Kings Plaza”), which was sold in November 2012.

 

Net Income Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest was $346,000 in the quarter ended June 30, 2012, and represents our venture partner’s 75% pro rata share of the net income from the Kings Plaza energy plant joint venture, which was sold together with Kings Plaza in November 2012.

 

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Results of Operations – Six Months Ended June 30, 2013, compared to June 30, 2012

 

Property Rentals

Property rentals were $67,841,000 in the six months ended June 30, 2013, compared to $67,255,000 in the prior year’s six months, an increase of $586,000.

 

Expense Reimbursements

Tenant expense reimbursements were $28,236,000 in the six months ended June 30, 2013, compared to $26,924,000 in the prior year’s six months, an increase of $1,312,000. This increase was primarily due to higher real estate taxes, partially offset by lower reimbursable operating expenses and a true-up in operating expense billings.

 

Operating Expenses

Operating expenses were $30,030,000 in the six months ended June 30, 2013, compared to $28,739,000 in the prior year’s six months, an increase of $1,291,000.  This increase was comprised of higher real estate taxes of $2,880,000, partially offset by lower reimbursable operating expenses of $627,000 and lower non-reimbursable operating expenses of $962,000 (primarily bad debt expense).

 

Depreciation and Amortization

Depreciation and amortization was $14,458,000 in the six months ended June 30, 2013, compared to $14,352,000 in the prior year’s six months, an increase of $106,000. 

 

General and Administrative Expenses

General and administrative expenses were $2,773,000 in the six months ended June 30, 2013, compared to $2,776,000 in the prior year’s six months, a decrease of $3,000.

 

Interest and Other Income, net

Interest and other income, net was $773,000 in the six months ended June 30, 2013, compared to $70,000 in the prior year’s six months, an increase of $703,000.  This increase was primarily due to dividend income on Macerich common shares in the current year’s six months.

 

Interest and Debt Expense

Interest and debt expense was $22,288,000 in the six months ended June 30, 2013, compared to $22,784,000 in the prior year’s six months, a decrease of $496,000.

 

Income from Discontinued Operations

 

        Income from discontinued operations was $13,064,000 in the six months ended June 30, 2012, and represents the net income from Kings Plaza, which was sold in November 2012.

 

Net Income Attributable to the Noncontrolling Interest

Net income attributable to the noncontrolling interest was $288,000 in the six months ended June 30, 2012, and represents our venture partner’s 75% pro-rata share of the net income from the Kings Plaza energy plant joint venture, which was sold together with Kings Plaza in November 2012.

 

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Liquidity and Capital Resources

 

Cash Flows

 

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

 

We have no debt maturing in 2013.  In 2014, $320,886,000 of our outstanding debt is scheduled to mature.  We may refinance our outstanding debt as it comes due or choose to repay it at maturity.

 

Development Project

We have commenced the construction of an apartment tower, which will contain approximately 300 units aggregating 250,000 square feet, above our Rego Park II shopping center.  The capital expenditures related to the proposed development are expected to be approximately $125,000,000.  There can be no assurance that the project will be completed on schedule, or within budget.

 

Six Months Ended June 30, 2013

Cash and cash equivalents were $331,873,000 at June 30, 2013, compared to $353,396,000 at December 31, 2012, a decrease of $21,523,000.  This decrease resulted from $36,067,000 of net cash used in financing activities and $1,788,000 of net cash used in investing activities, partially offset by $16,332,000 of net cash provided by operating activities.

 

Net cash provided by operating activities of $16,332,000 was comprised of net income of $27,301,000 and adjustments for non-cash items of $13,844,000, partially offset by the net change in operating assets and liabilities of $24,813,000.  The adjustments for non-cash items were comprised of (i) depreciation and amortization of $15,660,000 and (ii) stock-based compensation expense of $394,000, partially offset by (iii) straight-lining of rental income of $2,210,000.  The net change in operating assets and liabilities was primarily due to higher prepaid real estate taxes of $19,330,000.

 

Net cash used in investing activities of $1,788,000 was comprised of capital expenditures of $3,219,000, partially offset by a decrease in restricted cash of $1,431,000.

 

Net cash used in financing activities of $36,067,000 was primarily comprised of dividends paid on common stock of $28,094,000 and debt repayments of $7,888,000.

 

Six Months Ended June 30, 2012

Cash and cash equivalents were $488,779,000 at June 30, 2012, compared to $506,619,000 at December 31, 2011, a decrease of $17,840,000.  This decrease resulted from $46,103,000 of net cash used in financing activities and $983,000 of net cash used in investing activities, partially offset by $29,246,000 of net cash provided by operating activities.

 

Net cash provided by operating activities was $29,246,000, of which $9,353,000 was related to discontinued operations.  Net cash provided by operating activities was comprised of net income of $38,662,000 and adjustments for non-cash items of $16,606,000, partially offset by the net change in operating assets and liabilities of $26,022,000.  The adjustments for non-cash items were comprised of (i) depreciation and amortization of $18,970,000 and (ii) stock-based compensation expense of $300,000, partially offset by (iii) straight-lining of rental income of $2,664,000.  The net change in operating assets and liabilities was primarily due to higher prepaid real estate taxes of $25,405,000.

 

Net cash used in investing activities of $983,000 was comprised of (i) capital expenditures of $5,128,000 (primarily Rego Park II) and (ii) an increase in restricted cash of $855,000, partially offset by (iii) proceeds from maturing short-term investments of $5,000,000.

 

Net cash used in financing activities of $46,103,000 was primarily comprised of dividends paid on common stock of $38,303,000 and debt repayments of $7,400,000.

 

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Liquidity and Capital Resources – continued

 

Commitments and Contingencies

 

Insurance

We maintain general liability insurance with limits of $300,000,000 per occurrence and all-risk property and rental value insurance coverage with limits of $1.7 billion per occurrence, including coverage for terrorist acts, with sub-limits for certain perils such as floods and earthquakes on each of our properties.

 

Fifty Ninth Street Insurance Company, LLC (“FNSIC”), our wholly owned consolidated subsidiary, acts as a direct insurer for coverage for acts of terrorism, including nuclear, biological, chemical and radiological (“NBCR”) acts, as defined by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“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.

 

Flushing Property

In 2002, Flushing Expo, Inc. (“Expo”) agreed to purchase the stock of the entity which owns the Flushing property from us (“Purchase of the Property”) and gave us a non-refundable deposit of $1,875,000.  Pursuant to a stipulation of settlement, we settled the action Expo brought against us regarding the Purchase of the Property and in June 2011, deposited the settlement amount with the Court, in exchange for which we received a stipulation of discontinuance, with prejudice, as well as general releases.  In November 2011, Expo filed another action, this time against our tenant at the Flushing property asserting, among other things, that such tenant interfered with Expo’s Purchase of the Property from us and sought $50,000,000 in damages from our tenant, who sought indemnification from us for such amount.  In August 2012, the Court entered judgment denying Expo’s claim for damages.  Expo filed a motion to re-argue the decision, which the Court denied on December 7, 2012.  Expo has appealed the Court’s August 2012 decision.  We believe, after consultation with counsel, that the amount or range of reasonably possible losses, if any, cannot be estimated.

 

Paramus

In 2001, we leased 30.3 acres of land located in Paramus, New Jersey to IKEA Property, Inc. The lease has a 40-year term with a purchase option in 2021 for $75,000,000. The property is encumbered by a $68,000,000 interest-only mortgage loan with a fixed rate of 2.90%, which matures in October 2018.  The annual triple-net rent is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is exercised, we will receive net cash proceeds of approximately $7,000,000 and recognize a gain on sale of land of approximately $60,000,000. If the purchase option is not exercised, the triple-net rent for the last 20 years would include debt service sufficient to fully amortize $68,000,000 over the remaining 20-year lease term.

 

Letters of Credit

Approximately $4,058,000 of standby letters of credit were outstanding as of June 30, 2013. 

 

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.

 

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Funds from Operations (“FFO”)

 

FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries.  FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions.  FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flow as a liquidity measure.  FFO may not be comparable to similarly titled measures employed by other companies.  A reconciliation of our net income to FFO is provided below.

 

 

FFO Attributable to Common Stockholders for the Three and Six Months Ended June 30, 2013 and 2012

 

FFO attributable to common stockholders for the quarter ended June 30, 2013 was $20,315,000, or $3.98 per diluted share, compared to $27,402,000, or $5.37 per diluted share for the prior year’s quarter.  The prior year’s quarter includes FFO from discontinued operations of $7,727,000, or $1.51 per diluted share.

 

FFO attributable to common stockholders for the six months ended June 30, 2013 was $41,654,000, or $8.15 per diluted share, compared to $55,432,000, or $10.85 per diluted share for the prior year’s six months.  The prior year’s six months includes FFO from discontinued operations of $15,594,000, or $3.05 per diluted share.

 

The following table reconciles our net income to FFO:

 

 

 

 

Three Months Ended

 

Six Months Ended