1
EXHIBIT INDEX ON PAGE 17
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-6064
ALEXANDER'S, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0100517
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY 07663
(Address of principal executive offices) (Zip Code)
(201)587-8541
(Registrant's telephone number, including area code)
(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 [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
As of October 23, 1998 there were 5,000,850 common shares
outstanding.
Page 1
2
ALEXANDER'S, INC.
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997........................................................... 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and September 30, 1997..................... 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and September 30, 1997.......................... 5
Notes to Consolidated Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risks..................... 14
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K................................................ 15
Signatures ................................................................................ 16
Exhibit Index ................................................................................ 17
Page 2
3
PART I. FINANCIAL INFORMATION
ALEXANDER'S, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
ASSETS:
Real estate, at cost:
Land $ 69,557 $ 45,571
Buildings, leaseholds and improvements 147,337 123,612
Capitalized expenses and predevelopment
costs 52,616 47,163
--------- ---------
Total 269,510 216,346
Less accumulated depreciation and
amortization (50,611) (35,224)
--------- ---------
218,899 181,122
Investment in unconsolidated joint
venture -- 10,611
--------- ---------
Real estate, net 218,899 191,733
Cash and cash equivalents 14,466 2,691
Restricted cash 11,175 1,872
Receivable arising from condemnation
proceedings -- 14,700
Accounts receivable, net of allowance for
doubtful accounts of $631 and $147 4,490 1,064
Receivable arising from the straight-lining
of rents, net 11,881 7,805
Deferred lease and other expenses 28,857 12,443
Deferred debt expense 3,098 783
Other assets 6,289 1,983
--------- ---------
TOTAL ASSETS $ 299,155 $ 235,074
========= =========
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Debt $ 262,269 $ 208,087
Amounts due to Vornado Realty Trust and
its affiliate 5,840 6,888
Accounts payable and accrued liabilities 10,143 4,174
Other liabilities 17,178 2,296
Minority interest 600 600
--------- ---------
TOTAL LIABILITIES 296,030 222,045
--------- ---------
Commitments and contingencies
Stockholders' Equity:
Common stock; $1.00 par value per share;
authorized 10,000,000 shares;
issued 5,173,450 5,174 5,174
Additional capital 24,843 24,843
Deficit (25,932) (16,028)
--------- ---------
4,085 13,989
Less treasury shares, 172,600 shares
at cost (960) (960)
--------- ---------
Total stockholders' equity 3,125 13,029
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 299,155 $ 235,074
========= =========
See notes to consolidated financial statements.
Page 3
4
ALEXANDER'S, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Property rentals $ 11,100 $ 4,317 $ 23,451 $ 13,167
Expense reimbursements 5,101 419 7,711 1,713
Equity in income of unconsolidated
joint venture -- 1,280 2,519 3,895
-------- -------- -------- --------
Total revenues 16,201 6,016 33,681 18,775
-------- -------- -------- --------
Expenses:
Operating (including management fee to Vornado
of $210 and $630 each for the three and nine
months ended in 1998 and 1997, respectively) 6,951 1,501 11,964 5,378
General and administrative (including management
fee to Vornado of $540 and $1,620 each for the
three and nine months ended in 1998 and
1997, respectively) 869 1,026 3,106 3,039
Depreciation and amortization 1,219 588 2,910 1,741
-------- -------- -------- --------
Total expenses 9,039 3,115 17,980 10,158
-------- -------- -------- --------
Operating income 7,162 2,901 15,701 8,617
Write-off of the carrying value of the
Lexington Avenue building and related
predevelopment costs (15,096) -- (15,096) --
Interest and debt expense
(including interest on loan from Vornado) (4,336) (3,250) (11,261) (9,855)
Interest and other income, net 328 214 752 1,078
-------- -------- -------- --------
Net loss $(11,942) $ (135) $ (9,904) $ (160)
======== ======== ======== ========
Net loss per share - basic $ (2.39) $ (.03) $ (1.98) $ (.03)
======== ======== ======== ========
Net loss per share - diluted $ (2.39) $ (.03) $ (1.98) $ (.03)
======== ======== ======== ========
See notes to consolidated financial statements.
Page 4
5
ALEXANDER'S, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,904) $ (160)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization
(including debt issuance costs) 3,937 3,089
Straight-lining of rental income (4,076) (1,024)
Write-off of the carrying value of the
Lexington Avenue building and related
predevelopment costs 15,096 --
Change in assets and liabilities:
Accounts receivable (472) (465)
(Investment) distributions in excess of equity in income
of unconsolidated joint venture (386) 1,481
Amounts due to Vornado Realty Trust and its affiliate (1,048) (1,787)
Accounts payable and accrued liabilities (1,299) 606
Other liabilities (120) (317)
Other (4,632) (2,320)
-------- --------
Net cash used in operating activities (2,904) (897)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Kings Plaza Mall (28,000) --
Additions to real estate (10,656) (16,323)
Collection of condemnation proceeds 14,700 --
Cash restricted for construction and development (9,237) 928
Cash restricted for operating liabilities (66) 557
-------- --------
Net cash used in investing activities (33,259) (14,838)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt 90,000 16,667
Debt repayments (38,720) (792)
Deferred debt expense (3,342) (199)
-------- --------
Net cash provided by financing activities 47,938 15,676
-------- --------
Net increase in cash and cash equivalents 11,775 (59)
Cash and cash equivalents at beginning of period 2,691 5,480
-------- --------
Cash and cash equivalents at end of period $ 14,466 $ 5,421
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments for interest (including capitalized
interest of $5,529 and $6,982) $ 15,762 $ 15,489
======== ========
See notes to consolidated financial statements.
Page 5
6
ALEXANDER'S, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Balance Sheet as of September 30, 1998, the Consolidated
Statements of Operations for the Three and Nine Months Ended September 30,
1998 and 1997, and the Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 are unaudited. In the opinion of
management, 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 generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1997 Annual
Report to Shareholders. The results of operations for the three and nine
months ended September 30, 1998 are not necessarily indicative of the
operating results for the full year.
2. ACQUISITION OF KINGS PLAZA MALL AND RELATED FINANCING TRANSACTIONS
On June 18, 1998, the Company increased its interest in the Kings Plaza
Mall (the "Mall") to 100% by acquiring Federated Department Store's
("Federated") 50% interest. The purchase price was approximately
$28,000,000, which was paid in cash. In addition, the Company has agreed to
pay Federated $15,000,000 to renovate its Macy's store in the Mall in
exchange for certain modifications to the Kings Plaza Operating Agreement.
The Company has accrued this liability as part of "Other liabilities" and
the consideration as part of "Deferred lease and other expenses" on the
Consolidated Balance Sheet. Prior to June 18, 1998, the Company owned a 50%
interest in the Mall (since it was built in 1970) and accounted for this
investment under the equity method.
In connection with the acquisition, the Company completed a $90,000,000
three-year mortgage loan with Union Bank of Switzerland. The loan is
collateralized by the Kings Plaza Mall and the Company's anchor store and
bears interest at LIBOR plus 1.25% (currently 6.91%). The proceeds from the
borrowing were also used to repay $34,900,000 of existing debt ($32,000,000
of which was due in the next year). In addition, the Company expects to
complete a $30,000,000 construction loan on this property with Union Bank of
Switzerland, of which approximately $15,000,000 will be used to partially
fund a renovation of the Mall, and $15,000,000 will be used to pay the
liability to Federated noted above.
Set forth below is the unaudited pro forma condensed consolidated
statements of operations for the Company for the nine months ended September
30, 1998 and 1997 as if the acquisition of the Kings Plaza Mall and the
related financing transactions had occurred on January 1, 1997.
Page 6
7
ALEXANDER'S, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share amounts)
PRO FORMA FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
Revenues $ 45,327 $ 30,301
======== ========
Net (loss) income $ (6,708) $ 12,685
======== ========
Net (loss) income per share - basic $ (1.34) $ .54
======== ========
Net (loss) income per share - diluted $ (1.34) $ .54
======== ========
The pro forma results for the nine months ended September 30, 1998 include
the write-off of the carrying value of the Lexington Avenue building and
related predevelopment costs of $15,096,000.
3. RELATIONSHIP WITH VORNADO REALTY TRUST ("Vornado")
Vornado owns 29.3% of the Company's Common Stock. The Company is managed
by and its properties are redeveloped and leased by Vornado, pursuant to
agreements with a one-year term expiring in March of each year which are
automatically renewable. Under these agreements, the Company incurred fees
of $1,563,000 in each of the three month periods ended September 30, 1998
and 1997 and $4,688,000 in the nine months ended September 30, 1998 and
1997. In addition, Vornado is due $3,221,000 at September 30, 1998 under the
leasing agreement, subject to the payment of rents by tenants.
Vornado lent the Company $45,000,000, the subordinated tranche of a
$75,000,000 loan, in 1995. The loan, which had a three-year term expiring on
March 15, 1998, has been extended for an additional year and the interest
rate has been reset from 15.60% per annum to 13.87% per annum. The Company
incurred interest on its loan from Vornado of $1,595,000 and $1,794,000 in
the three months ended September 30, 1998 and 1997, of which $976,000 and
$1,317,000 were capitalized. Interest on the loan was $4,891,000 and
$5,420,000 in the nine months ended September 30, 1998 and 1997, of which
$2,785,000 and $3,796,000 were capitalized.
4. COMMITMENTS AND CONTINGENCIES
Lexington Avenue
The Company is continuing to evaluate redevelopment plans for this site,
which may include developing a large multi-use building requiring capital in
excess of $300,000,000 to be expended. No development decisions have been
finalized. In September 1998, the Company commenced the process of razing
the existing building and accordingly, the carrying value of the building
and related predevelopment costs of $15,096,000 were written-off.
Page 7
8
ALEXANDER'S, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Environmental Matters
In June 1997, the Kings Plaza Shopping Center (the "Center"), commissioned
an Environmental Study and Contamination Assessment Site Investigation (the
Phase II "Study") to evaluate and delineate environmental conditions
disclosed in a Phase I study. The results of the Study indicate the
presence of petroleum and other hydrocarbons in the soil and groundwater.
The Study recommends a remedial approach, but agreement has not yet been
reached with the New York State Department of Environmental Conservation
("NYDEC") on the finalization of the approach. The Center accrued
$1,500,000 at December 31, 1997, for its estimated obligation with respect
to the clean up of the site, which includes costs of (i) remedial
investigation, (ii) feasibility study, (iii) remedial design, (iv) remedial
action and (v) professional fees. If the NYDEC insists on a more extensive
remediation approach, the Center could incur additional obligations.
Such contamination may have resulted from activities of third parties;
however, the sources of the contamination have not been fully identified.
Although the Center intends to pursue all available remedies against any
potentially responsible third parties, there can be no assurance that such
parties will be identified, or if identified, whether these potentially
responsible third parties will be solvent. In addition, the costs
associated with pursuing any potentially responsible parties may be cost
prohibitive. The Center has not recorded an asset as of September 30, 1998
for potential recoveries of environmental remediation costs from other
parties.
Compliance with applicable provisions of federal, state and local laws
regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment have not had, and, although
there can be no assurance, are not expected to have, a material effect on
the Company's operations, earnings, competitive position or capital
expenditures.
5. LOSS PER SHARE
The following table set for the computation of basic and diluted loss per
share:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Numerator:
Net loss $(11,942) $ (135) $ (9,904) $ (160)
-------- -------- -------- --------
Denominator:
Denominator for basic earnings per share --
weighted average shares 5,001 5,001 5,001 5,001
Effect of dilutive securities:
Employee stock options* -- -- -- --
-------- -------- -------- --------
Denominator for diluted earnings per share --
adjusted weighted average shares and
assumed conversions 5,001 5,001 5,001 5,001
-------- -------- -------- --------
Net loss per share - basic $ (2.39) $ (.03) $ (1.98) $ (.03)
-------- -------- -------- --------
Net loss per share - diluted $ (2.39) $ (.03) $ (1.98) $ (.03)
-------- -------- -------- --------
* The effect of employee stock options is anti-dilutive.
Page 8
9
ALEXANDER'S, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SUBSEQUENT EVENT
On October 16, 1998, the non-affiliated limited partners of the Seven Thirty
One Limited Partnership (the "Partnership"), which owns the Company's Lexington
Avenue property, exercised the right to put their remaining 7.64% interest to
the Partnership in exchange for a five year $15,000,000 Note. The Note bears
interest at Prime plus 1% (currently 9%) and is prepayable without penalty.
Page 9
10
ALEXANDER'S, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's revenues, which consist of property rentals, tenant
expense reimbursements and equity in income of unconsolidated joint venture were
$16,201,000 in the quarter ended September 30, 1998, compared to $6,016,000 in
the prior year's quarter, an increase of $10,185,000. Revenues were $33,681,000
for the nine months ended September 30, 1998, compared to $18,775,000 for the
prior year's nine months, an increase of $14,906,000.
Property rentals were $11,100,000 in the quarter ended September 30,
1998, compared to $4,317,000 in the prior year's quarter, an increase of
$6,783,000. Property rentals were $23,451,000 for the nine months ended
September 30, 1998, compared to $13,167,000 for the prior year's nine months, an
increase of $10,284,000. These increases resulted from:
FOR THE FOR THE
THREE MONTHS NINE MONTHS
EFFECTIVE ENDED ENDED
DATE SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
---- ------------------ ------------------
Rent from new tenants:
Kings Plaza Store Property October 1997 $1,361,000 $3,577,000
Rego Park I March and
May 1997 -- 1,232,000
Acquisition of additional 50%
interest in the Kings Plaza Mall June 1998 2,118,000 2,353,000
Consolidation of Kings Plaza Mall
Operations previously recorded on
the equity method June 1998 2,118,000 2,353,000
Caldor's rejection of its Fordham
Road lease June 1997 -- (1,609,000)
Parking lot revenue 813,000 1,642,000
Other 373,000 736,000
----------- -----------
$ 6,783,000 $10,284,000
=========== ===========
Tenant expense reimbursements were $5,101,000 in the quarter ended
September 30, 1998, compared to $419,000 in the prior year's quarter, an
increase of $4,682,000. Tenant expense reimbursements were $7,711,000 for the
nine months ended September 30, 1998, compared to $1,713,000 for the prior
year's nine months, an increase of $5,998,000 These increases reflect (i)
corresponding increases in operating expenses passed through to tenants as a
result of leases commencing subsequent to March 31, 1997 at the Rego Park I
property, (ii) the commencement of operations at the Kings Plaza Store property
and (iii) the acquisition of an additional 50% interest in the Kings Plaza Mall
and the consolidation of its operations after June 18, 1998.
The decreases in equity in income of unconsolidated joint venture (the
Kings Plaza Mall) resulted from the consolidation of the joint venture's
operations as noted above. Total income at the Kings Plaza Mall did not change
significantly between 1997 and 1998.
Page 10
11
ALEXANDER'S, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating expenses were $6,951,000 in the quarter ended September 30,
1998, compared to $1,501,000 in the prior year's quarter, an increase of
$5,450,000. Operating expenses were $11,964,000 for the nine months ended
September 30, 1998, compared to $5,378,000 in the prior year's nine months, an
increase of $6,586,000. These increases resulted primarily from (i) real estate
taxes which previously had been capitalized, being charged to income due to the
commencement of operations at the Kings Plaza Store property and (ii) the
acquisition of an additional 50% interest in the Kings Plaza Mall and the
consolidation of the Kings Plaza Mall's operations after June 18, 1998,
partially offset by (iii) a $667,000 charge to bad debt expense in the prior
year's nine months in connection with Caldor's rejection of its Fordham Road
lease.
General and administrative expenses were $869,000 in the quarter ended
September 30, 1998, compared to $1,026,000 in the prior year's quarter, a
decrease of $157,000. This decrease was primarily attributable to lower
professional fees and corporate office expenses. General and administrative
expenses were $3,106,000 for the nine months ended September 30, 1998, compared
to $3,039,000 in the prior year's nine months, an increase of $67,000.
Depreciation and amortization expense increased in 1998, compared to
1997 as a result of the Kings Plaza Mall acquisition in June 1998 and the
commencement of operations at the Kings Plaza Store property in October 1997.
In September 1998, the Company commenced the process of razing its
Lexington Avenue building and accordingly, the carrying value of the building
and related predevelopment costs of $15,096,000 were written-off.
Interest and debt expense was $4,336,000 in the quarter ended September
30, 1998, compared to $3,250,000 in the prior year's quarter, an increase of
$1,086,000. Interest and debt expense was $11,261,000 for the nine months ended
September 30, 1998, compared to $9,855,000 in the prior year's nine months, an
increase of $1,406,000. These increases resulted primarily from interest
allocated to the Kings Plaza Store property which previously had been
capitalized, being charged to income in 1998 and a decrease in amortization of
debt issuance costs.
Interest and other income was $328,000 in the quarter ended September
30, 1998, compared to $214,000 in the prior year's quarter, an increase of
$114,000. This increase resulted primarily from an increase in interest income
this year due to higher average investments. Interest and other income was
$752,000 for the nine months ended September 30, 1998, compared to $1,078,000 in
the prior year's nine months, a decrease of $326,000. This decrease resulted
from non-recurring items in the prior year's nine months.
LIQUIDITY AND CAPITAL RESOURCES
In the aggregate, Alexander's current operating properties (six of its
nine properties) do not generate sufficient cash flow to pay all of its
expenses. The Company's three non-operating properties (Lexington Avenue,
Paramus, and Rego Park II) are in various stages of redevelopment. As rents
commence from a portion of the redevelopment properties, the Company expects
that cash flow will become positive.
On June 18, 1998, the Company increased its interest in the Kings Plaza
Mall (the "Mall") to 100% by acquiring Federated Department Store's
("Federated") 50% interest. The purchase price was approximately $28,000,000,
which was paid in cash. In addition, the Company has agreed to pay Federated
$15,000,000 to renovate its Macy's store in the Mall in exchange for certain
modifications to the Kings Plaza Operating Agreement.
In connection with the acquisition, the Company completed a $90,000,000
three-year mortgage loan with Union Bank of Switzerland. The loan is
collateralized by the Kings Plaza Mall and the Company's anchor store and bears
interest at LIBOR plus 1.25% (currently 6.91%). The proceeds from the borrowing
were also used to repay $34,900,000 of existing debt ($32,000,000 of which was
due in the next year). In addition, the Company expects to complete a
$30,000,000 construction loan with Union Bank of Switzerland, of which
approximately $15,000,000 will be used in the future to partially fund a
renovation of the Mall (estimated to cost $20,000,000 in total) and $15,000,000
will be used to pay the liability to Federated noted above.
Page 11
12
ALEXANDER'S, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company estimates that its capital expenditure requirements for the
redevelopment of its Paramus property, will cost approximately $100,000,000. The
Company is evaluating development plans for the Lexington Avenue site, which may
include a large multi-use building requiring capital in excess of $300,000,000
to be expended. While the Company anticipates that financing will be available
after tenants have been obtained for these redevelopment projects, there can be
no assurance that such financing will be obtained or if obtained, that such
financings will be on terms that are acceptable to the Company. In addition, it
is uncertain as to when these projects will commence.
Property rentals from Caldor, which filed for relief under Chapter 11
of the United States Bankruptcy Code in September 1995, represented
approximately 9% and 22% of the Company's consolidated revenues for the nine
months ended September 30, 1998 and for the year ended December 31, 1997. Caldor
rejected its Fordham Road lease effective June 6, 1997 and accordingly, no
longer pays rent. Alexander's has filed a claim for damages based on such
rejection. The annual base rental revenue under this lease was $3,537,000. The
loss of property rental payments, if any, under the Caldor lease for the
Flushing property, could have a material adverse affect on the Company's
financial condition and results of operations.
The Company's $75,000,000 loan, collateralized by a mortgage on its
Rego Park I property, which was scheduled to mature on September 30, 1998, has
been extended to March 30, 1999. The loan bears interest at LIBOR plus 1.00%
(currently 6.64%) and is guaranteed by the Company. In connection with the loan
extension, the Company paid a fee of 1/8%. The Company expects to refinance
this loan through the issuance of public or private debt.
On October 16, 1998, the non-affiliated limited partners of the Seven
Thirty One Limited Partnership (the "Partnership"), which owns the Company's
Lexington Avenue property, exercised the right to put their remaining 7.64%
interest to the Partnership in exchange for a five year $15,000,000 Note. The
Note bears interest at Prime plus 1% (currently 9%) and is prepayable without
penalty.
The Company estimates that the fair market values of its assets are
substantially in excess of their historical cost and that it has additional
borrowing capacity. Alexander's continues to evaluate its needs for capital
which may be raised through (a) property specific or corporate borrowing, (b)
the sale of securities and (c) asset sales.
Although there can be no assurance, the Company believes that these
cash sources will be adequate to fund cash requirements until its operations
generate adequate cash flow.
CASH FLOWS
Nine Months Ended September 30, 1998
Cash used in operating activities of $2,904,000 was comprised of (i) a
net loss of $9,904,000 and (ii) the net change in operating assets and
liabilities of $7,957,000, offset by (iii) non-cash items of $14,957,000. The
adjustments for non-cash items are comprised of (i) the write-off of the
carrying value of the Lexington Avenue building and related predevelopment costs
of $15,096,000 and (ii) depreciation and amortization of $3,937,000, offset by
(iii) the effect of straight-lining of rental income of $4,076,000.
Net cash used in investing activities of $33,259,000 was primarily
comprised of (i) $28,000,000 for the acquisition of the remaining 50% interest
in the Kings Plaza Mall, (ii) the escrowing of cash from the condemnation of a
portion of the Paramus property ($4,172,000) and cash from the proceeds from the
Kings Plaza Shopping Center loan ($5,131,000) which is restricted as to its use
and (iii) capital expenditures of $10,656,000, partially offset by (iv) proceeds
from the condemnation of a portion of the Paramus property of $14,700,000.
Net cash provided by financing activities of $47,938,000 was comprised
of (i) proceeds from the issuance of debt on the Kings Plaza Center of
$90,000,000, offset by (ii) repayments of debt of $38,720,000 and (iii) debt
issuance costs of $3,342,000.
Page 12
13
ALEXANDER'S, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997
Cash used in operating activities of $897,000 was comprised of a net
loss of $160,000 and the net change in operating assets and liabilities of
$2,802,000, partially offset by the net change in non-cash items of $2,065,000.
The adjustments for non-cash items are comprised of depreciation and
amortization of $3,089,000, offset by the effect of straight-lining of rental
income of $1,024,000.
Net cash used in investing activities of $14,838,000 was comprised of
capital expenditures of $16,323,000, offset by the releases of $1,485,000 of
restricted cash.
Net cash provided by financing activities of $15,676,000 was comprised
of borrowings under the Rego Park I construction loan of $16,468,000 (net of
debt issuance cost), offset by repayment of debt of $792,000.
Funds from Operations for the Three and Nine Months Ended September 30, 1998
and 1997
Funds from operations were $2,707,000 in the quarter ended September
30, 1998, an increase of $3,182,000 over the prior year's quarter. Funds from
operations were $4,108,000 in the nine months ended September 30, 1998, an
increase of $4,516,000 over the prior year's nine months. The following table
reconciles funds from operations and net loss:
For The Three Months Ended For The Nine Months Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
Net loss $(11,942,000) $ (135,000) $ (9,904,000) $ (160,000)
Depreciation and amortization of
real property 1,219,000 588,000 2,910,000 1,741,000
Straight-lining of property rentals
for rent escalations (1,165,000) (611,000) (2,946,000) (1,024,000)
Leasing fees paid in excess
of expense recognized (501,000) (538,000) (1,488,000) (1,618,000)
Write-off of the carrying value of the
Lexington Avenue building
and related predevelopment costs 15,096,000 -- 15,096,000 --
Proportionate share of adjustments
to equity in income of unconsolidated
joint venture to arrive at funds from
operations -- 221,000 440,000 653,000
------------ ------------ ------------ ------------
$ 2,707,000 $ (475,000) $ 4,108,000 $ (408,000)
============ ============ ============ ============
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14
ALEXANDER'S, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs, which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use of
funds from operations. Funds from operations should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or as an alternative to cash flows as a measure of liquidity. Management
considers funds from operations a relevant supplemental measure of operating
performance because it provides a basis for comparison among REITs; however,
funds from operations may not be comparable to similarly titled measures
reported by other REITs since the Company's method of calculating funds from
operations is different from that used by NAREIT. Funds from operations, as
defined by NAREIT, represents net income before depreciation and amortization,
extraordinary items and gains or losses on sales of real estate. Funds from
operations as disclosed above has been modified to adjust for the effect of
straight-lining of property rentals for rent escalations and leasing fee
expenses. Below are the cash flows provided by (used in) operating, investing
and financing activities:
For The Three Months Ended For The Nine Months Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
Operating activities $ (2,936,000) $ (1,211,000) $ (2,904,000) $ (897,000)
============ ============ ============ ============
Investing activities $ (2,856,000) $ (7,441,000) $(33,259,000) $(14,838,000)
============ ============ ============ ============
Financing activities $ (756,000) $ (131,000) $ 47,938,000 $ 15,676,000
============ ============ ============ ============
Year 2000 Issues
The Company is managed by Vornado Realty Trust. Vornado initiated its
Year 2000 compliance programs and information systems modifications in early
1998 in an attempt to ensure that these systems and key processes will remain
functional. This objective is expected to be achieved either by modifying
present systems using existing internal and external programming resources or by
installing new systems, and by monitoring supplier and other third-party
interfaces. In many cases, the Company will be relying on statements from
outside vendors as to the Year 2000 readiness of their systems, and will not, in
many circumstances, attempt any independent verification. Review of the systems
affecting the Company and its properties is progressing. The Company does not
expect that the cost of modifications to its systems, if any, will have a
material adverse effect on its financial position, results of operations or
liquidity. The Company has contingency plans for its own day-to-day operational
systems and management is in the process of updating these plans for possible
Year 2000 specific operational requirements.
Recently Issued Accounting Standards
In June of 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Because the Company does not currently utilize derivatives or engage in hedging
activities, management does not anticipate that implementation of this statement
will have a material effect on the Company's financial statements.
Quantitative and Qualitative Disclosures About Market Risks
The Company has no material exposure to market risk sensitive
investments.
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15
ALEXANDER'S, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The following exhibits are filed with this
Quarterly Report on Form 10-Q.
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, the
Company filed the reports on Form 8-K described below:
Date of Report
(Date of Earliest
Event Reported) Item Reported Date Filed
--------------- ------------- ----------
June 18, 1998 Agreement to purchase 50% July 2, 1998
interest in Kings Plaza
June 18, 1998 Amendment to Kings Plaza July 31, 1998
Form 8-K and financial
statements and pro forma in
connection therewith
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16
ALEXANDER'S, INC.
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.
ALEXANDER'S, INC.
-----------------
(Registrant)
Date: November 6, 1998 /s/ Joseph Macnow
--------------------------------------------
JOSEPH MACNOW
Vice President - Chief Financial
Officer and Chief Accounting Officer
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ALEXANDER'S, INC.
EXHIBIT INDEX
EXHIBIT NO.
27 Financial Data Schedule