ALEXANDERS INC — Annual Report 2002

Mar 13, 2002

EXHIBIT INDEX ON PAGE 42 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: DECEMBER 31, 2001 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 (I.R.S. Employer incorporation or organization) Identification No.) 888 SEVENTH AVENUE, NEW YORK, NEW YORK 10019 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 894-7000 Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the common stock held by non-affiliates of the Registrant (based upon the closing price of the stock on the New York Stock Exchange on February 22, 2002) was approximately $113,257,000. 5,000,850 shares of the Registrant's common stock, par value $1 per share, were outstanding as of February 22, 2002. Documents Incorporated by Reference Part III: Proxy Statement for Annual Meeting of Shareholders to be held May 29, 2002 TABLE OF CONTENTS

(1) These items are omitted because the Registrant will file a definitive Proxy Statement pursuant to Regulation 14A involving the election of directors with the Securities and Exchange Commission not later than 120 days after December 31, 2001, which is incorporated by reference. Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This annual report on form 10-K contains certain forward-looking statements regarding our financial condition, results of operations and business. You can find many of these statements by looking for words such as "believes", "expects", "anticipates", "estimates", "intends", "plans" or similar expressions in this annual report on form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, but are not limited to, the following: (a) national, regional and local economic conditions; (b) the continuing impact of the September 11, 2001 terrorist attacks on our tenants and the national, regional and local economies, including, in particular, the New York City metropolitan areas; (c) local conditions such as an oversupply of space or a reduction in demand for real estate in the area; (d) the financial conditions of tenants; (e) competition from other available space; (f) whether tenants consider a property attractive; (g) whether we are able to pass some or all of any increased operating costs we experience through to our tenants; (h) how well we manage our properties; (i) increased interest expense; (j) decreases in market rental rates; (k) the timing and costs associated with property improvements and rentals; (l) changes in taxation or zoning laws; (m) government regulations; (n) our failure to continue to qualify as a real estate investment trust; (o) availability of financing on acceptable terms; (p) potential liability under environmental or other laws or regulations; (q) general competitive factors; (r) dependence upon Vornado Realty Trust; and (s) possible conflicts of interest with Vornado Realty Trust. -2- PART I Item 1. Business GENERAL Alexander's, Inc. (the "Company") is a real estate investment trust ("REIT") engaged in leasing, managing, developing and redeveloping properties. Alexander's activities are conducted through its manager, Vornado Realty Trust ("Vornado"). Alexander's has seven properties consisting of: Operating properties: (i) the recently renovated Kings Plaza Regional Shopping Center on Flatbush Avenue in Brooklyn, New York, which contains 1,100,000 square feet is comprised of a two-level mall containing 470,000 square feet (the "Mall"), a 289,000 square foot department store leased to Sears and another anchor department store owned and operated as a Macy's by Federated Department Stores, Inc. ("Federated"); (ii) the Rego Park I property located on Queens Boulevard and 63rd Road in Rego Park, Queens, New York, which contains a 351,000 square foot building, which is 100% leased to Sears, Circuit City, Bed Bath & Beyond, Marshalls and Old Navy; (iii) the Paramus property which consists of 30.3 acres of land located at the intersection of Routes 4 and 17 in Paramus, New Jersey which was leased to IKEA Properties, Inc. beginning October 5, 2001. (iv) the Flushing property located at Roosevelt Avenue and Main Street in Flushing, New York, which contains a 177,000 square foot building currently vacant; and (v) the Third Avenue property located at Third Avenue and 152nd Street in the Bronx, New York, which contains a 173,000 square foot building leased to an affiliate of Conway; Property under development: (vi) the Lexington Avenue property which comprises the entire square block bounded by Lexington Avenue, East 59th Street, Third Avenue and East 58th Street in Manhattan, New York; and Non-operating property to be developed: (vii) the Rego Park II property, which comprises one and one-half square blocks of vacant land adjacent to the Rego Park I property. Discussion of Lexington Avenue property under development: The development plans at Lexington Avenue currently consist of a proposed 1.4 million square foot multi-use building comprised of a commercial portion, which may include a combination of retail stores and offices, and a residential portion, consisting of condominium units. There can be no assurance that the residential portion will be built. If the residential portion of the property is developed, the air rights representing the residential portion would be held by a taxable REIT subsidiary, as a REIT is not permitted to sell condominiums without being subject to a 100% excise tax on the gain from the sale of such condominiums. The funding required for the proposed building will be in excess of $650,000,000. The Company is exploring various alternatives for financing the project, including equity, debt, joint ventures and asset sales, which may involve arrangements with Vornado Realty Trust. For a discussion of insurance and its possible effect on financing, see the discussion in Item 2 on page 9. On May 1, 2001 the Company entered into a lease agreement with Bloomberg L.P. to lease approximately 700,000 square feet in the building under development at Lexington Avenue. The initial term of the lease is for 25 years, with a ten-year renewal option. Base annual net rent is $34,221,000 in each of the first four years and $38,226,000 in the fifth year with a similar percentage increase each four years thereafter. There can be no assurance that the project ultimately will be completed, completed on time or completed for the budgeted amount. If the project is not completed on a timely basis, the lease may be cancelled and significant penalties may apply. -3- The Company sold its Fordham Road property, located in the Bronx, New York, on January 12, 2001. The vacant property contains 303,000 square feet and was sold for $25,500,000 resulting in a gain of $19,026,000. In addition, the Company paid off the mortgage on this property at a discount, which resulted in an extraordinary gain from the early extinguishment of debt of $3,534,000. On October 5, 2001, the Company entered into a ground lease for its Paramus, N.J. property with IKEA Property, Inc. The lease has a 40-year term with an option to purchase at the end of the 20th year for $75,000,000. Further, the Company has obtained a $68,000,000 interest only, non-recourse mortgage loan on the property from a third party lender. The fixed interest rate on the debt is 5.92% with interest payable monthly until maturity in October, 2011. The triple net rent each year is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is not exercised at the end of the 20th year, the triple net rent for the last 20 years must include debt service sufficient to fully amortize the $68,000,000 over the remaining 20-year lease period. Sears accounted for 21%, 21% and 22% of the Company's consolidated revenues for the years ended December 31, 2001, 2000 and 1999, respectively. No other tenant accounted for more than 10% of revenues. The Company has completed an interior renovation of the Kings Plaza Regional Shopping Center (the "Center") at a total cost of $33,000,000. The exterior of the Center is expected to be renovated in 2002 at a cost of approximately $4,000,000. In the aggregate, Alexander's operating properties do not generate sufficient cash flow to pay all of its expenses. As rents commence from the Lexington Avenue property (currently under development) and from the Flushing property (currently vacant) the Company expects that cash flow will become positive. 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. The Company is a Delaware corporation with its principal executive office located at 888 Seventh Avenue, New York, New York, 10019, telephone (212) 894-7000. Relationship with Vornado Realty Trust ("Vornado") Vornado owns 33.1% of the Company's Common Stock at December 31, 2001. 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. Vornado is a fully integrated REIT with significant experience in the ownership, development, leasing, operation and management of retail and office properties. The annual management fee payable by the Company to Vornado is equal to the sum of (i) $3,000,000, (ii) 3% of the gross income from the Mall, plus (iii) 6% of development costs with minimum guaranteed fees of $750,000 per annum. The leasing agreement provides for the Company to pay a fee to Vornado equal to (i) 3% of the gross proceeds, as defined, from the sale of an asset and (ii) in the event of a lease or sublease of an asset, 3% of lease rent for the first ten years of a lease term, 2% of lease rent for the eleventh through the twentieth years of a lease term and 1% of lease rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by tenants. Such amount is payable annually in an amount not to exceed $2,500,000, until the present value of such installments (calculated at a discount rate of 9% per annum) equals the amount that would have been paid had it been paid at the time the transactions which gave rise to the commissions occurred. Pursuant to the leasing agreement, 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. Under these agreements, the Company incurred fees of $9,361,000, $6,721,000 and $7,237,000 for the years ended December 31, 2001, 2000 and 1999. At December 31, 2001 the Company owes Vornado $2,249,000 for leasing fees. At December 31, 2001, the Company is indebted to Vornado in the amount of $119,000,000 comprised of (i) $95,000,000, the subordinated tranche of a $105,000,000 secured financing, and (ii) $24,000,000 under a $50,000,000 secured line of credit (which carries a 1% unused commitment fee). The interest rate on the loan and line of credit is 13.74% and the maturity has been extended to April 15, 2003. The interest rate on the loan and line of credit will reset on March 15, 2002 and quarterly thereafter, using the same spread to treasuries as presently exists and a 3.00% floor for treasuries. These loans are secured by liens on the Company's assets and/or pledges of the stock of subsidiaries owning the assets and/or guarantees of such subsidiaries and the parent; except the liens do not cover the Kings Plaza -4- Regional Shopping Center, Paramus and Rego Park I and are subordinate to first mortgages and a $10,000,000 bank term loan which is included in the $105,000,000 secured financing discussed above. Steven Roth is Chief Executive Officer and a director of the Company, the Managing General Partner of Interstate Properties ("Interstate") and Chairman of the Board and Chief Executive Officer of Vornado. At December 31, 2001, Mr. Roth, Interstate and the other two general partners of Interestate, David Mandelbaum and Russell B. Wight, Jr. (who are also directors of the Company and trustees of Vornado) own, in the aggregate, 27.5% of the outstanding common stock of the Company, and 15.5% of the outstanding common shares of beneficial interest of Vornado. ENVIRONMENTAL MATTERS In June 1997, the Kings Plaza Regional 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 bis (2-ethylhexyl) phthalate contamination in the soil and groundwater. The Company has delineated the contamination and has developed a remediation approach. The New York State Department of Environmental Conservation ("NYDEC") has approved a portion of the remediation approach. The Company accrued $2,000,000 in previous years ($1,830,000 has been paid as of December 31, 2001) 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. Based upon revised estimates, the Company accrued an additional $675,000 in the second quarter of 2001. If the NYDEC insists on a more extensive remediation approach, the Company could incur additional obligations. The majority of the contamination may have resulted from activities of third parties; however, the sources of the contamination have not been fully identified. Although the Company is pursuing claims 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 Company has not recorded an asset as of December 31, 2001 for potential recoveries of environmental remediation costs from other parties. COMPETITION The Company conducts its real estate operations in the New York metropolitan area, a highly competitive market. The Company's success depends upon, among other factors, the trends of the 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, income tax laws, governmental regulations and legislation, population trends, the market for real estate properties in the New York metropolitan area, zoning laws and the ability of the Company to lease, sublease or sell its properties at profitable levels. The Company competes with a large number of real estate property owners. In addition, although the Company believes that it will realize significant value from its properties over time, the Company anticipates that it may take a number of years before all of its properties generate cash flow at or near anticipated levels. The Company's success is also subject to its ability to finance its development and to refinance its debts as they come due. EMPLOYEES The Company currently has one corporate employee and 62 property level employees. -5- Item 2. Properties The following table shows the location, approximate size and leasing status as of December 31, 2001 of each of the Company's properties, excluding the Fordham Road property that was sold on January 12, 2001

-6- (1) Excludes parking garages operated for the benefit of the Company. (2) Excludes the 339,000 square foot Macy's store, owned and operated by Federated. (3) Leased to the Company through January 2027. The Company is obligated to pay rent to the landlord as follows: $331,000 per year from February 1997 through January 2007, $220,000 per year from February 2007 through January 2017, and $147,000 per year from February 2017 through January 2027. Operating Properties: Kings Plaza Regional Shopping Center The Kings Plaza Regional Shopping Center (the "Center") contains approximately 1.1 million square feet and is comprised of a two-level mall (the "Mall") containing 470,000 square feet and two four-level anchor stores. One of the anchor stores is owned by the Company and leased to Sears, while the other anchor store is owned and operated as a Macy's store by Federated. The Center occupies a 24.3-acre site at the intersection of Flatbush Avenue and Avenue U located in Brooklyn, New York. Among the Center's features are a marina, a five-level parking structure and an energy plant that generates all of the Center's electrical power. The Company has completed an interior renovation at a total cost of $33,000,000. The exterior of the Center is expected to be renovated in 2002 at a cost of approximately $4,000,000. The following table shows lease expirations for the Mall tenants in the Center for the next ten years, assuming none of the tenants exercise renewal options:

The following table shows the occupancy rate and the average annual rent per square foot for the Mall stores as of:

-7- Rego Park I The Rego Park I property encompasses the entire block fronting on Queens Boulevard and bounded by 63rd Road, 62nd Drive, 97th Street and Junction Boulevard. The existing 351,000 square foot building was redeveloped in 1996 and is fully leased to Sears, Circuit City, Bed Bath & Beyond, Marshalls and Old Navy. In addition, in conjunction with the redevelopment, a multi-level parking structure was constructed which provides paid parking spaces for approximately 1,200 vehicles. Paramus The Company owns 30.3 acres of land located at the intersection of Routes 4 and 17 in Paramus, New Jersey. The Company's property is located directly across from the Garden State Plaza regional shopping mall, within two miles of three other regional shopping malls and within 10 miles of New York City. This land is leased to IKEA Property, Inc. as discussed below. On October 5, 2001, the Company entered into a ground lease for its Paramus, N.J. property with IKEA Property, Inc. The lease has a 40-year term with an option to purchase at the end of the 20th year for $75,000,000. Further, the Company has obtained a $68,000,000 interest only, non-recourse mortgage loan on the property from a third party lender. The fixed interest rate on the debt is 5.92% with interest payable monthly until maturity in October, 2011. The triple net rent each year is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is not exercised at the end of the 20th year, the triple net rent for the last 20 years must include debt service sufficient to fully amortize the $68,000,000 over the remaining 20-year lease period. Flushing The Flushing property is located on Roosevelt Avenue and Main Street in the downtown, commercial section of Flushing, Queens. Roosevelt Avenue and Main Street are active shopping districts with many national retailers located in the area. A subway entrance is located directly in front of the property with bus service across the street. It comprises a four-floor building containing 177,000 square feet and a parking garage. This property has been vacant since March 1999. The Company is currently in discussions with several tenants to re-lease portions of this space. Third Avenue The Company owns the Third Avenue property, a four-floor building and a small surface parking lot located at the intersection of Third Avenue and 152nd Street in the Bronx, New York. The store is located in a densely populated neighborhood. This property is leased to an affiliate of Conway, a New York area discount retailer. Property Under Development: Lexington Avenue The Company owns the Lexington Avenue property which comprises the entire square block bounded by Lexington Avenue, East 59th Street, Third Avenue and East 58th Street and is situated in the heart of one of Manhattan's busiest business and shopping districts with convenient access to several subway and bus lines. The property is located directly across the street from Bloomingdale's flagship store and only a few blocks away from both Fifth Avenue and 57th Street. The development plans at Lexington Avenue currently consist of a proposed 1.4 million square foot multi-use building comprised of a commercial portion, which may include a combination of retail stores and offices, and a residential portion, consisting of condominium units. There can be no assurance that the residential portion will be built. If the residential portion of the property is developed, the air rights representing the residential portion would be held by a taxable REIT subsidiary, as a REIT is not permitted to sell condominiums without being subject to a 100% excise tax on the gain from the sale of such condominiums. The funding required for the proposed building will be in excess of $650,000,000. The Company is exploring various alternatives for financing the project, including equity, debt, joint ventures and asset sales, which may involve arrangements with Vornado Realty Trust. For a discussion of insurance and its possible effect on financing, see the discussion in Item 2 on page 9. -8- On May 1, 2001 the Company entered into a lease agreement with Bloomberg L.P. to lease approximately 700,000 square feet. The initial term of the lease is for 25 years, with a ten-year renewal option. Base annual net rent is $34,221,000 in each of the first four years and $38,226,000 in the fifth year with a similar percentage increase each four years thereafter. There can be no assurance that the project ultimately will be completed, completed on time or completed for the budgeted amount. If the project is not completed on a timely basis, the lease may be cancelled and significant penalties may apply. Non-Operating Property to be Developed: Rego Park II The Company owns two land parcels adjacent to the Rego Park I property. They are the entire square block bounded by the Long Island Expressway, 97th Street, 62nd Drive and Junction Boulevard and a smaller parcel of approximately one-half square block at the intersection of 97th Street and the Long Island Expressway. Both parcels are currently zoned for residential use. Both parcels are being used for public paid parking. The Company intends to continue to use these properties for paid parking while it evaluates development options. Insurance The Company carries comprehensive liability and all risk property insurance (fire, flood, extended coverage and rental loss insurance) with respect to its assets. The Company's all risk insurance policies in effect before September 11, 2001 included coverage for terrorist acts, except for acts of war. Since September 11, 2001, insurance companies are excluding terrorists acts from coverage in all risk policies. The Company is unlikely to be able to obtain all risk insurance which includes coverage for terrorists acts when policies renew in 2002. Therefore, the risk of financial loss in the case of terrorist acts is the Company's, which loss could be material. The Company's debt instruments, consisting of mortgage loans secured by its properties (which are generally non-recourse to the Company), contain customary covenants requiring the Company to maintain insurance. There can be no assurance that the lenders under these instruments will not take the position that an exclusion from all risk insurance coverage for losses due to terrorist acts is a breach of these debt instruments that allows the lenders to declare an event of default and accelerate repayment of debt. In addition, if lenders insist on coverage for these risks, it could adversely affect the Company's ability to finance and/or refinance its properties, including the construction of its Lexington Avenue development property. Item 3. Legal Proceedings Neither the Company nor any of its subsidiaries is a party to, nor is their property the subject of, any material pending legal proceeding other than routine litigation incidental to their businesses. The Company believes that these legal actions will not be material to the Company's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2001. -9- Executive Officers of the Company The following is a list of the names, ages, principal occupations and positions with the Company of the executive officers of the Company and the positions held by such officers during the past five years.

-10- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Equity and Related Stockholder Matters The common stock, par value $1.00 per share, of the Company is traded on the New York Stock Exchange under the symbol "ALX". Set forth below are the high and low sales prices for the Company's common stock for each full quarterly period within the two most recent years:

As of December 31, 2001, there were approximately 1,700 holders of record of the Company's common stock. The Company pays dividends only if, as and when declared by its Board of Directors. No dividends were paid in 2001 and 2000. In order to qualify as a REIT, the Company generally is required to distribute as a dividend 90% of its taxable income. At December 31, 2001, the Company had net operating loss carryovers ("NOL's") of approximately $133,000,000. Under the Internal Revenue Code of 1986, as amended, the Company's NOL's generally would be available to offset the amount of the Company's REIT taxable income that otherwise would be required to be distributed as a dividend to stockholders. -11- Item 6. Selected Financial Data Summary of Selected Financial Data (Amounts in thousands, except per share data)

Notes: (1) Net income includes the following, (i) gain on sale of the Fordham Road Property of $19,026 (ii) extraordinary gain from early extinguishment of debt of $3,534 offset by (iii) $3,058 resulting from the write-off of architectural and engineering costs associated with development plans at Paramus prior to IKEA, and (iv) $2,030 from the write-off of professional fees resulting from the termination of the spin-off of Alexander's Tower LLC. (2) Net of $4,877 resulting from the write-off of the asset arising from the straight-lining of rents primarily due to Caldor's rejection of its Flushing lease in 1999. (3) In June 1998, the Company increased its interest in the Kings Plaza Mall to 100% by acquiring Federated's 50% interest. (4) Net loss includes the write-off of $15,096 resulting from the razing of the building formerly located at the Company's Lexington Avenue site. (5) Includes a gain of $8,914 from the condemnation of a portion of the Paramus property net of the write-off of the carrying value of the building of $5,786. (6) Income (loss) per share is the same for all years presented with and without dilution. For further discussion of income (loss) per share see notes to the consolidated financial statements. -12- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW The Company had net income of $27,386,000 for the year ended December 31, 2001, compared to net income of $5,197,000 in the prior year. Net income for 2001 includes (i) a gain the sale of the Fordham Road property of $19,026,000, (ii) an extraordinary gain from the early extinguishment of debt of $3,534,000, partially offset by (iii) a charge of $3,058,000 resulting from the write-off of architectural and engineering costs associated with the development plans prior to the IKEA Property Inc. (IKEA) ground lease at Paramus, and (iv) a charge of $2,030,000 resulting from the write-off of professional fees resulting from the termination of the spin-off of Alexander's Tower LLC discussed below. A wholly-owned subsidiary of the Company, Alexander's Tower LLC (a taxable REIT subsidiary) was formed to hold title to, and develop, the residential portion of the property. During 2001, the Company filed a Form 10 Registration Statement with the Securities and Exchange Commission that would have allowed the Company's possible distribution, to its stockholders, of the equity interest in Alexander's Tower LLC. On December 21, 2001, the Company withdrew and terminated the registration. Details of the additional changes in the components of net income for the year ended December 31, 2001 as compared to 2000 are discussed below. RESULTS OF OPERATIONS Years Ended December 31, 2001 and December 31, 2000 The Company's revenues, which consist of property rentals and tenant expense reimbursements were $69,343,000 in 2001, compared to $63,965,000 in 2000, an increase of $5,378,000. Property rentals were $45,625,000 in 2001, compared to $43,173,000 in 2000, an increase of $2,452,000. This increase results primarily from (i) commencement, on October 5, 2001, of the ground lease with IKEA at the Paramus property, and (ii) an increase in occupancy at the Kings Plaza Regional Shopping Center. Tenant expense reimbursements were $23,718,000 in 2001, compared to $20,792,000 in 2000, an increase of $2,926,000. This increase resulted primarily from (i) higher reimbursements for incremental real estate taxes and repairs and maintenance, and (ii) a $531,000 adjustment, made in the first quarter of 2000, in the method of allocating an anchor tenant's share of parking lot expenses at the Rego Park I property (which covered a number of years). Operating expenses were $29,785,000 in 2001, compared to $29,040,000 in 2000, an increase of $745,000. This resulted primarily from an increase in real estate taxes and repairs and maintenance of $1,534,000, partially offset by the following relating to the Kings Plaza Regional Shopping Center, decreases in (i) operating expenses of $866,000 primarily from fuel costs at the utility plant and (ii) marketing expenses of $492,000, partially offset by an accrual of $675,000 for environmental remedation. Depreciation and amortization expense was $6,508,000 in 2001, compared to $5,543,000 in 2000. This increase of $965,000 is a result of the interior refurbishment of the Company's Kings Plaza Regional Shopping Center completed in the beginning of 2001. Interest and debt expense was $22,469,000 in 2001, compared to $21,424,000 in 2000, an increase of $1,045,000. This resulted primarily from (i) $108,000,000 in additional mortgage borrowings from refinancing the Kings Plaza Regional Shopping Center on June 1, 2001, (ii) a $68,000,000 mortgage loan on the Paramus property on October 5, 2001, offset by (iii) the repayment of a loan in the amount of $21,263,000 in connection with the sale on January 12, 2001 of the Fordham Road property. The increase in interest resulting from higher average borrowing was substantially offset by (i) a decrease in average interest rates to 9.20% from 10.07%, and (ii) an increase in capitalized interest relating to the Company's development properties. Interest and other income was $3,237,000 in 2001, compared to $1,124,000 in 2000. This increase of $2,113,000 results primarily from increased invested cash balances attributable to additional borrowings on the Company's Kings Plaza Regional Shopping Center on June 1, 2001, and Paramus property on October 5, 2001. -13- Minority interest of $49,000 in 2001 relates to $1,200,000 of non-convertible preferred stock that was sold to Vornado Realty Trust by 59th Street Corporation (a wholly-owned subsidiary of the Company) on August 1, 2001. This issue was redeemed by 59th Street Corporation, and a $49,000 dividend was paid, on December 28, 2001. Years Ended December 31, 2000 and December 31, 1999 The Company's revenues, which consist of property rentals and tenant expense reimbursements were $63,965,000 in 2000, compared to $64,390,000 in 1999, a decrease of $425,000. Property rentals were $43,173,000 in 2000, compared to $44,232,000 in 1999, a decrease of $1,059,000. This decrease resulted primarily from Caldor's rejection of its Flushing lease effected March 29, 1999. Tenant expense reimbursements were $20,792,000 in 2000, compared to $20,158,000 in 1999, an increase of $634,000. This increase resulted primarily from higher reimbursements for a portion of the increased fuel costs of the utility plant at the Company's Kings Plaza Regional Shopping Center; partially offset from a change made in the first quarter of 2000, in the method of allocating an anchor tenant's share of parking lot expenses at the Rego Park I property (which covered a number of years). Operating expenses were $29,040,000 in 2000, compared to $33,081,000 in 1999, a decrease of $4,041,000. This decrease resulted primarily from: (i) $4,877,000 representing the write-off of the asset arising from the straight-lining of rents due to Caldor's rejection of its Flushing lease in 1999, (ii) a decrease in repairs and maintenance of $1,243,000 in 2000, partially offset by an increase in expenses of the utility plant at the Company's Kings Plaza Regional Shopping Center in the current year resulting from higher fuel costs. General and administrative expenses were $3,885,000 in 2000, compared to $3,692,000 in 1999, an increase of $193,000 primarily as a result of higher professional fees. Interest and debt expense was $21,424,000 in 2000, compared to $17,647,000 in 1999, an increase of $3,777,000. This increase resulted from (i) an increase in average debt outstanding of $61,268,000, and (ii) an increase in average interest rates from 8.50% to 10.07%, substantially offset by (iii) an increase in capitalized interest resulting from the Company's development properties. LIQUIDITY AND CAPITAL RESOURCES In the aggregate, Alexander's operating properties do not generate sufficient cash flow to pay all of its expenses. As rents commence from the Lexington Avenue property (currently under development) and from the Flushing property (currently vacant) the Company expects that cash flow will become positive. The development plans at Lexington Avenue currently consist of a proposed 1.4 million square foot multi-use building comprised of a commercial portion, which may include a combination of retail stores and offices, and a residential portion, consisting of condominium units. There can be no assurance that the residential portion will be built. The funding required for the proposed building will be in excess of $650,000,000. The Company is exploring various alternatives for financing the project, including equity, debt, joint ventures and asset sales, which may involve arrangements with Vornado Realty Trust. For a discussion of insurance and its possible effect on financing, see the discussion below and in Item 2 on page 9. On May 1, 2001 the Company entered into a lease agreement with Bloomberg L.P. to lease approximately 700,000 square feet in the building under development at Lexington Avenue. The initial term of the lease is for 25 years, with a ten-year renewal option. Base annual net rent is $34,221,000 in each of the first four years and $38,226,000 in the fifth year with a similar percentage increase each four years thereafter. There can be no assurance that the project ultimately will be completed, completed on time or completed for the budgeted amount. If the project is not completed on a timely basis, the lease may be cancelled and significant penalties may apply. The Company's debt instruments, consisting of mortgage loans secured by its properties (which are generally non-recourse to the Company), contain customary covenants requiring the Company to maintain insurance. There can be no assurance that the lenders under these instruments will not take the position that an exclusion from all risk insurance coverage for losses due to terrorist acts is a breach of these debt instruments that allows the lenders to -14- declare an event of default and accelerate repayment of debt. In addition, if lenders insist on coverage for these risks, it could adversely affect the Company's ability to finance and/or refinance its properties, including the construction of its Lexington Avenue development property. On October 5, 2001, the Company entered into a ground lease for its Paramus, N.J. property with IKEA Property, Inc. The lease has a 40-year term with an option to purchase at the end of the 20th year for $75,000,000. Further, the Company has obtained a $68,000,000 interest only, non-recourse mortgage loan on the property from a third party lender. The fixed interest rate on the debt is 5.92% with interest payable monthly until maturity in October, 2011. The triple net rent each year is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is not exercised at the end of the 20th year, the triple net rent for the last 20 years must include debt service sufficient to fully amortize the $68,000,000 over the remaining 20-year lease period. In addition, as a result of this transaction, the Company also repaid $10,000,000 of the $20,000,000 outstanding term loan to a bank, which carries an interest rate of LIBOR plus 1.85% (3.75% at December 31, 2001). The Company sold its Fordham Road property, located in the Bronx, New York, on January 12, 2001. The vacant property contains 303,000 square feet and was sold for $25,500,000 resulting in a gain of $19,026,000. In addition, the Company paid off the $21,263,000 mortgage on this property at a discount, which resulted in an extraordinary gain from the early extinguishment of debt of $3,534,000. At December 31, 2001, the Company is indebted to Vornado in the amount of $119,000,000 comprised of (i) $95,000,000, the subordinated tranche of a $105,000,000 secured financing, and (ii) $24,000,000 under a $50,000,000 secured line of credit (which carries a 1% unused commitment fee). The interest rate on the loan and line of credit is 13.74% and the maturity has been extended to April 15, 2003. The interest rate on the loan and line of credit will reset on March 15, 2002 and quarterly thereafter, using the same spread to treasuries as presently exists and a 3.00% floor for treasuries. These loans are secured by liens on the Company's assets and/or pledges of the stock of subsidiaries owning the assets and/or guarantees of such subsidiaries and the parent; except the liens do not cover the Kings Plaza Regional Shopping Center, Paramus and Rego Park I and are subordinate to first mortgages and a $10,000,000 bank term loan which is included in the $105,000,000 secured financing discussed above. On June 1, 2001, the Company, through a newly formed subsidiary, completed a $223,000,000 refinancing of its subsidiary's Kings Plaza Regional Shopping Center property and repaid the then existing balance of $115,210,000 of debt collateralized by the property from the proceeds of the new loan. The new 10-year mortgage matures in June 2011 and bears interest at a fixed rate of 7.46%. Monthly payments include principal based on a 27-year amortization schedule. A summary of maturities of debt at December 31, 2001 is as follows:

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 Year Ended December 31, 2001 Net cash provided by operating activities of $9,839,000 was comprised of (i) net income of $27,386,000, (ii) non-cash items of $4,824,000, (iii) write-off of architectural and engineering costs of $3,058,000 associated with the development plans prior to the IKEA Property, Inc. ground lease, (iv) write-off of professional fees of $2,030,000 resulting from the termination of the spin-off of Alexander's Tower LLC, offset by (v) gain on sale of -15- Fordham Road property of $19,026,000, (vi) extraordinary gain from early extinguishment of debt of $3,534,000, and (vii) the net change in operating assets and liabilities of $4,899,000. The adjustments for non-cash items are primarily comprised of (i) depreciation and amortization of $7,973,000, offset by (ii) the effect of straight-lining of rental income of $3,149,000. Net cash used in investing activities of $22,995,000 was comprised of (i) proceeds from the sale of Fordham Road property of $23,701,000, (ii) the release of restricted cash of $21,670,000, offset by (iii) capital expenditures of $48,490,000 and (iv) an increase in restricted cash of $19,876,000. The capital expenditures were primarily comprised of (i) capitalized interest and other carrying costs of $21,378,000, (ii) renovations to the Kings Plaza Regional Shopping Center of $3,651,000 and (iii) excavation, foundation and predevelopment costs at Lexington Avenue of $21,599,000. Net cash provided by financing activities of $146,142,000 was comprised of (i) proceeds from the issuance of debt of $300,685,000 offset by, (ii) repayment of debt of $149,337,000, and (iii) debt issuance costs of $5,206,000. Year Ended December 31, 2000 Cash provided by operating activities of $10,741,000 was comprised of income after adjustments for non-cash items of $9,737,000, net of the change in operating assets and liabilities of $1,004,000. The adjustments for non-cash items are comprised of depreciation and amortization of $8,049,000 and the effect of straight-lining of rental income of $3,509,000. Net cash used in investing activities of $65,636,000 was comprised of capital expenditures of $77,931,000, offset by the release of restricted cash of $12,295,000. The capital expenditures were primarily comprised of: (i) excavation, foundation and predevelopment costs at Lexington Avenue of $35,300,000, (ii) renovations to the Kings Plaza Regional Shopping Center of $22,700,000, and (iii) capitalized interest and other carrying costs of $18,800,000. Net cash provided by financing activities of $31,114,000 was comprised of (i) proceeds from the issuance of debt of $38,849,000, offset by (ii) payment of acquisition obligation of $6,936,000, (iii) repayments of debt of $222,000 and (iv) debt issuance costs of $577,000. Year Ended December 31, 1999 Cash provided by operating activities of $17,194,000 was comprised of income after adjustments for non-cash items of $14,445,000, net of the change in operating assets and liabilities of $2,749,000. The adjustments for non-cash items are comprised of depreciation and amortization of $7,460,000 and the effect of straight-lining of rental income of $1,461,000. Net cash used in investing activities of $47,601,000 was primarily comprised of (i) the escrowing of cash from the proceeds from the Kings Plaza Regional Shopping Center which is restricted as to its use $13,601,000, net of the release of cash from escrow for the condemnation of a portion of the Paramus property $2,318,000 and (ii) capital expenditures of $36,318,000. Net cash provided by financing activities of $41,097,000 was comprised of (i) proceeds from the issuance of debt of $137,676,000, offset by (ii) repayments of debt of $85,628,000, (iii) debt issuance costs of $3,522,000 and (iv) payment of acquisition obligation of $7,429,000. -16- Funds from Operations for the Years Ended December 31, 2001 and 2000 Funds from operations were $5,785,000 in the year ended December 31, 2001, an increase of $311,000 from the prior year. The following table reconciles funds from operations and net income:

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 paid directly to Vornado Realty Trust. Below are the cash flows provided by (used in) operating, investing and financing activities:

Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 is effective immediately and SFAS No. 142 will be implemented in January 2002. The implementation of these standards did not have an impact on the Company's financial statements. -17- In August 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (effective January 1, 2003) and SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (effective January 1, 2002). SFAS No. 143 requires the recording of the fair value of a liability for an asset retirement obligation in the period in which it is incurred. SFAS No. 144 supercedes current accounting literature and now provides for a single accounting model for long-lived assets to be disposed of by sale and requires discontinued operations presentation for disposals of a "component" of entity. The Company does not believe that the adoption of SFAS No. 143 and 144 will affect the Company's financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk At December 31, 2001 and 2000, the Company had $25,000,000 and $170,788,000 of variable rate debt at weighted average interest rates of 4.95% and 8.36%. In addition, at December 31, 2001 and 2000, the Company had $490,831,000 and $197,000,000 of fixed rate debt bearing interest at weighted average interest rates of 8.73% and 12.19%. A one percent increase in the base used to determine the interest rate of the variable rate debt would result in a $250,000 decrease in the Company's annual net income for the year ended December 31, 2001 ($.05 per basic and diluted share). -18- Item 8. Financial Statements and Supplementary Data Index to Financial Statements

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. -19- INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders of Alexander's, Inc. Paramus, New Jersey We have audited the accompanying consolidated balance sheets of Alexander's, Inc. and Subsidiaries (the "Company") as of December 31, 2001 and 2000 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedules listed in the index at Item 14(a)(2). These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001, and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Parsippany, New Jersey March 11, 2002 -20- ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands except share amounts) - --------------------------------------------------------------------------------

See notes to consolidated financial statements -21- ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (amounts in thousands except share amounts) - --------------------------------------------------------------------------------

See notes to consolidated financial statements -22- ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands except share amounts) - --------------------------------------------------------------------------------

See notes to consolidated financial statements. -23- ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in thousands) - --------------------------------------------------------------------------------

See notes to consolidated financial statements. -24- ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) - --------------------------------------------------------------------------------

See notes to consolidated financial statements. -25- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION AND BUSINESS Alexander's, Inc. (the "Company") is a real estate investment trust ("REIT") engaged in leasing, managing, developing and redeveloping properties. Alexander's activities are conducted through its manager, Vornado Realty Trust ("Vornado"). In the aggregate, Alexander's operating properties do not generate sufficient cash flow to pay all of its expenses. As rents commence from the Lexington Avenue property (currently under development) and from the Flushing property (currently vacant) the Company expects that cash flow will become positive. 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation -- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. Certain reclassifications to prior year amounts have been made to conform with the current year's presentation. The Company currently operates in one business segment. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management 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. Cash and Cash Equivalents -- The Company includes in cash and cash equivalents both cash and short-term highly liquid investments purchased with original maturities of three months or less. Cash and cash equivalents does not include cash restricted for construction financing and operating liabilities which is disclosed separately. Fair Value of Financial Instruments - All financial instruments of the Company are reflected in the accompanying Consolidated Balance Sheets at historical cost which, in management's estimation, based upon an interpretation of available market information and valuation methodologies (including discounted cash flow analyses with regard to fixed rate debt), reasonably approximates their fair values. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of the Company's financial instruments. Real Estate and Other Property - Real estate and other property is carried at cost, net of accumulated depreciation. Depreciation is provided on buildings and improvements on a straight-line basis over their estimated useful lives ranging from four years to forty years. When real estate and other property is undergoing development activities, all property operating expenses, including interest expense, are capitalized to the cost of the real property to the extent that management believes such costs are recoverable through the value of the property. The Company's properties are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property may not be recoverable. In such an event, a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future on an undiscounted basis, to the carrying amount of such property. Such carrying amount would be adjusted, if necessary, to reflect an impairment in the value of the asset. Deferred Charges - Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest expense. Direct costs related to leasing activities are capitalized and amortized on a straight-line basis over the lives of the related leases. All other deferred charges are amortized on a straight-line basis, which approximates the effective interest rate method, in accordance with the terms of the agreements to which they relate. -26- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Revenue Recognition - Base rents, additional rents based on tenants' sales volume and reimbursement of the tenants' share of certain operating expenses are generally recognized when due from tenants. The straight-line basis is used to recognize base rents under leases entered into after November 14, 1985, which provide for varying rents over the lease terms. Contingent rents are not recognized until realized. Income Taxes - The Company operates in a manner intended to enable it to continue to qualify as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). Under the Code, the Company's net operating loss ("NOL") carryovers generally would be available to offset the amount of the Company's REIT taxable income that otherwise would be required to be distributed as a dividend to its stockholders. The Company has reported NOL carryovers for federal tax purposes of approximately $133,000,000 at December 31, 2001, expiring from 2007 to 2015. The Company also has investment tax and targeted jobs tax credits of approximately $2,800,000 expiring in 2008 through 2014. The net basis in the Company's assets and liabilities for tax purposes is approximately $71,000,000 lower than the amount reported for financial statement purposes. Amounts Per Share - Basic income per share excludes any dilutive effects of stock options. Stock options outstanding were not dilutive in any period. Stock Options - The Company accounts for stock-based compensation using the intrinsic value method. Under the intrinsic value method compensation cost is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. The Company's policy is to grant options with an exercise price equal to the quoted market price of the Company's stock on the grant date. Accordingly, no compensation cost has been recognized for the Company's stock option plans. Stock Appreciation Rights - Stock Appreciation Rights (SARs) are granted at 100% of the market price of the Common Stock on the date of grant. SARs vest ratably, becoming fully vested 36 months after grant. Expense is recognized ratably in the statement of income if the stock price exceeds the exercise price at the balance sheet date. On subsequent balance sheet dates, if the stock price falls, the previously recognized expense is reversed, but not below zero. Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 is effective immediately and SFAS No. 142 will be implemented in January 2002. The implementation of these standards did not have an impact on the Company's financial statements. In August 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (effective January 1, 2003) and SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets (effective January 1, 2002). SFAS No. 143 requires the recording of the fair value of a liability for an asset retirement obligation in the period in which it is incurred. SFAS No. 144 supercedes current accounting literature and now provides for a single accounting model for long-lived assets to be disposed of by sale and requires discontinued operations presentation for disposals of a "component" of entity. The Company does not believe that the adoption of SFAS No. 143 and 144 will affect the Company's financial statements. -27- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 3. DEBT Debt comprises:

For a discussion of insurance and its possible effect on financing, see the discussion below. (1) At December 31, 2001, the Company is indebted to Vornado in the amount of $119,000,000 comprised of (i) $95,000,000, the subordinated tranche of a $105,000,000 secured financing, and (ii) $24,000,000 under a $50,000,000 secured line of credit (which carries a 1% unused commitment fee). The interest rate on the loan and line of credit is 13.74% and the maturity has been extended to April 15, 2003. The interest rate on the loan and line of credit will reset on March 15, 2002 and quarterly thereafter, using the same spread to treasuries as presently exists and a 3.00% floor for treasuries. The interest rate on the bank loan is LIBOR plus 1.85% (3.75% at December 31, 2001). The term loan to the bank which was scheduled to mature on March 15, 2002, has been extended to March 15, 2003. In addition, the interest rate will reset on March 15, 2002 using the same spread to LIBOR as presently exists. The loans are secured by liens on the Company's assets and/or pledges of the stock of subsidiaries owning the assets and/or guarantees of such subsidiaries and the parent; except the liens do not cover the Kings Plaza Regional Shopping Center, Paramus and Rego Park I and are subordinate to first mortgages. The Vornado lien is subordinate to the bank's $10,000,000 loan. The Vornado loan is prepayable quarterly without penalty. Under the terms of the loans, no dividends can be paid unless required to maintain REIT status. (2) On June 1, 2001, the Company, through a newly formed subsidiary, completed a $223,000,000 refinancing of its subsidiary's Kings Plaza Regional Shopping Center property and repaid the then existing balance of $115,210,000 of debt collateralized by the property from the proceeds of the new loan. The new 10-year mortgage matures in June 2011 and bears interest at a fixed rate of 7.46%. Monthly payments include principal based on a 27-year amortization schedule. -28- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (3) The mortgage loan, which is an obligation of a wholly-owned subsidiary, matures in May, 2009 and is secured by a mortgage on the Rego Park I property and guaranteed by the Company. The loan bears interest at a fixed rate of 7.25%. Amortization of principal begins in July 2004 on a 30-year schedule. (4) The $68,000,000 interest only, non-recourse mortgage loan on the Paramus property is from a third party lender. The fixed interest rate on the debt is 5.92% with interest payable monthly until maturity in October, 2011. (5) The note is secured by a third mortgage on the Lexington Avenue property. The note bears annual interest at Prime plus 1% (5.75% at December 31, 2001) and is prepayable without penalty. (6) The Company's mortgage loan, which was an obligation of a wholly-owned subsidiary of the Company, has been satisfied in connection with the sale of the Fordham Road property on January 12, 2001. A summary of maturities of debt at December 31, 2001, is as follows:

All of the Company's debt is secured by mortgages and/or pledges of the stock of subsidiaries holding the properties. The net carrying value of real estate collateralizing the debt amounted to $380,359,000 at December 31, 2001. The Company's debt instruments, consisting of mortgage loans secured by its properties (which are generally non-recourse to the Company), contain customary covenants requiring the Company to maintain insurance. There can be no assurance that the lenders under these instruments will not take the position that an exclusion from all risk insurance coverage for losses due to terrorist acts is a breach of these debt instruments that allows the lenders to declare an event of default and accelerate repayment of debt. In addition, if lenders insist on coverage for these risks, it could adversely affect the Company's ability to finance and/or refinance its properties, including the construction of its Lexington Avenue development property. 4. LEASES As Lessor The Company leases properties to tenants. The rental terms for the properties leased range from 5 years to approximately 40 years. The leases provide for the payment of fixed base rentals payable monthly in advance and for the payment by the lessees of additional rents based on a percentage of the tenants' sales as well as reimbursements of real estate taxes, insurance and maintenance. -29- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Future base rental revenue under these noncancellable operating leases (other than leases which have not commenced, including Bloomberg) is as follows:

Included in operating expenses for the year ended December 31, 1999 is $4,877,000 resulting from the write-off of the asset arising from the straight-line of rents primarily as a result of Caldor's rejection of its Flushing lease in 1999. Sears accounted for 21%, 21% and 22% of the Company's consolidated revenues for the years ended December 31, 2001, 2000, and 1999, respectively. No other tenant accounted for more than 10% of revenues. As Lessee The Company is a tenant under long-term leases. Future minimum lease payments under the operating leases are as follows:

Rent expense was $416,000 for each of the years ended December 31, 2001, 2000 and 1999. 5. LEXINGTON AVENUE On May 1, 2001 the Company entered into a lease agreement with Bloomberg L.P. to lease approximately 700,000 square feet. The initial term of the lease is for 25 years, with a ten-year renewal option. Base annual net rent is $34,221,000 in each of the first four years and $38,226,000 in the fifth year with a similar percentage increase each four years thereafter. There can be no assurance that the project ultimately will be completed, completed on time or completed for the budgeted amount. If the project is not completed on a timely basis, the lease may be cancelled and significant penalties may apply. The development plans at Lexington Avenue currently consist of a proposed 1.4 million square foot multi-use building comprised of a commercial portion, which may include a combination of retail stores and office, and a residential portion, consisting of condominium units. There can be no assurance that the residential portion will be built. If the residential portion of the property is developed, the air rights representing the residential portion would be held by a taxable REIT subsidiary, as a REIT is not permitted to sell condominiums without being subject to a 100% excise tax on the gain from the sale of such condominiums. In connection therewith, a wholly-owned subsidiary of the Company, Alexander's Tower LLC (a taxable REIT subsidiary) was formed to hold title to, and develop, the residential portion of the property. During 2001, the Company filed a Form 10 Registration Statement with the Securities and Exchange Commission that would have allowed the Company's possible distribution, to its stockholders, of the equity interest in Alexander's Tower LLC. On December 21, 2001, the Company withdrew and terminated the registration. Accordingly, the Company wrote-off professional fees associated therewith of $2,030,000 for the year. -30- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The funding required for the proposed building will be in excess of $650,000,000. The Company is exploring various alternatives for financing the project, including equity, debt, joint ventures and asset sales, which may involve arrangements with Vornado Realty Trust. For a discussion of insurance and its possible effect on financing, see the discussion below. 6. PARAMUS PROPERTY On October 5, 2001, the Company entered into a ground lease for its Paramus, N.J. property with IKEA Property, Inc. The lease has a 40-year term with an option to purchase at the end of the 20th year for $75,000,000. Further, the Company has obtained a $68,000,000 interest only, non-recourse mortgage loan on the property from a third party lender. The fixed interest rate on the debt is 5.92% with interest payable monthly until maturity in October, 2011. The triple net rent each year is the sum of $700,000 plus the amount of debt service on the mortgage loan. If the purchase option is not exercised at the end of the 20th year, the triple net rent for the last 20 years must include debt service sufficient to fully amortize the $68,000,000 over the remaining 20-year lease period. 7. KINGS PLAZA REGIONAL SHOPPING CENTER The Company has completed an interior renovation of the Kings Plaza Regional Shopping Center (the "Center") at a cost of $33,000,000. These costs were reclassified to "Buildings, leaseholds and leasehold improvements" from "Capitalized expenses, development costs and construction in progress" during the first quarter of 2001. The exterior of the Center is expected to be renovated in 2002 at a cost of approximately $4,000,000. 8. SALE OF FORDHAM ROAD PROPERTY The Company sold its Fordham Road property, located in the Bronx, New York, on January 12, 2001. The vacant property contains 303,000 square feet and was sold for $25,500,000 resulting in a gain of $19,026,000. In addition, the Company paid off the mortgage on this property at a discount, which resulted in an extraordinary gain from the early extinguishment of debt of $3,534,000. Included in the expenses resulting from the sale, the Company paid a commission of $1,020,000, of which $520,000 was paid to Vornado. 9. RELATED PARTY TRANSACTIONS Steven Roth is Chief Executive Officer and a director of the Company, the Managing General Partner of Interstate Properties ("Interstate") and Chairman of the Board and Chief Executive Officer of Vornado. At December 31, 2001, Mr. Roth, Interstate and the other two general partners of Interestate, David Mandelbaum and Russell B. Wight, Jr. (who are also directors of the Company and trustees of Vornado) own, in the aggregate, 27.5% of the outstanding common stock of the Company, and 15.5% of the outstanding common shares of beneficial interest of Vornado. 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. The annual management fee payable by the Company to Vornado is equal to the sum of (i) $3,000,000, (ii) 3% of the gross income from the Mall, plus (iii) 6% of development costs with minimum guaranteed fees of $750,000 per annum. The leasing agreement provides for the Company to pay a fee to Vornado equal to (i) 3% of the gross proceeds, as defined, from the sale of an asset and (ii) in the event of a lease or sublease of an asset, 3% of lease rent for the first ten years of a lease term, 2% of lease rent for the eleventh through the twentieth years of a lease term and 1% of lease rent for the twenty-first through thirtieth year of a lease term, subject to the payment of rents by tenants. Such amount is payable annually in an amount not to exceed $2,500,000, until the present value of such installments (calculated at a discount rate of 9% per annum), equals the amount that would have been paid had it been paid at the time the transactions which gave rise to the commissions occurred. Pursuant to the leasing agreement, 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. Under these agreements, the Company incurred fees of $9,361,000, $6,721,000 and $7,237,000 for the years ended December 31, 2001, 2000 and 1999. At December 31, 2001 the Company owes Vornado $2,249,000 for leasing fees. -31- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The Company has $119,000,000 of outstanding loans with Vornado. The Company incurred interest on the loans of $17,455,000, $15,934,000 and $7,857,000 for the years ended December 31, 2001, 2000 and 1999. Minority Interest In connection with tax planning for the development of the Company's Lexington Avenue property, 100 shares of $.01 par value preferred stock was sold by 59th Street Corporation (a wholly-owned subsidiary of the Company) to Vornado on August 1, 2001 for $1,200,000. The non-convertible preferred stock entitles the holder to cumulative 10% dividends payable semi-annually and is redeemable at any time at the option of 59th Street Corporation. On December 28, 2001, 59th Street Corporation redeemed this issue and paid a $49,000 dividend. 10. COMMITMENTS AND CONTINGENCIES The Company carries comprehensive liability and all risk property insurance (fire, flood, extended coverage and rental loss insurance) with respect to its assets. The Company's all risk insurance policies in effect before September 11, 2001 included coverage for terrorist acts, except for acts of war. Since September 11, 2001, insurance companies are excluding terrorists acts from coverage in all risk policies. The Company is unlikely to be able to obtain all risk insurance which includes coverage for terrorists acts when policies renew in 2002. Therefore, the risk of financial loss in the case of terrorist acts is the Company's, which loss could be material. The Company's debt instruments, consisting of mortgage loans secured by its properties (which are generally non-recourse to the Company), contain customary covenants requiring the Company to maintain insurance. There can be no assurance that the lenders under these instruments will not take the position that an exclusion from all risk insurance coverage for losses due to terrorist acts is a breach of these debt instruments that allows the lenders to declare an event of default and accelerate repayment of debt. In addition, if lenders insist on coverage for these risks, it could adversely affect the Company's ability to finance and/or refinance its properties, including the construction of its Lexington Avenue development property. In June 1997, the Kings Plaza Regional 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 bis (2-ethylhexyl) phthalate contamination in the soil and groundwater. The Company has delineated the contamination and has developed a remediation approach. The New York State Department of Environmental Conservation ("NYDEC") has approved a portion of the remediation approach. The Company accrued $2,000,000 in previous years ($1,830,000 has been paid as of December 31, 2001) 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. Based upon revised estimates, the Company accrued an additional $675,000 in the second quarter of 2001. If the NYDEC insists on a more extensive remediation approach, the Company could incur additional obligations. The majority of the contamination may have resulted from activities of third parties; however, the sources of the contamination have not been fully identified. Although the Company is pursuing claims 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 Company has not recorded an asset as of December 31, 2001 for potential recoveries of environmental remediation costs from other parties. Neither the Company nor any of its subsidiaries is a party to, nor is their property the subject of, any material pending legal proceeding other than routine litigation incidental to their businesses. The Company believes that these legal actions will not be material to the Company's financial condition or results of operations. Letters of Credit Approximately $7,900,000 in standby letters of credit were issued at December 31, 2001. -32- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. STOCK OPTION PLAN Under the Omnibus Stock Plan (the "Plan"), approved by the Company's stockholders on May 22, 1996, directors, officers, key employees, employees of Vornado Realty Trust and any other person or entity as designated by the Omnibus Stock Plan Committee are eligible to be granted incentive share options and non-qualified options to purchase common shares. Options granted are at prices equal to 100% of the market price of the Company's shares at the date of grant, vest on a graduated basis, becoming fully vested 36 months after grant and expire ten years after grant. The Plan also provides for the award of Stock Appreciation Rights, Performance Shares and Restricted Stock, as defined. If compensation cost for Plan awards had been determined based on fair value at the grant dates, net income and income per share would have been reduced to the pro forma amounts below, for the years ended December 31, 2001, 2000 and 1999:

The fair value of each option grant is estimated on the date of grant using an option-pricing model with the following weighted-average assumptions used for grants in the period ended December 31, 1999 (no options were granted in the year ended December 31, 2001 or 2000):

A summary of the Plan's status, and changes during the years ended December 31, 2001, 2000 and 1999 are presented below:

-33- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about options outstanding under the Plan at December 31, 2001:

On June 5, 2000, the Board of Directors approved the conversion of 850,000 stock options of two officers/directors into equivalent stock appreciation rights (SARs). The SARs have the same vesting terms and strike prices as the options. Accounting for SARs is reflected in the statement of operations, whereas the accounting for stock options is not. Since the stock price at December 31, 2001 is less than the strike price, no expense is included in the statement of operations for the year ended December 31, 2001. SARs, unlike options, are not aggregated under the REIT rules. 12. INCOME PER SHARE The following table sets forth the computation of basic and diluted income per share:

-34- ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. SUMMARY OF QUARTERLY RESULTS (UNAUDITED) (amounts in thousands except per share amounts)

(1) The total for the year may differ from the sum of the quarters as a result of weighting. (2) Includes a gain on the sale of the Fordham Road property of $19,026 and an extraordinary gain from the early extinguishment of debt of $3,534. (3) Includes of a charge of (i) $3,058 resulting from the write off of architectural and engineering costs associated with the development plans at Paramus prior to the IKEA ground lease, and (ii) a charge of $2,030 from the write-off of professional fees resulting from the termination of the spin-off of Alexander's Tower LLC. (4) Net of Stock Appreciation Rights (SARs) expense of $983 and $5,881 in the second and third quarter of 2000, respectively. The fourth quarter of 2000 includes $6,864 representing the reversal of the SARs expense previously recognized during 2000. -35- PART III Item 10. Directors and Executive Officers of the Registrant Information resulting from directors and executive officers of the Company will be contained in a definitive Proxy Statement involving the election of directors which the Company will file with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, not later than 120 days after December 31, 2001, and such information is incorporated herein by reference. Information resulting from Executive Officers of the Registrant appears on page 10 of this Annual Report on Form 10-K. Item 11. Executive Compensation Information resulting from executive compensation will be contained in the Proxy Statement referred to above in Item 10, "Directors and Executive Officers of the Registrant", and such information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information resulting from security ownership of certain beneficial owners and management will be contained in the Proxy Statement referred to in Item 10, "Directors and Executive Officers of the Registrant", and such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information resulting from certain relationships and related transactions will be contained in the Proxy Statement referred to in Item 10, "Directors and Executive Officers of the Registrant", and such information is incorporated herein by reference. -36- PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of this Report 1. The consolidated financial statements are set forth in Item 8 of this Annual Report on Form 10-K. 2. Financial Statement Schedules: The following financial statement schedules should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K.

All other consolidated financial schedules are omitted because they are inapplicable, not required, or the information is included elsewhere in the consolidated financial statements or the notes thereto. 3. Exhibits See Exhibit Index on page 42 (b) Reports on Form 8-K During the last quarter of the period covered by this Annual Report on Form 10-K, no reports on Form 8-K were filed. -37- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALEXANDER'S, INC. By: /s/ Patrick T. Hogan ---------------------------------- Patrick T. Hogan Vice President and Chief Financial Officer Date: March 11, 2002 ---------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

-38- ALEXANDER'S INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

-39- ALEXANDER'S, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2001 (amounts in thousands)

(1) The loans, which were scheduled to mature in March 2001, have been extended to April 2003. The loans are secured by liens on the Company's assets and/or pledges of the stock of subsidiaries owning the assets and/or guarantees of such subsidiaries and the parent; except for the Kings Plaza Regional Shopping Center, Paramus and Rego Park I. These liens are subordinate to first mortgages. (2) Initial cost is as of May 15, 1992 (the date on which the Company commenced real estate operations) unless acquired subsequent to that date. See Column H. (3) The net basis in the Company's assets and liabilities for tax purposes is approximately $71,000 lower than the amount reported for financial statement purposes. (4) Date represents lease acquisition date. (5) The Fordham Road property was sold on January 12, 2001 and the related encumbrance was satisfied. At December 31, 2000 such property was classified as "asset held for sale." -40- ALEXANDER'S, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (amounts in thousands)

-41- Index to Exhibits The following is a list of all exhibits filed as part of the Report:

• ---------- * Incorporated by reference -42-

• ---------- * Incorporated by reference -43-

• ---------- * Incorporated by reference -44-

• ---------- * Incorporated by reference -45-

-46-