ALEXANDERS INC — Interim / Quarterly Report 1996

Aug 12, 1996

1 EXHIBIT INDEX ON PAGE 14 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: JUNE 30, 1996 ---------------------------- 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 August 2, 1996 there were 5,000,850 common shares outstanding. Page 1 of 15 2 ALEXANDER'S, INC. INDEX

Page 2 of 15 3 PART I. FINANCIAL INFORMATION ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)

See notes to consolidated financial statements. Page 3 of 15 4 ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands except share amounts)

See notes to consolidated financial statements. Page 4 of 15 5 ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements. Page 5 of 15 6 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated balance sheet as of June 30, 1996, the consolidated statements of operations for the three and six months ended June 30, 1996 and June 30, 1995, and the consolidated statements of cash flows for the six months ended June 30, 1996 and June 30, 1995 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 1995 Annual Report to Shareholders. The results of operations for the three and six months ended June 30, 1996 are not necessarily indicative of the operating results for the full year. 2. RELATED PARTY TRANSACTIONS Under a management and development agreement (the "Management Agreement") with Vornado Realty Trust ("Vornado"), Alexander's incurred fees of $938,000 and $1,163,000 in the three months ended June 30, 1996 and 1995 and $3,468,000 and $1,551,000 in the six months ended June 30, 1996 and 1995. The fees for the six months ended June 30, 1996, included $1,443,000 related to the completion of the redevelopment of the Rego Park I property in the quarter ended March 31, 1996. The fee pursuant to the Management Agreement is in addition to the leasing fee the Company pays to Vornado under the terms of its leasing agreement. Subject to the payment of rents by tenants, Vornado is due $5,073,000 at June 30, 1996 under such agreement. The lease which Vornado had previously negotiated with Caldor on behalf of the Company for a portion of its Rego Park I property was rejected in March 1996 in Caldor's bankruptcy proceedings, resulting in $1,717,000 of previously recorded leasing fees payable and the corresponding deferred lease expense being reversed in the quarter ended March 31, 1996. In addition, the Company incurred interest on its loan from Vornado of $1,889,000 in each of the three-month periods ended June 30, 1996 and 1995, of which $1,203,000 was capitalized this year and $682,000 was capitalized last year. Interest on the loan was $3,758,000 and $2,177,000 in the six months ended June 30, 1996 and 1995, of which $1,857,000 and $682,000 were capitalized. Page 6 of 15 7 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. CONTINGENCIES Paramus Property Recently, the Company was notified that the State of New Jersey had reduced the acreage that it intended to condemn to approximately 9 acres from the 10 acres it had previously sought. The land subject to the condemnation is located on the periphery of the property and will be used to lessen traffic congestion. The New Jersey Department of Transportation ("DOT") amended its offer to purchase the land to approximately $15,000,000 (previously $15,400,000) based on an appraisal performed on its behalf for the reduced acreage. The Company is negotiating with the DOT to attempt to reach agreement on the value and other terms. In the event that the Company and the DOT do not reach agreement, a formal process may be initiated by the DOT pursuant to which, among other things, a group of independent commissioners will be appointed by a court to adjudicate the disputed matters. Lexington Avenue Property At one time, the Company's Lexington Avenue property was being considered by the Port Authority of New York and New Jersey (the "Port Authority") for the site of the terminus for a rail link from midtown Manhattan to LaGuardia and Kennedy Airports. The Port Authority recently approved a plan that would link Kennedy Airport to Manhattan without involving the Company's Lexington Avenue property. Tax Certiorari Proceedings In June 1996, a certiorari proceeding the Company had against the County of Nassau for overpayment of taxes on its former Valley Stream Store property for the period from 1986 to 1992 was resolved. The proceeds of $9,602,000, net, was received in July 1996. Environmental Matters The results of a 1993 Phase I environmental study at the Kings Plaza Shopping Center's ("Center") property show that certain adjacent properties owned by third parties have experienced petroleum hydrocarbon contamination. Based on this study and preliminary investigation of the Center's property and its history, there is potential for contamination on the property. If contamination is found on the property, the Center may be required to engage in remediation activities; management is unable to estimate the financial impact of potential contamination if any is discovered in the future. If further investigations reveal that there is contamination on its site, since the Center believes such contamination would have resulted from activities of third parties, the Center intends to pursue all available remedies against any of these third parties. The Company is aware of the presence of asbestos-containing materials at several of its properties and believes that it manages such asbestos in accordance with applicable laws. The Company plans to abate or remove such asbestos as appropriate. Page 7 of 15 8 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Caldor Corporation ("Caldor") In September 1995, Caldor, which leases the Fordham Road and Flushing Properties from the Company, filed for relief under Chapter 11 of the United States Bankruptcy Code. Property rentals from these two leases represent approximately 39% of the Company's consolidated revenues for the six months ended June 30, 1996 and approximately 56% of the Company's consolidated revenues for the year ended December 31, 1995. Caldor leased these properties "as is", expended the entire cost of refurbishing these stores and has not affirmed either of these leases, but continues to pay rent on both of these locations. The loss of property rental payments under either of these leases could have a material adverse effect on the financial condition and results of operations of the Company. Caldor was also a lessee for a portion of the Rego Park I property. Caldor received Bankruptcy Court approval to reject the lease effective March 18, 1996. The Company will file a claim for damages based on such rejection. Page 8 of 15 9 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 $5,686,000 in the quarter ended June 30, 1996, compared to $2,945,000 in the prior year's quarter, an increase of $2,741,000. Revenues were $10,370,000 for the six months ended June 30, 1996, compared to $6,499,000 for the prior year's six months, an increase of $3,871,000. Of these increases (i) $595,000 and $1,089,000 were from equity in income of the unconsolidated joint venture (the Kings Plaza Shopping Center), (ii) $1,957,000 and $2,410,000 were from the commencement of rents and paid parking at the Company's Rego Park I property in March 1996, and (iii) $189,000 and $372,000 were from an increase in operating expenses passed through to tenants. Operating expenses were $1,429,000 in the quarter ended June 30, 1996, compared to $882,000 in the prior year's quarter, an increase of $547,000. Operating expenses were $2,453,000 in the six months ended June 30, 1996, compared to $1,528,000 in the prior year's six months, an increase of $925,000. These increases resulted from (i) expenses in connection with the paid parking operations in Rego Park and (ii) real estate taxes, maintenance and utility expenses, which were primarily passed through to tenants. General and administrative expenses were $1,262,000 in the quarter ended June 30, 1996, compared to $1,736,000 in the prior year's quarter, a decrease of $474,000. General and administrative expenses were $2,422,000 in the six months ended June 30, 1996 compared to $2,772,000 in the prior year's six months, a decrease of $350,000. These decreases resulted primarily from lower professional fees. Interest and debt expense for the quarter ended June 30, 1996, did not change significantly from such expense for the prior year's quarter. Interest and debt expense was $6,736,000 in the six months ended June 30, 1996, compared to $6,222,000 in the prior year's six months, an increase of $514,000. This increase was primarily attributable to interest on higher levels of average debt in the first quarter of 1996. Other income and interest income, net was $1,033,000 in the quarter ended June 30, 1996, compared to $687,000 in the prior year's quarter, an increase of $346,000. Other income and interest income, net was $1,655,000 in the six months ended June 30, 1996, compared to $784,000 in the prior year's six months, an increase of $871,000. These increases resulted primarily from (i) a reimbursement of expenses of $658,000 received in the second quarter of this year from the Company's partner in the unconsolidated joint venture and (ii) the amortization of deferred gains in connection with the Company's postretirement healthcare benefits of $265,000 and $530,000 in the three and six months ended June 30, 1996, partially offset by (iii) a decrease in interest income of $412,000 and $288,000 as a result of lower average cash invested this year than in the prior year's periods. As a result of the Company's intention to elect to be taxed as a REIT for the year ended December 31, 1995, the deferred tax balance of $1,406,000 at December 31, 1994 was reversed, resulting in an income tax benefit in the quarter ended March 1995. Discontinued Operations The Company recorded income from discontinued operations of $11,602,000 in the quarter ended June 30, 1996 comprised of (i) $9,602,000 from the settlement of a tax certiorari proceeding against the County of Nassau for overpayment of taxes on its former Valley Stream Store property (see "Liquidity and Capital Resources") and (ii) $2,000,000 from the reduction of "Other liabilities of discontinued operations" to amounts estimated to be needed to resolve these liabilities. Page 9 of 15 10 ALEXANDER'S, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Six Months Ended June 30, 1996 Cash provided by operating activities of $920,000 was comprised of $2,646,000 from results of operations (net loss from continuing operations of $409,000 offset by non-cash items of $3,055,000), offset by a net change in operating assets and liabilities of $1,726,000. Net cash used in investing activities of $16,327,000 was comprised primarily of capital expenditures of $24,051,000, offset by the release of cash restricted for operating liabilities of $7,846,000. Net cash provided by financing activities of $10,005,000 was comprised of proceeds from the issuance of debt of $10,527,000 (net of deferred debt expense), offset by repayments of debt of $522,000. Six Months Ended June 30, 1995 Cash used in operating activities of $32,950,000 was comprised of: (i) a net loss of $4,704,000 and (ii) the payment of liabilities of discontinued operations of $28,232,000. Net cash used in investing activities of $32,442,000 was comprised of capital expenditures of $11,607,000, cash restricted for construction financing of $6,000,000 and cash restricted for operating liabilities of $14,835,000. Net cash provided by financing activities of $81,991,000 was comprised of proceeds from the issuance of debt of $121,649,000 (net of deferred debt expense), offset by repayments of debt of $39,658,000. In connection with the redevelopment of the existing building and the construction of a multi-level parking structure on its Rego Park I property, the Company has expended approximately $36,500,000 and expects to expend, through the third quarter of 1996, up to an additional $3,000,000 to complete the project. At June 30, 1996, there was $1,700,000 available under a $60,000,000 construction loan to fund these expenditures with the balance to be funded from existing cash. The Company estimates that its capital expenditure requirements for other redevelopment projects will include: (i) the redevelopment of the Paramus property at a cost of approximately $50,000,000 to $60,000,000 and (ii) the demising of the Kings Plaza Store and installation of vertical transportation which may have an improvement cost between $10,000,000 and $20,000,000. Further, the Company is evaluating redevelopment plans for the Lexington Avenue site, which may involve razing the existing building and developing 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 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. On September 18, 1995, Caldor, which leases the Fordham Road and Flushing Properties from the Company, filed for relief under Chapter 11 of the United States Bankruptcy Code. Caldor accounted for approximately 39% of the Company's consolidated revenues for the six months ended June 30, 1996 and approximately 56% of the Company's consolidated revenues for the year ended December 31, 1995. Caldor leased these properties "as is", expended the entire cost of refurbishing these stores and continues to pay rent on both of these locations. The loss of property rental payments under either of these leases could have a material adverse effect on the financial condition and results of operations of the Company. Page 10 of 15 11 ALEXANDER'S, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Caldor was also a lessee for a portion of the Rego Park I property. Caldor received Bankruptcy Court approval to reject the lease effective March 18, 1996. The Company will file a claim for damages based on such rejection. Alexander's current operating properties (five of its nine properties) do not generate sufficient cash flow to pay all of its expenses. The Company's four non-operating properties (Lexington Avenue, Paramus, the Kings Plaza Store 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. The Company estimates that the fair market values of its assets are substantially in excess of their historical cost and that there is 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. In December 1995, the Company completed a tax certiorari proceeding with the City of New York regarding the Kings Plaza Shopping Center property. As a result of this settlement, $6,000,000 of the $8,000,000 held in escrow for unpaid real estate taxes was released during the quarter ended June 30, 1996 and the balance is expected to be released in the near future. In June 1996, a certiorari proceeding the Company had against the County of Nassau for overpayment of taxes on its former Valley Stream Store property for the period from 1986 to 1992 was resolved. The proceeds of $9,602,000, net, was received in July 1996. In addition, the Company may receive the proceeds from condemnation proceedings of a portion of its Paramus property -- see Note 3 - Contingencies - "Paramus Property". 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. Page 11 of 15 12 ALEXANDER'S, INC. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 22, 1996, the Company held its annual meeting of stockholders. The matters on which the stockholders voted, in person or by proxy, were: (1) the election of the three nominees listed in the Proxy Statement to serve on the Board of Directors for a term of three years, or until their respective successors are duly elected and qualify and (2) the approval of the Company's Omnibus Stock Plan. The three nominees were elected at the meeting and the Omnibus Stock Plan was approved. The results of the voting are shown below:

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: The following exhibits are filed with this Quarterly Report on Form 10-Q. 10 Alexander's, Inc. Omnibus Stock Plan, as amended. Incorporated herein by reference from Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (Registration No. 333-07341). 27 Financial Data Schedule (b) Reports on Form 8-K None Page 12 of 15 13 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: August 8, 1996 /s/ Joseph Macnow ----------------------------- JOSEPH MACNOW Vice President - Chief Financial Officer and Chief Accounting Officer Page 13 of 15 14 ALEXANDER'S, INC. EXHIBIT INDEX

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