ALEXANDERS INC — Interim / Quarterly Report 2000

Aug 8, 2000

1 EXHIBIT INDEX ON PAGE 15 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, 2000 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) 210 ROUTE 4 EAST, PARAMUS, NEW JERSEY 07652 (Address of principal executive offices) (Zip Code) (201)587-8541 (Registrant's telephone number, including area code) PARK 80 WEST, PLAZA II, SADDLE BROOK, NJ 07663 (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 As of July 21, 2000 there were 5,000,850 common shares outstanding. 2 ALEXANDER'S, INC. AND SUBSIDIARIES INDEX

2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands except share amounts)

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

See notes to consolidated financial statements. 4 5 ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)

See notes to consolidated financial statements. 5 6 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Balance Sheet as of June 30, 2000, the Consolidated Statements of Income for the three and six months ended June 30, 2000 and June 30, 1999, and the Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and June 30, 1999 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 consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999 as filed with the Securities and Exchange Commission. The results of operations for the three and six months ended June 30, 2000 are not necessarily indicative of the operating results for the full year. Management has made estimates and assumptions that affect the reported amounts of 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. Certain amounts in the prior year's financial statements have been reclassified to conform to the current year presentation. 2. RELATIONSHIP WITH VORNADO REALTY TRUST ("VORNADO") Vornado owns 33.1% of the Company's Common Stock at June 30, 2000, of which 41,500 shares were acquired on March 31, 2000 and 10,400 shares were acquired on April 11, 2000. The Company is managed by and its properties are redeveloped and leased by Vornado, pursuant to agreements with a one-year term expiring in March of each year which are automatically renewable. Under these agreements, the Company incurred fees of $ 1,686,000 and $1,700,000 in the three month periods ended June 30, 2000 and June 30, 1999 and $3,373,000 and $3,380,000 in the six months periods ended June 30, 2000 and June 30, 1999. In addition, Vornado is due $562,000 at June 30, 2000 under the leasing agreement, subject to the payment of rents by tenants. At June 30, 2000 the Company is indebted to Vornado in the amount of $95,000,000, the subordinated tranche of a $115,000,000 secured financing. The Company incurred interest on its loan from Vornado of $3,474,000 and $1,613,000 in the three months ended June 30, 2000 and June 30, 1999 and $7,249,000 and $3,174,000 in the six months period ended June 30, 2000 and June 30, 1999. 3. DEBT A mortgage loan of $21,263,000, an obligation of a wholly-owned subsidiary of the Company collateralized by the Fordham Road property, was scheduled to mature on February 24, 2000. The mortgage loan has been extended for an additional three-years to April 17, 2003. Under the terms of the extension, interest accrues at LIBOR plus 1.50% in the first two years and LIBOR plus 1.75% in year three which is a reduction of the original terms of LIBOR plus 4.25%. Interest is payable at LIBOR for the entire term. The spread over LIBOR accrues during the extended term and increases the principal balance. 6 7 4. COMMITMENTS AND CONTINGENCIES The Company let contracts for $28,000,000 to undertake the excavation and laying the foundation for its Lexington Avenue property as part of the proposed development of a large multi-use building. As of June 30, 2000, $17,748,000 has been paid. 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 not yet approved the finalization of the approach. In 1997, the Center accrued $1,500,000 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 $500,000 in the second quarter of 1999 ($915,000 has been paid as of June 30, 2000). 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 intends to pursue all available remedies against any potentially responsible third parties, there can be no assurance that such parties will be identified, or if identified, whether these potentially responsible third parties will be solvent. In addition, the costs associated with pursuing any potentially responsible parties may be cost prohibitive. The Company has not recorded an asset as of June 30, 2000 for potential recoveries of environmental remediation costs from other parties. Letters of Credit Approximately $900,000 in standby letters of credit were issued at June 30, 2000. 5. INCOME PER SHARE The following table sets for the computation of basic and diluted income per share:

7 8 6. STOCK APPRECIATION RIGHTS 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, accordingly a charge of $983,000 has been recorded in the second quarter of this year. SARs, unlike options, are not aggregated under the REIT rules. 7. SUBSEQUENT EVENT On August 1, 2000, the Company obtained a $50,000,000 secured line of credit from Vornado under the same terms and conditions as the existing $95,000,000 loan from Vornado, including the interest rate of 15.72%. The maturity date of the existing $95,000,000 loan has been extended to March 15, 2002, which is also the maturity date of the new line of credit. The interest rate on the loan and line of credit will reset on March 15, 2001, using the same spread to treasuries as presently exists. The Company plans to use the proceeds for general corporate purposes including continuing to fund the real estate development costs at its Lexington Avenue property. It is expected that a construction loan will be obtained to finance the Lexington Avenue property. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21 E of the Securities Exchange Act of 1934, as amended. Certain factors could cause actual results to differ materially from those in the forward-looking statements. Factors that might cause such a material difference include, but are not limited to, (a) changes in the general economic climate, (b) local conditions such as an oversupply of space or a reduction in demand for real estate in the area, (c) conditions of tenants, (d) competition from other available space, (e) increased operating costs and interest expense, (f) the timing of and costs associated with property improvements, (g) changes in taxation or zoning laws, (h) government regulations, (i) failure of Alexander's to continue to qualify as a REIT, (j) availability of financing on acceptable terms, (k) potential liability under environmental or other laws or regulations, (l) general competitive factors, (m) dependence upon Vornado Realty Trust and (n) possible conflicts of interest with Vornado Realty Trust. RESULTS OF OPERATIONS The Company had a net income of $233,000 in the quarter ended June 30, 2000, compared to $2,336,000 in the quarter ended June 30, 1999, a decrease of $2,103,000 and $1,660,000 for the six months ended June 30, 2000, compared to $3,811,000 for the six months ended June 30, 1999 a decrease of $2,151,000. Property rentals were $10,655,000 in quarter ended June 30,2000, compared to $10,758,000 in the quarter ended June 30, 1999, a decrease of $103,000 and $21,167,000 for the six months ended June 30, 2000, compared to $22,146,000 for the six months ended June 30, 1999 a decrease of $979,000. The decrease for the six months is primarily from Caldor's rejection of its Flushing lease effective March 29,1999. Tenant expense reimbursements were $5,433,000 in the quarter ended June 30, 2000, compared to $5,279,000 in the prior year's quarter, an increase of $154,000 and $10,007,000 for the six months ended June 30, 2000, compared to $10,514,000 for the six months ended June 30, 1999 a decrease $507,000. The increase for the three months ended June 30, 2000 resulted from higher reimbursements for increased fuel costs of the utility plan at the Company's King's Plaza Regional Shopping Center. This increase was offset for the six months primarily 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 a shopping center and covered a number of years. Operating expenses were $7,395,000 in the quarter ended June 30, 2000, compared to $7,455,000 in the prior year's quarter, a decrease of $60,000. This decrease results primarily from lower repairs and maintenance, offset by an increase in expenses of the utility plant at the Company's Kings Plaza Regional Shopping Center resulting primarily from higher fuel costs. Operating expenses were $14,009,000 for the six months ended June 30, 2000, compared to $16,800,000 for the six months ended June 30, 1999 a decrease of $2,791,000. Operating expenses for the six months ended June 30, 1999 included $3,000,000 resulting from the write-off of the asset arising from the straight-lining of rents due to Caldor's rejection of its Flushing lease. This amount is partially offset by an increase in expenses of the utility plant at the Company's Kings Plaza Regional Shopping Center resulting primarily from higher fuel costs. General and administrative expenses were $1,903,000 in the quarter ended June 30, 2000, compared to $942,000 in the prior year's quarter, an increase of $961,000 and $2,755,000 for the six months ended June 30, 2000, compared to $1,921,000 for the six months ended June 30, 1999, an increase of $834,000. These increases resulted from an increase in compensation expense of $983,000 relating to stock appreciation rights granted on June 5, 2000. Interest and debt expense was $5,449,000 in the quarter ended June 30, 2000, compared to $4,339,000 in the prior year's quarter, an increase of $1,110,000 and $10,681,000 for the six months ended June 30, 2000, compared to $8,100,000 for the six months ended June 30, 1999 an increase of $2,581,000. These increases resulted from (i) an increase in average debt outstanding of approximately $58,000,000, and (ii) an increase in average interest rates from 8.1% to 10.0%, partially offset by (iii) an increase in capitalized interest relating to the Company's development properties. 9 10 LIQUIDITY AND CAPITAL RESOURCES In the aggregate, Alexander's operating properties do not generate sufficient cash flow to pay all of its expenses. The Company's three non-operating properties (Lexington Avenue, Paramus, and Rego Park II) are in various stages of development. As rents commence from portions of the development property(s) and from the vacant property(s) the Company expects that cash flow will become positive. The Company let contracts for $28,000,000 to undertake the excavation and laying the foundation for its Lexington Avenue property as part of the proposed development of a large multi-use building. As of June 30, 2000, $17,748,000 has been paid. The additional capital required for the proposed building will be in excess of $400,000,000. On August 1, 2000, the Company obtained a $50,000,000 secured line of credit from Vornado under the same terms and conditions as the existing $95,000,000 loan from Vornado, including the interest rate of 15.72%. The maturity date of the existing $95,000,000 loan has been extended to March 15, 2002, which is also the maturity date of the new line of credit. The interest rate on the loan and line of credit will reset on March 15, 2001, using the same spread to treasuries as presently exists. The Company plans to use the proceeds for general corporate purposes including continuing to fund the real estate development costs at its Lexington Avenue property. It is expected that a construction loan will be obtained to finance the Lexington Avenue property. The Company estimates that capital expenditure requirements for the development of its Paramus property, will approximate $100,000,000. A mortgage loan of $21,263,000, an obligation of a wholly-owned subsidiary of the Company collateralized by the Fordham Road property, was scheduled to mature on February 24, 2000. The mortgage loan has been extended for an additional three-years to April 17, 2003. Under the terms of the extension, interest accrues at LIBOR plus 1.50% in the first two years and LIBOR plus 1.75% in year three which is a reduction of the original terms of LIBOR plus 4.25%. Interest is payable at LIBOR for the entire term. The spread over LIBOR accrues during the extended term and increases the principal balance. The Company estimates that the fair market values of its assets are substantially in excess of their historical costs 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 Six Months Ended June 30, 2000 Cash provided by operating activities of $5,330,000 was comprised of (i) net income of $1,660,000, (ii) non-cash items of $1,881,000, and (iii) the net change in operating assets and liabilities of $1,789,000. The adjustments for non-cash items are comprised of (i) depreciation and amortization of $3,610,000, offset by (ii) the effect of straight-lining of rental income of $1,729,000. Net cash used in investing activities of $33,617,000 was comprised of capital expenditures of $41,699,000, partially offset by the release of restricted cash of $8,082,000. Net cash provided by financing activities of $4,996,000 resulted primarily from an increase in debt of $12,470,000 partially offset by the payment of acquisition debt of $6,784,000. 10 11 Six Months Ended June 30, 1999 Cash provided by operating activities of $10,569,000 was comprised of (i) net income of $3,811,000, (ii) non-cash items of $4,982,000, and (iii) the net change in operating assets and liabilities of $1,776,000. The adjustments for non-cash items are comprised of (i) the write-off of the asset arising from the straight-lining of rents of $3,000,000 and (ii) depreciation and amortization of $3,709,000, offset by (iii) the effect of straight-lining of rental income of $1,727,000. Net cash used in investing activities of $5,370,000 was primarily comprised of capital expenditures. Net cash used in financing activities of $5,453,000 resulted from proceeds of $82,000,000 from the refinancing of its subsidiary's Rego Park I property offset by (i) the repayment of the then existing $75,000,000 debt on the property, (ii) repayment of the $10,000,000 debt on the Paramus property and (iii) an increase in debt issuance costs of $2,147,000. Funds from Operations for the Three and Six Months Ended June 30, 2000 and June 30, 1999 Funds from operations was $105,000 in the quarter ended June 30, 2000, compared to $2,146,000 in the prior year's quarter, a decrease of $2,041,000 and $1,402,000 in the six months ended June 30, 2000 compared to $6,825,000 in the prior year's six months, a decrease of $5,423,000. The following table reconciles net income to funds from operations:

Funds from operations does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional restrictions on the use of funds from operations. Funds from operations should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows as a measure of liquidity. Management considers funds from operations a relevant supplemental measure of operating performance because it provides a basis for comparison among REITs; however, funds from operations may not be comparable to similarly titled measures reported by other REITs since the Company's method of calculating funds from operations is different from that used by NAREIT. Funds from operations, as defined by NAREIT, represents net income before depreciation and amortization, extraordinary items and gains or losses on sales of real estate. Funds from operations as disclosed above has been modified to adjust for the effect of straight-lining of property rentals for rent escalations and leasing fee expenses. Below are the cash flows provided by (used in) operating, investing and financing activities: 11 12

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At June 30, 2000, the Company had $164,409,000 of variable rate of debt at a weighted average interest rate of 7.95% and $177,000,000 of fixed rate of debt bearing interest at a weighted average interest rate of 11.80%. A one percent increase in the base used to determine the interest rate of the variable rate debt would result in a $1,644,000 decrease in the Company's annual net income ($.33 per basic and diluted share). 12 13 PART II. OTHER INFORMATION ITEM 1. 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 5. OTHER INFORMATION Michael D. Fascitelli was elected Alexander's new President by its Board, effective August 1, 2000. Mr. Fascitelli has been a Director of Alexander's since December, 1996. Mr. Fascitelli has also been the President and a Trustee of Vornado Realty Trust, Alexander's managing agent, since December 1996. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits required by Item 601 of Regulation of S-K are filed herewith and are listed in the attached Exhibit Index. (b) Reports on Form 8-K: None 13 14 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 1, 2000 /s/ Joseph Macnow Joseph Macnow, Vice President, Chief Financial Officer 14 15 EXHIBIT INDEX

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