ALEXANDERS INC — Interim / Quarterly Report 2000

Nov 2, 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: SEPTEMBER 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) N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of October 13, 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)

See notes to consolidated financial statements. 3 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 September 30, 2000, the Consolidated Statements of Operations for the three and nine months ended September 30, 2000 and 1999, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 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 nine months ended September 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 September 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 $1,919,000 and $1,834,000 in the three months ended September 30, 2000 and 1999 and $5,291,000 and $5,278,000 in the nine months ended September 30, 2000 and 1999. At September 30, 2000, the Company is indebted to Vornado in the amount of $110,000,000 comprised of (i) $95,000,000 relating to the subordinated tranche of a $115,000,000 secured financing, and (ii) $15,000,000 under the line of credit discussed below. The Company incurred interest on its loans from Vornado of $4,175,000 and $1,631,000 in the three months ended September 30, 2000 and 1999 and $11,424,000 and $4,806,000 in the nine months ended September 30, 2000 and 1999. 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 proceeds of the secured line of credit are being used 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. 6 7 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. 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 September 30, 2000. $22,635,000 has been paid as of September 30, 2000. 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 ($1,107,000 has been paid as of September 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 September 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 September 30, 2000. 7 8 5. (LOSS)/INCOME PER SHARE The following table sets for the computation of basic and diluted (loss)/income per share:

1. 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 $5,881,000 for the quarter ended September 30, 2000 and $6,864,000 for the nine months ended September 30, 2000 has been recorded. SARs, unlike options, are not aggregated under the REIT rules. 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 loss of $5,423,000 in the quarter ended September 30, 2000, compared to net income of $1,635,000 in the quarter ended September 30, 1999, a decrease of $7,058,000, and a net loss of $3,763,000 for the nine months ended September 30, 2000, compared to net income of $5,446,000 for the nine months ended September 30, 1999, a decrease of $9,209,000. Property rentals were $10,676,000 in quarter ended September 30,2000, compared to $10,724,000 in the quarter ended September 30, 1999, a decrease of $48,000, and $31,843,000 for the nine months ended September 30, 2000, compared to $32,870,000 for the nine months ended September 30, 1999, a decrease of $1,027,000. The decrease for the nine months is primarily from Caldor's rejection of its Flushing lease effective March 29, 1999. Tenant expense reimbursements were $5,706,000 in the quarter ended September 30, 2000, compared to $5,223,000 in the prior year's quarter, an increase of $483,000, and $15,713,000 for the nine months ended September 30, 2000, compared to $15,737,000 for the nine months ended September 30, 1999, a decrease of $24,000. The increase for the three months ended September 30, 2000 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. This increase was offset for the nine 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 $7,909,000 in the quarter ended September 30, 2000, compared to $7,768,000 in the prior year's quarter, a increase of $141,000. This increase is principally from higher expenses of the utility plant at the Company's Kings Plaza Regional Shopping Center resulting primarily from higher fuel costs, partially offset by lower repairs and maintenance. Operating expenses were $21,918,000 for the nine months ended September 30, 2000, compared to $24,568,000 for the nine months ended September 30, 1999, a decrease of $2,650,000. Operating expenses for the nine months ended September 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 was partially offset by an increase in expenses of the utility plant at the Company's Kings Plaza Regional Shopping Center in the current year's nine months resulting primarily from higher fuel costs. General and administrative expenses were $6,921,000 in the quarter ended September 30, 2000, compared to $872,000 in the prior year's quarter, an increase of $6,049,000, and $9,676,000 for the nine months ended September 30, 2000, compared to $2,793,000 for the nine months ended September 30, 1999, an increase of $6,883,000. These increases resulted primarily from an increase in compensation expense relating to stock appreciation rights granted on June 5, 2000. Interest and debt expense was $5,777,000 in the quarter ended September 30, 2000, compared to $4,223,000 in the prior year's quarter, an increase of $1,554,000, and $16,458,000 for the nine months ended September 30, 2000, compared to $12,323,000 for the nine months ended September 30, 1999, an increase of $4,135,000. These increases resulted from (i) an increase in average debt outstanding of approximately $81,000,000 and $65,000,000, and (ii) an increase in average interest rates from 8.42% to 10.22%, and 8.19% to 9.95%, 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. $22,635,000 has been paid as of September 30, 2000. The additional capital required for the proposed building will be in excess of $650,000,000. At September 30, 2000, the Company is indebted to Vornado in the amount of $110,000,000 comprised of (i) $95,000,000 relating to the subordinated tranche of a $115,000,000 secured financing, and (ii) $15,000,000 under the line of credit discussed below. 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 proceeds of the secured line of credit are being used 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 Nine Months Ended September 30, 2000 Cash provided by operating activities of $2,035,000 was comprised of (i) non-cash items of $9,695,000, offset by, (ii) net loss of $3,763,000, and (iii) the net change in operating assets and liabilities of $3,897,000. The adjustments for non-cash items are comprised of (i) depreciation and amortization of $5,427,000, (ii) compensation expense of $6,864,000, partially offset by (iii) the effect of straight-lining of rental income of $2,596,000. Net cash used in investing activities of $52,063,000 was comprised of capital expenditures of $63,288,000, partially offset by the release of restricted cash of $11,350,000. Net cash provided by financing activities of $24,981,000 resulted primarily from an increase in debt of $32,754,000 partially offset by the payment of acquisition obligation of $6,936,000. 10 11 Nine Months Ended September 30, 1999 Cash provided by operating activities of $11,906,000 was comprised of (i) net income of $5,446,000, (ii) non-cash items of $5,898,000, and (iii) the net change in operating assets and liabilities of $562,000. 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 $5,604,000, offset by (iii) the effect of straight-lining of rental income of $2,706,000. Net cash used in investing activities of $10,457,000 primarily comprised of capital expenditures. Net cash used in financing activities of $11,589,000 resulted primarily 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, (iii) an increase in debt issuance costs of $3,476,000, and (iv) payment of acquisition obligation of $4,648,000. Funds (used in) / from Operations for the Three and Nine Months Ended September 30, 2000 and 1999 Funds used in operations was $5,396,000 in the quarter ended September 30, 2000, compared to funds from operations of $1,406,000 in the prior year's quarter, a decrease of $6,802,000, and funds used in operations of $3,994,000 in the nine months ended September 30, 2000, compared to funds from operations of $8,231,000 in the prior year's nine months, a decrease of $12,225,000. 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 September 30, 2000, the Company had $169,693,000 of variable rate of debt at a weighted average interest rate of 8.29% and $192,000,000 of fixed rate of debt bearing interest at a weighted average interest rate of 12.10%. A one percent increase in the base used to determine the interest rate of the variable rate debt would result in a $1,697,000 increase in its net loss ($.34 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 1, 2000, the Company held its annual meeting of stockholders. The stockholders voted, in person or by proxy, for: (i) 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 qualified, and (ii) an amendment to the Company's Omnibus Stock Plan (the "Plan") to authorize the allocation of an additional 300,000 shares to be reserved for issuance under the Plan. The three nominees and the amendment were approved. The results of the voting are shown below: Election of Directors:

Amendment to Omnibus Stock Plan:

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits required by Item 601 of Regulation 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: November 2, 2000 /s/ Joseph Macnow ---------------------------------------- Joseph Macnow, Vice President, Chief Financial Officer 14 15 EXHIBIT INDEX

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