SEC Filing | Alexander's, Inc.

1 EXHIBIT INDEX ON PAGE 53 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, 1997 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.) Park 80 West, Plaza II, Saddle Brook, New Jersey 07663 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 587-8541 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $1 par value New York Stock Exchange 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 27, 1998) was approximately $202,143,000. APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 / / 5,000,850 shares of the Registrant's common stock, par value $1 per share, were outstanding as of February 27, 1998. Documents Incorporated by Reference Part III: Proxy Statement for Annual Meeting of Shareholders to be held May 27, 1998 Page 1 of 60

2 TABLE OF CONTENTS Page ---- Item ---- PART I. 1. Business 3 2. Properties 6 3. Legal Proceedings 10 4. Submission of Matters to a Vote of Security Holders 10 Executive Officers of the Company 11 PART II. 5. Market for Registrant's Common Equity and Related Stockholder Matters 12 6. Selected Financial Data 13 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 8. Financial Statements and Supplementary Data 19 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 19 PART III. 10. Directors and Executive Officers of the Registrant 38 (1) 11. Executive Compensation 38 (1) 12. Security Ownership of Certain Beneficial Owners and Management 38 (1) 13. Certain Relationships and Related Transactions 38 (1) PART IV. 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39 SIGNATURES 40 (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, 1997, which is incorporated by reference. -2-

3 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, focusing primarily on the locations where its department stores (which ceased operations in 1992) formerly operated. The Company believes that its properties, which are located in New York City and Bergen County, New Jersey, offer advantageous retail opportunities, principally because of their size and location in areas where comparable store sites are not readily available. Alexander's has nine properties consisting of: Operating properties: (i) the Rego Park I property located on Queens Boulevard and 63rd Road in Rego Park, Queens, New York, which contains a recently redeveloped 351,000 square foot building, which is 100% leased to Sears, Circuit City, Bed Bath & Beyond, Marshalls and Old Navy; (ii) the Kings Plaza Shopping Center on Flatbush Avenue in Brooklyn, New York which consists of 427,000 square feet of mall stores (the "Kings Plaza Mall") in which the Company owns a 50% interest; (iii) the Kings Plaza Store, a 339,000 square foot store, which is one of the two anchor stores at the Kings Plaza Shopping Center, which is 85% leased to Sears; (iv) the Fordham Road property located at Fordham Road and the Grand Concourse in the Bronx, New York, which contains a 303,000 square foot building currently unoccupied; (v) the Flushing property located at Roosevelt Avenue and Main Street in Flushing, New York, which contains a 177,000 square foot building sub-leased to Caldor, and (vi) 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. Non-operating properties to be redeveloped: (vii) 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 in which the Company is the general partner and has a 92% limited partnership interest; (viii) the Paramus property which consists of 30.3 acres of land located at the intersection of Routes 4 and 17 in Paramus, New Jersey; (ix) the Rego Park II property, which comprises one and one-half square blocks of vacant land adjacent to the Rego Park I property. -3-

4 The following tenants accounted for more than 10% of the Company's consolidated revenues: Year Ended December 31, --------------------------- 1997 1996 1995 ---- ---- ---- Caldor 22% 36% 56% Sears 31% 23% -- In September 1995, Caldor filed for relief under Chapter 11 of the United States Bankruptcy Code. Caldor rejected its Fordham Road lease effective June 6, 1997 and accordingly, no longer pays rent. Alexander's has filed a claim for damages based on such rejection. The annual base rental under this lease was $3,537,000. The loss of property rental payments, if any, under the Caldor lease for the Flushing property, could have a material adverse affect on the Company's financial condition and results of operations. In the aggregate, Alexander's current operating properties (six of its nine properties) do not generate sufficient cash flow to pay all of its expenses. The Company's three non-operating properties (Lexington Avenue, Paramus, and Rego Park II) are in various stages of redevelopment. As rents commence from a portion of the redevelopment properties, the Company expects that cash flow will become positive. 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 Park 80 West, Plaza II, Saddle Brook, New Jersey 07663, telephone (201) 587-8541. Relationship with Vornado Realty Trust ("Vornado") Vornado owns 29.3% of the Company's Common Stock. The Company is managed by and its properties are redeveloped and leased by Vornado, pursuant to agreements with a one-year term expiring in March of each year which are automatically renewable. The annual management fee payable by the Company to Vornado is $3,000,000, plus 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, the Company owes Vornado $6,244,000 at December 31, 1997. 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 on September 21, 1993, or at the time the transactions which gave rise to the Commissions occurred, if later. In addition, Vornado lent the Company $45,000,000, the subordinated tranche of a $75,000,000 loan. The loan which had a three-year term expiring in March 1998, has been extended for an additional year and the interest rate has been reset from 15.60% per annum to 13.87% per annum. Vornado is a fully integrated REIT with significant experience in the ownership, development, redevelopment, leasing, operation and management of retail and office properties. -4-

5 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. Interstate owns 27.1% of the outstanding common stock of the Company and owns 17.9% of the outstanding common shares of beneficial interest of Vornado. In addition, Mr. Roth owns 2.2% of the outstanding common shares of beneficial interest of Vornado. Mr. Roth, Interstate and the other two general partners of Interstate, David Mandelbaum and Russell B. Wight, Jr. (who are also directors of the Company and trustees of Vornado) own, in the aggregate, 21.3% of the outstanding common shares of beneficial interest of Vornado. On December 2, 1996, Michael D. Fascitelli was elected a director of the Company and received an option for 350,000 shares of the Company's common stock pursuant to the Company's Omnibus Stock Plan. Mr. Fascitelli is President of Vornado and a member of its Board of Trustees. The agreement with Vornado and Interstate Properties not to own in excess of two-thirds of the Company's common stock expired in March 1998. ENVIRONMENTAL MATTERS In June 1997, the Kings Plaza Shopping Center (the "Center"), in which the Company owns a 50% interest, commissioned an Environmental Study and Contamination Assessment Site Investigation (the Phase II "Study") to evaluate and delineate environmental conditions disclosed in a Phase I study. The results of the Study indicate the presence of petroleum and other hydrocarbons in the soil and groundwater. The Study recommends a remedial approach, but agreement has not yet been reached with the New York State Department of Environmental Conservation ("NYDEC") on the finalization of the approach. The Center has 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. If the NYDEC insists on a more extensive remediation approach, the Center could incur additional obligations. Such contamination may have resulted from activities of third parties; however, the sources of the contamination have not been fully identified. Although the Center intends to pursue all available remedies against any potentially responsible third parties, there can be no assurance that such parties will be identified, or if identified, whether these potentially responsible third parties will be solvent. In addition, the costs associated with pursuing any potentially responsible parties may be cost prohibitive. The Center has not recorded an asset as of December 31, 1997 for potential recoveries of environmental remediation costs from other parties. Compliance with applicable provisions of federal, state and local laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment have not had, and, although there can be no assurance, are not expected to have, a material effect on the Company's operations, earnings, competitive position or capital expenditures. 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 employs two people. -5-

6 Item 2. Properties The following table shows the location, approximate size and leasing status as of December 31, 1997 of each of the Company's properties. Approximate Approximate Land Building Square Average Square Footage/ Annualized Footage ("SF") Number of Base Rent Percent Property Ownership or Acreage Floors Per Sq. Foot Leased -------- --------- ---------- ------ ------------ ------ OPERATING PROPERTIES Rego Park I Owned 4.8 acres 351,000/3 $29.61 100% Queens Blvd. & (1) 63rd Rd. Rego Park, New York Kings Plaza 50% 24.3 acres 427,000/2 $32.60 86% Shopping Center Owned (1) (2) (Kings Plaza Mall) Flatbush Avenue Brooklyn, New York Kings Plaza Store Owned Included in 339,000/4 $10.00 85% Flatbush Avenue Shopping Center Brooklyn, New York total above Fordham Road & Owned 92,211 SF 303,000/5 -- -- Grand Concourse Bronx, New York Roosevelt Avenue & Leased (5) 44,975 SF 177,000/4 $16.35 100% Main Street (3) Flushing, New York Third Avenue & Owned 60,451 SF 173,000/4 $ 4.33 100% 152nd Street Bronx, New York 1,770,000 ========= REDEVELOPMENT PROPERTIES Square block at East 92% 84,420 SF 591,000/6 59th Street & Owned (4) (5) Lexington Avenue New York, New York Routes 4 & 17 Owned 30.3 acres -- Paramus, New Jersey (6) Rego Park II Owned 6.6 acres -- Queens, New York Lease Square Expiration/ Footage Option Property Tenants Leased Expiration -------- ------- ------ ---------- OPERATING PROPERTIES Rego Park I Sears 195,000 2021 Queens Blvd. & Circuit City 50,000 2021 63rd Rd. Bed Bath & Beyond 46,000 2013 Rego Park, New York Marshalls 39,000 2008/2021 Old Navy 15,000 2007/2021 Kings Plaza 103 Tenants 357,000 (See table Shopping Center on page 8) (Kings Plaza Mall) Flatbush Avenue Brooklyn, New York Kings Plaza Store Sears 289,000 2023/2033 Flatbush Avenue Brooklyn, New York Fordham Road & -- Grand Concourse Bronx, New York Roosevelt Avenue & Caldor 177,000 2027 Main Street Flushing, New York Third Avenue & An affiliate 173,000 2023 152nd Street of Conway Bronx, New York REDEVELOPMENT PROPERTIES Square block at East 59th Street & Lexington Avenue New York, New York Routes 4 & 17 Paramus, New Jersey Rego Park II Queens, New York -6-

7 (1) Excludes parking garages operated for the benefit of the Company. (2) Excludes approximately 150,000 square feet of enclosed, common area space. (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. (4) The Lexington Avenue property is owned by Seven Thirty One Limited Partnership, of which 7.64% is owned by non-affiliated limited partners. (5) The Company is evaluating redevelopment plans for this site which may involve razing the existing buildings and developing a large multi-use building. (6) Governmental approvals have been obtained to develop a shopping center at this site containing up to 650,000 square feet (see Item 2 "Paramus Property" on page 9). Operating Properties: 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. Kings Plaza Shopping Center The Kings Plaza Shopping Center (the "Center") comprises a two-level mall (the "Kings Plaza Mall"), and two four-level anchor stores. The Center contains approximately 1.1 million square feet and occupies a 24.3-acre site at the intersection of Flatbush Avenue and Avenue U located in Brooklyn, New York. Among its features are a marina, a five-level parking structure and an energy plant that generates the shopping center's electrical power. The Company owns one anchor store in the shopping center of approximately 339,000 square feet (see "Kings Plaza Store" - Operating Properties), and an undivided one-half interest in the Kings Plaza Mall. The other anchor store is owned and operated as a Macy's store by Federated Department Stores, Inc. -7-

8 Kings Plaza Mall The Mall stores contain approximately 427,000 leasable square feet. As of December 31, 1997, 86% of the leasable area was leased to approximately 103 tenants. The following table shows lease expirations for the tenants in the Mall stores for the next ten years, assuming none of the tenants exercise renewal options: Percent of Total Percent of Approximate Annualized Fixed Leased Square 1997 Gross Number of Leased Area in Annualized Fixed Rent Under Footage Annual Rental Leases Square Feet Under Rent Under Expiring Leases Represented by Represented by Year Expiring Expiring Leases Expiring Leases per Square Foot Expiring Leases Expiring Leases ---- -------- --------------- --------------- --------------- --------------- --------------- 1998 6 9,705 $ 426,440 $43.94 2.26% 3.04% 1999 2 3,291 155,804 47.34 0.77% 1.11% 2000 10 17,761 827,686 46.60 4.14% 5.90% 2001 13 33,430 1,998,669 59.79 7.79% 14.25% 2002 15 36,748 1,467,961 39.95 8.57% 10.47% 2003 9 17,219 829,349 48.16 4.01% 5.91% 2004 1 6,519 293,355 45.00 1.52% 2.09% 2005 4 27,253 421,885 15.48 6.35% 3.01% 2006 16 87,860 2,249,805 25.61 20.48% 16.04% 2007 10 56,594 2,742,690 48.46 13.19% 19.56% The following table shows the occupancy rate and the average annual rent per square foot as of: Average Annual Rent Occupancy Rate Per Square Foot -------------- --------------- December 31, 1997 86% $32.60 December 31, 1996 84% 31.19 December 31, 1995 88% 27.54 June 30, 1994 88% 24.91 June 30, 1993 90% 24.77 Centercorp, Inc. manages the Mall. Interstate Properties, through Vornado, is the leasing agent. At December 31, 1997, the Company's share of the $6,524,000 mortgage on the Kings Plaza Mall is $3,262,000. The interest rate is 8.50% and it matures on December 1, 2001. Since the Kings Plaza Mall is an unconsolidated joint venture, the mortgage on the Kings Plaza Mall is not reflected on the Company's books and records. Kings Plaza Store The Company's anchor store in the Center is a four-floor building containing approximately 339,000 square feet of which 289,000 square feet is leased to Sears. Access to the store is available from entrances on Flatbush Avenue and the parking lot and from entrances on both levels of the Mall. Fordham Road The Company owns the Fordham Road property, which is located at the intersection of Fordham Road and the Grand Concourse in the Bronx, New York. The property includes a five-floor building containing approximately 303,000 square feet located in the center of a shopping complex in one of the busiest shopping areas in the Bronx. This property, which is currently unoccupied, was previously leased to Caldor. Caldor rejected this lease effective June 6, 1997 and accordingly, no longer pays rent . The Company is currently in discussions with several tenants to re-lease all or portions of this space. -8-

9 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 is subleased to Caldor (other than the portion currently being used as a parking garage). 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. Redevelopment Properties: Lexington Avenue As of December 31, 1997, the Company owns an approximately 92% interest in the Seven Thirty One Limited Partnership (the "Partnership"), a limited partnership which owns the Lexington Avenue property. This property 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 Company is evaluating redevelopment plans for this property, which may involve razing the existing buildings and developing a large multi-use building requiring capital in excess of $300,000,000 to be expended. No redevelopment decisions have been finalized. Paramus As of December 31, 1997, the Company owns 30.3 acres of land, including its former store building, 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. In October 1997, Alexander's and the New Jersey Department of Transportation ("DOT") entered into an agreement, in lieu of condemnation, pursuant to which the DOT agreed to buy approximately 9 acres from the Company located on the periphery of the property for $14,700,000 and granted the Company the right to develop up to approximately 650,000 square feet on the remaining acreage. The Company received the proceeds in March 1998. The Company intends to raze the existing building and develop a shopping center on the site. The estimated cost of such redevelopment is between $90,000,000 and $100,000,000. The Company has received municipal approvals on tentative plans to redevelop the site. No redevelopment plans have been finalized. Rego Park II The Company owns two additional 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 (the "Z Parcel"). Both parcels are currently zoned for residential use with the Z parcel having a commercial zoning overlay. Both parcels are being used for public paid parking. The Company intends to continue to use these properties for paid parking while it evaluates the feasibility of having these properties re-zoned for commercial use. -9-

10 Insurance The Company carries comprehensive liability, fire, flood, extended coverage and rental loss insurance with respect to its properties with policy specifications and insured limits customarily carried for similar properties. Management of the Company believes that the Company's insurance coverage conforms to industry norms. 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, 1997. -10-

11 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. Principal Occupation, Position and Office (current and during the past Name Age five years with the Company unless otherwise stated) ---- --- ---------------------------------------------------- Stephen Mann 60 Chairman of the Board of Directors since March 2, 1995; Interim Chairman of the Board of Directors from August, 1994 to March 1, 1995; Chairman of the Clifford Companies since 1990; and, prior thereto, counsel to Mudge Rose Guthrie Alexander & Ferdon, attorneys. Steven Roth 56 Chief Executive Officer of the Company since March 2, 1995; Chairman of the Board and Chief Executive Officer of Vornado since May 1989; Chairman of Vornado's Executive Committee of the Board since April 1988; and the Managing General Partner of Interstate, an owner of shopping centers and an investor in securities and partnerships. Joseph Macnow 52 Vice President and Chief Financial Officer of the Company since August 1995; Executive Vice President - Finance and Administration of Vornado since January 1998 and Vice President and Chief Financial Officer of Vornado from 1985 to January 1998. Brian M. Kurtz 49 Executive Vice President and Chief Administrative Officer from July, 1994 to the present; Senior Vice President and Chief Administrative Officer from March 1993 to July 1994; Senior Vice President and Controller from January 1989 to March, 1993; and Vice President-Controller from December 1985 to January 1989. -11-

12 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: High Low ---- --- 1st Quarter 1997 $ 79 3/8 $ 62 1/2 2nd Quarter 1997 71 1/4 65 3rd Quarter 1997 82 3/4 70 3/8 4th Quarter 1997 92 3/8 81 3/4 High Low ---- --- 1st Quarter 1996 $ 69 5/8 $ 65 1/4 2nd Quarter 1996 74 66 1/4 3rd Quarter 1996 73 1/4 67 1/2 4th Quarter 1996 80 69 1/4 As of December 31, 1997, there were approximately 2,000 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 1997 and 1996. In order to qualify as a REIT, the Company generally is required to distribute as a dividend 95% of its taxable income. At December 31, 1997, the Company had net operating loss carryovers ("NOL's") of approximately $156,000,000. 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. -12-

13 Item 6. Selected Financial Data Summary of Selected Financial Data (Amounts in thousands, except per share data) Year Ended December 31, Five Months Fiscal Year ----------------------------------------------------------- Ended (1) Ended 1997 1996 1995 1994 1993(1) Dec. 31, 1993 July 31, 1993(2) -------- -------- --------- --------- -------- ------------- --------------- Operating data: Total revenues $ 25,369 $ 21,833 $ 14,761 $ 13,206 $ 10,150 $ 5,596 $ 5,948 ======== ======== ========= ========= ======== ======== ========= Income (loss) from continuing operations $ 7,466(3) $ 13,097(4) $ (7,696) $ 4,033 $ 9,644 $ 946 $ 27,151 Income (loss) from discontinued operations -- 11,602 10,133 -- (280) -- (477) Cumulative effect of change in accounting -- -- -- -- -- -- (21,449) -------- -------- --------- --------- -------- -------- --------- Net income (loss) $ 7,466 $ 24,699 $ 2,437 $ 4,033 $ 9,364 $ 946 $ 5,225 ======== ======== ========= ========= ======== ======== ========= Income (loss) per common share: (5) Continuing operations $ 1.49 $ 2.62 $ (1.54) $ .81 $ 1.93 $ .19 $ 5.45 Discontinued operations -- 2.32 2.03 -- (.05) -- (.09) Cumulative effect of change in accounting -- -- -- -- -- -- (4.31) -------- -------- --------- --------- -------- -------- --------- Net income (loss) per share $ 1.49 $ 4.94 $ .49 $ .81 $ 1.88 $ .19 $ 1.05 ======== ======== ========= ========= ======== ======== ========= Balance sheet data: Total assets $235,074 $211,585 $ 198,541 $ 109,419 $ 92,917 $ 92,917 $ 113,572 Real estate 191,733 181,005 150,435 84,658 70,882 70,882 71,325 Debt 208,087 192,347 182,883 52,842 43,520 43,520 44,359 Stockholders' equity (deficiency) 13,029 5,563 (19,136) (21,573) (25,606) (25,606) (26,552) 1. In November 1993, the Company changed to a calendar year from a fiscal year ending on the last Saturday in July. The amounts for the year ended December 31, 1993 are included for comparative purposes only. 2. Includes 53 weeks. 3. Includes a gain of $8,914,000 from the condemnation of a portion of the Paramus property net of the write-off of the book value of the building of $5,786,000. 4. Includes income from the gain on reversal of the Company's postretirement healthcare liability of $14,372,000. 5. The earnings per share amounts presented comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). Earnings per share is the same for all years' presented with and without dilution. For further discussion of earnings per share and the impact of SFAS No. 128, see notes to the consolidated financial statements. -13-

14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Continuing Operations - Years Ended December 31, 1997 and December 31, 1996 The Company's revenues, which consist of property rentals, tenant expense reimbursements and equity in income of unconsolidated joint venture were $25,369,000 in 1997, compared to $21,833,000 in 1996, an increase of $3,536,000 or 16.2%. Property rentals were $18,455,000 in 1997, compared to $15,952,000 in 1996, an increase of $2,503,000 or 15.7%. This increase resulted primarily from rent from leases commencing at the Rego Park I and Kings Plaza Store properties in 1997 of $5,143,000, partially offset by the loss of $2,274,000 of rent resulting from Caldor's rejection of its Fordham Road lease in June 1997. Tenant expense reimbursements were $2,668,000 in 1997, compared to $1,872,000 in 1996, an increase of $796,000 or 42.5%. This increase reflects a corresponding increase in operating expenses passed through to tenants as a result of (i) a full year of operations at the Rego Park I property this year compared to ten months in 1996 and (ii) the commencement of operations at the Kings Plaza Store property. Equity in income of unconsolidated joint venture (the Kings Plaza Mall) was $4,246,000 in 1997, compared to $4,009,000 in 1996, an increase of $237,000 or 5.9%. This increase resulted primarily from an increase in rent from mall tenants of $973,000, partially offset by an accrual of $750,000 (the Company's 50% share) for estimated environmental remediation costs at the site. Operating expenses were $7,459,000 in 1997, compared to $5,562,000 in 1996, an increase of $1,897,000. This increase resulted primarily from a full year of operations at the Rego Park I property this year compared to ten months last year and the commencement of operations at the Kings Plaza Store property. General and administrative expenses were $3,933,000 in 1997, compared to $4,402,000 in 1996, a decrease of $469,000. This decrease resulted primarily from lower professional fees. Depreciation and amortization expense was $2,714,000 in 1997, compared to $2,128,000 in 1996, an increase of $586,000. This increase resulted primarily from the commencement of operations at the Rego Park I and Kings Plaza Store properties. Interest and debt expense was $13,430,000 in 1997, compared to $13,934,000 in 1996, a decrease of $504,000. This decrease resulted primarily from more interest expense being capitalized on redevelopment projects in 1997, offset by interest on the Rego Park I debt being charged to income for twelve months in 1997 versus ten months in 1996. Interest and other income, net was $719,000 in 1997 compared to $2,918,000 in 1996, a decrease of $2,199,000. This decrease resulted primarily from the amortization of deferred gains in connection with the Company's postretirement healthcare benefits and refunds in the prior year. In October 1997, Alexander's entered into an agreement, in lieu of condemnation, with the New Jersey Department of Transportation ("DOT") pursuant to which the DOT agreed to buy approximately 9 acres from the Company located on the periphery of its Paramus property for $14,700,000. In connection with this agreement, the Company recorded a gain of $8,914,000 in the fourth quarter of 1997 which reflects the proceeds net of the write-off of the book value of the building which the Company intends to raze. -14-

15 Continuing Operations - Years Ended December 31, 1996 and December 31, 1995 The Company's revenues, which consist of property rentals, tenant expense reimbursements and equity in income of unconsolidated joint venture were $21,833,000 in 1996, compared to $14,761,000 in 1995, an increase of $7,072,000 or 47.9%. Property rentals were $15,952,000 in 1996, compared to $10,239,000 in 1995, an increase of $5,713,000 or 55.8%. This increase resulted primarily from the commencement of rents and paid parking at the Rego Park I property in March 1996. Tenant expense reimbursements were $1,872,000 in 1996, compared to $1,188,000 in 1995, an increase of $684,000 or 57.6%. This increase reflects a corresponding increase in operating expenses passed through to tenants and was largely the result of the commencement of rents and paid parking at the Rego Park I property in March 1996. Equity in income of unconsolidated joint venture (the Kings Plaza Shopping Center) was $4,009,000 in 1996, compared to $3,334,000 in 1995, an increase of $675,000 or 20.2%. This increase resulted primarily from an increase in rent from mall tenants. Operating expenses were $5,562,000 in 1996, compared to $3,807,000 in 1995, an increase of $1,755,000. This increase resulted primarily from the commencement of operations at the Rego Park I property as noted above. General and administrative expenses were $4,402,000 in 1996, compared to $4,820,000 in 1995, a decrease of $418,000. This decrease resulted primarily from lower professional fees. Depreciation and amortization expense was $2,128,000 in 1996, compared to $1,858,000 in 1995, an increase of $270,000. This increase resulted primarily from the commencement of operations at the Rego Park I property as noted above. Interest and debt expense was $13,934,000 in 1996, compared to $13,156,000 in 1995, an increase of $778,000. This increase resulted primarily from interest on the Rego Park I debt being charged to income this year (as a result of the property becoming operational), whereas in the prior year such interest was capitalized. The increase in interest expense was partially offset by additional interest capitalized in 1996 on other redevelopment projects. Interest and other income, net was $2,918,000 in 1996 compared to $1,716,000 in 1995, an increase of $1,202,000. This increase resulted primarily from (i) the amortization of deferred gains of $794,000 in connection with the Company's postretirement healthcare benefits, (ii) workmen's compensation insurance and real estate tax refunds aggregating $351,000 and (iii) a reimbursement of expenses of $764,000 received in 1996 from the Company's partner in the unconsolidated joint venture, partially offset by (iii) a decrease in interest income of $745,000 as a result of a lower average cash invested this year than in the prior year. Effective October 1, 1996, the Company made significant changes in the manner in which it provides healthcare benefits to its retirees. As a result, the Company has reversed its liability for postretirement healthcare costs resulting in the recognition of a $14,372,000 gain. Discontinued Operations - Years Ended December 31, 1996 and December 31, 1995 The Company recorded income from discontinued operations of $11,602,000 in 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 and (ii) $2,000,000 from the reduction of other liabilities of discontinued operations to amounts estimated to be needed to resolve these liabilities at December 31, 1996. In 1995, the Company recorded income from discontinued operations of $10,133,000 comprised of (i) $6,133,000 from the settlement of a tax certiorari proceeding with the City of New York regarding the Kings Plaza Shopping Center and (ii) $4,000,000 resulting from the reduction of other liabilities of discontinued operations to amounts considered necessary to cover the remaining estimates of these liabilities at December 31, 1995. -15-

16 LIQUIDITY AND CAPITAL RESOURCES In the aggregate, Alexander's current operating properties (six of its nine properties) do not generate sufficient cash flow to pay all of its expenses. The Company's three non-operating properties (Lexington Avenue, Paramus, and Rego Park II) are in various stages of redevelopment. As rents commence from a portion of the redevelopment properties, the Company expects that cash flow will become positive. The Company estimates that its capital expenditure requirements for redevelopment projects will include: (i) the redevelopment of the Paramus property, at a cost of approximately $90,000,000 to $100,000,000 and (ii) improvements to the Kings Plaza Shopping Center at a cost of approximately $15,000,000. Further, the Company is evaluating redevelopment plans for the Lexington Avenue site, which may involve razing the existing buildings (in which case, the carrying cost of approximately $15,000,000 would be written-off) 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 after tenants have been obtained for these redevelopment projects, there can be no assurance that such financing will be obtained or if obtained, that such financings will be on terms that are acceptable to the Company. In addition, it is uncertain as to when these projects will commence. Property rentals from Caldor, which filed for relief under Chapter 11 of the United States Bankruptcy Code in September 1995, represented approximately 22% and 36% of the Company's consolidated revenues for the years ended December 31, 1997 and 1996. Caldor rejected its Fordham Road lease effective June 6, 1997 and accordingly, no longer pays rent. Alexander's has filed a claim for damages based on such rejection. The annual base rental revenue under this lease was $3,537,000. The loss of property rental payments, if any, under the Caldor lease for the Flushing property, could have a material adverse affect on the Company's financial condition and results of operations. The Company's leases with Circuit City, Bed Bath & Beyond and Old Navy for the remaining 112,000 square feet at its Rego park I property commenced during the second quarter of 1997. In addition, the Company's lease with Sears for 289,000 square feet at its King Plaza Store property commenced in October 1997. A summary of maturities of debt at December 31, 1997 is as follows: Year ending December 31, ------------------------ 1998 $185,974,000 ($75,000,000 of which has been extended to 1999 - See below) 1999 628,000 2000 21,485,000 ------------ $208,087,000 ============ The Company's $75,000,000 loan, collateralized by a mortgage on its Rego Park I property, which was scheduled to mature on March 30, 1998 has been extended to September 30, 1998. The loan bears interest at LIBOR plus 1.00% (currently 6.69%) and is guaranteed by the Company. In connection with the loan extension, the Company paid a fee of 1/8%. The Company expects to complete the refinancing of the loan through the issuance of rated commercial mortgage backed securities. In addition, the Company's $75,000,000 loan from a bank and Vornado, which was scheduled to mature in March 1998, has been extended to March 1999. The blended interest rate has been reset from 12.93% to 11.50%, reflecting a reduction in both the spread and the underlying treasury rate. Further, the non-affiliated limited partners of the Seven Thirty One Limited partnership (the "Partnership"), a limited partnership which owns the Company's Lexington Avenue property, have the right to put their remaining 7.64% interest to the Partnership until October 3, 1998, in exchange for a five year secured note in the principal amount of $15,000,000, bearing annual interest at Prime plus 1%. 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. -16-

17 In March 1998, the Company received the proceeds from the condemnation of a portion of its Paramus property of $14,700,000 and repaid $3,591,000 of the loan collateralized by the 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. CASH FLOWS Year Ended December 31, 1997 Cash used in operating activities of $1,454,000 for the year ended December 31, 1997, was comprised of: (i) a net loss from operations of $1,448,000 (net income of $7,466,000 less the net gain from the Paramus condemnation of $8,914,000), (ii) a net change in operating assets and liabilities of $2,353,000 and (iii) the payment of liabilities of discontinued operations of $326,000, partially offset by (iv) adjustments for non-cash items of $2,673,000. The adjustments for non-cash items are comprised of depreciation and amortization of $4,494,000, partially offset by the effect of straight- lining of rental income of $1,821,000. Net cash used in investing activities of $16,877,000 was comprised of additions to real estate of $20,625,000, offset by the use of restricted cash of $3,748,000. Net cash provided by financing activities of $15,542,000 was comprised of proceeds from the issuance of debt (net of deferred debt expense) of $16,468,000, offset by $926,000 of debt repayments. Year Ended December 31, 1996 Cash provided by operating activities of $8,574,000 was comprised of net income of $24,699,000 (including income from discontinued operations of $11,602,000), offset by (i) adjustments for non-cash items of $13,757,000 (ii) the payment of liabilities of discontinued operations of $1,175,000, and (iii) the net change in operating assets and liabilities of $1,193,000. The adjustments for non-cash items are comprised of (i) the reversal of the Company's postretirement healthcare liability of $14,372,000, (ii) the change in other liabilities of discontinued operations of $2,000,000, and (iii) the effect of straight-lining of rental income of $1,756,000, offset by (iv) depreciation and amortization of $4,105,000. Net cash used in investing activities of $21,029,000 was comprised of capital expenditures of $32,314,000, offset by the release of cash restricted for both operating liabilities ($9,228,000) and construction financing ($2,057,000). Net cash provided by financing activities of $9,464,000 was comprised of proceeds from the issuance of construction financing of $10,527,000 on the Rego Park I property, offset by repayments of debt of $1,063,000. Year Ended December 31, 1995 Cash used in operating activities of $33,210,000 was comprised of: (i) the payment of liabilities of discontinued operations of $29,488,000, (ii) a net change in operating assets and liabilities of $5,184,000, and (iii) an adjustment for non-cash items of $975,000, offset by net income of $2,437,000 (including income from discontinued operations of $10,133,000). The adjustments for non-cash items are comprised of (i) change in other liabilities of discontinued operations of $4,322,000, and (ii) the effect of straight-lining of rental income of $1,340,000, offset by depreciation and amortization of $4,687,000. Net cash used in investing activities of $62,838,000 was comprised of (i) capital expenditures of $45,933,000 and (ii) cash restricted for both operating liabilities ($10,724,000) and construction financing ($6,181,000). Net cash provided by financing activities of $102,156,000 was comprised of proceeds from the issuance of debt of $142,034,000 (net of deferred debt expense), offset by repayments of debt of $39,878,000. -17-

18 CERTAIN INDEBTEDNESS As of December 31, 1997, debt consists of: (1) First mortgage loans are comprised of: (a) A $22,684,000 five year loan maturing February 24, 2000, secured principally by a mortgage on the Company's Fordham Road property. The loan bears annual interest at 10.22%. Beginning in 1998, all cash flow of the property (presently zero) after debt service, will further amortize the loan. The loan is prepayable without penalty. (b) A $13,591,000 loan maturing December 31, 1998, secured principally by a mortgage on the Company's Paramus property. The loan bears interest at 8.19%. The loan is prepayable without penalty. In March 1998, the Company prepaid $3,591,000 of the loan with a portion of the proceeds from the condemnation of a portion of the property, reducing the principal balance of the loan to $10,000,000. (2) A $75,000,000 loan, scheduled to mature in March 1998, was extended one year to March 1999. The loan is secured by mortgages on all of the Company's assets and/or pledges of the stock of subsidiaries owning the assets and/or guarantees of such subsidiaries and the parent. The loan bears interest at a blended rate of 12.93% per annum at December 31, 1997 and is comprised of two separate notes of $45,000,000 to Vornado and $30,000,000 to a bank. On March 15, 1998, the interest rate on the loan was reset to a blended rate of 11.50%, reflecting a reduction in both the spread and the underlying treasury rate. The loan is prepayable quarterly without penalty. No dividends can be paid unless required to maintain Real Estate Investment Trust ("REIT") status. (3) The Company's $75,000,000 loan, collateralized by a mortgage on its Rego Park I property, which was scheduled to mature on March 30, 1998 has been extended to September 30, 1998. The loan bears interest at LIBOR plus 1.00% (currently 6.69%) and is guaranteed by the Company. In connection with the loan extension, the Company paid a fee of 1/8%. The Company expects to complete the refinancing of the loan through the issuance of rated commercial mortgage backed securities. (4) In January 1995, the Seven Thirty One Limited Partnership ("the Partnership"), redeemed the first portion of the non-affiliated limited partners' interest by giving such limited partners a promissory note due on August 21, 1998 in the amount of $21,812,000 (the "Note"). The Note bears annual interest at Prime plus 1% (9.50% at December 31, 1997) and is secured by a third mortgage on the Lexington Avenue property. The loan is prepayable without penalty. -18-

19 Item 8. Financial Statements and Supplementary Data Index to Financial Statements Page Number ------ Independent Auditors' Report 20 Consolidated Balance Sheets at December 31, 1997 and 1996 21 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 23 Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended December 31, 1997, 1996 and 1995 24 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 25 Notes to Consolidated Financial Statements 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. -19-

20 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders of Alexander's, Inc. Saddle Brook, New Jersey We have audited the accompanying consolidated balance sheets of Alexander's, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and 1996 and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for each of the three years in the period ended December 31, 1997. 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 these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, 1997, and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. 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 17, 1998 -20-

21 ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands except share amounts) December 31, -------------------------- 1997 1996 --------- --------- ASSETS: Real estate, at cost: Land $ 45,571 $ 45,999 Buildings, leaseholds and leasehold improvements 123,612 114,280 Capitalized expenses and predevelopment costs 47,163 47,488 --------- --------- Total 216,346 207,767 Less accumulated depreciation and amortization (35,224) (39,375) --------- --------- 181,122 168,392 Investment in unconsolidated joint venture 10,611 12,613 --------- --------- Real estate, net 191,733 181,005 Cash and cash equivalents 2,691 5,480 Restricted cash 1,872 5,620 Receivable arising from condemnation proceedings 14,700 -- Accounts receivable, net of allowance for doubtful accounts of $147 in 1997 and 1996 1,064 201 Receivable arising from the straight-lining of rents, net 7,805 5,984 Deferred lease and other expenses 12,443 9,966 Deferred debt expense 783 2,364 Other assets 1,983 965 --------- --------- TOTAL ASSETS $ 235,074 $ 211,585 ========= ========= See notes to consolidated financial statements -21-

22 ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (amounts in thousands except share amounts) December 31, -------------------------- 1997 1996 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY: Continuing Operations: Debt $ 208,087 $ 192,347 Amounts due to Vornado Realty Trust and its affiliate 6,888 6,207 Accounts payable and accrued liabilities 4,174 4,246 Minority interest 600 600 --------- --------- Total continuing operations 219,749 203,400 --------- --------- Discontinued Retail Operations: Accounts payable and accrued liabilities 976 976 Liabilities subject to settlement under reorganization proceedings 1,320 1,646 --------- --------- Total discontinued retail operations 2,296 2,622 --------- --------- TOTAL LIABILITIES 222,045 206,022 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY: Preferred stock: no par value; authorized, 3,000,000 shares; issued, none Common stock: $1.00 par value per share; authorized, 10,000,000 shares; issued, 5,173,450 shares 5,174 5,174 Additional capital 24,843 24,843 Deficiency (16,028) (23,494) --------- --------- 13,989 6,523 Less treasury shares, 172,600 shares at cost (960) (960) --------- --------- Total stockholders' equity 13,029 5,563 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 235,074 $ 211,585 ========= ========= See notes to consolidated financial statements -22-

23 ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands except per share amounts) Year Ended December 31, ---------------------------------------- 1997 1996 1995 -------- -------- -------- Revenues: Property rentals $ 18,455 $ 15,952 $ 10,239 Expense reimbursements 2,668 1,872 1,188 Equity in income of unconsolidated joint venture 4,246 4,009 3,334 -------- -------- -------- Total revenues 25,369 21,833 14,761 -------- -------- -------- Expenses: Operating (including management fee of $840, $840 and $700 to Vornado) 7,459 5,562 3,807 General and administrative (including management fee of $2,160, $2,160 and $1,800 to Vornado) 3,933 4,402 4,820 Depreciation and amortization 2,714 2,128 1,858 Reorganization costs -- -- 1,938 -------- -------- -------- Total expenses 14,106 12,092 12,423 -------- -------- -------- Operating income 11,263 9,741 2,338 Interest and debt expense (including interest on loan from Vornado) (13,430) (13,934) (13,156) Interest and other income, net 719 2,918 1,716 Net gain from condemnation proceedings 8,914 -- -- Gain on reversal of liability for post-retirement healthcare benefits -- 14,372 -- -------- -------- -------- Income (loss) before reversal of deferred taxes 7,466 13,097 (9,102) Reversal of deferred taxes -- -- 1,406 -------- -------- -------- Income (loss) from continuing operations 7,466 13,097 (7,696) Income from discontinued operations -- 11,602 10,133 -------- -------- -------- NET INCOME $ 7,466 $ 24,699 $ 2,437 ======== ======== ======== Net Income (Loss) Per Share (basic and diluted): Continuing operations $ 1.49 $ 2.62 $ (1.54) Discontinued operations -- 2.32 2.03 -------- -------- -------- Net income $ 1.49 $ 4.94 $ .49 ======== ======== ======== See notes to consolidated financial statements. -23-

24 ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (amounts in thousands) Stockholders' Common Additional Treasury Equity Stock Capital Deficiency Stock (Deficiency) ----- ------- ---------- ----- ------------ Balance, January 1, 1995 $5,174 $24,843 $(50,630) $(960) $(21,573) Net income -- -- 2,437 -- 2,437 ------ ------- -------- ----- -------- Balance, December 31, 1995 5,174 24,843 (48,193) (960) (19,136) Net income -- -- 24,699 -- 24,699 ------ ------- -------- ----- -------- Balance, December 31, 1996 5,174 24,843 (23,494) (960) 5,563 Net income -- -- 7,466 -- 7,466 ------ ------- -------- ----- -------- Balance, December 31, 1997 $5,174 $24,843 $(16,028) $(960) $ 13,029 ====== ======= ======== ===== ======== See notes to consolidated financial statements. -24-

25 ALEXANDER'S, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) Year Ended December 31, ----------------------------------------- 1997 1996 1995 -------- -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) from continuing operations $ 7,466 $ 13,097 $ (7,696) Adjustments to reconcile net income (loss) to net cash (used in) provided by continuing operating activities: Depreciation and amortization (including debt issuance costs) 4,494 4,105 4,687 Gain on reversal of postretirement healthcare liability -- (14,372) -- Straight-lining of rental income, net (1,821) (1,756) (1,340) Net gain from condemnation proceedings (8,914) -- -- Change in assets and liabilities: Accounts receivable (863) (21) (137) Note receivable -- -- 4,550 Distributions (investment) in excess of equity in income of unconsolidated joint venture 2,002 133 (4,285) Amounts due to Vornado Realty Trust and its affiliate (1,905) (2,094) (2,001) Liability for postretirement healthcare benefits -- (1,154) (356) Accounts payable and accrued liabilities (73) (143) (502) Other (1,514) 2,352 (2,453) -------- -------- --------- Net cash (used in) provided by operating activities of continuing operations (1,128) 147 (9,533) -------- -------- --------- Income from discontinued operations -- 11,602 10,133 Payment of liabilities of discontinued operations (326) (1,175) (29,488) Change in other liabilities of discontinued operations -- (2,000) (4,322) -------- -------- --------- Net cash (used in) provided by discontinued operations (326) 8,427 (23,677) -------- -------- --------- Net cash (used in) provided by operating activities (1,454) 8,574 (33,210) -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to real estate (20,625) (32,314) (45,933) Cash restricted for construction financing 3,203 2,057 (6,181) Cash restricted for operating liabilities 545 9,228 (10,724) -------- -------- --------- Net cash used in investing activities (16,877) (21,029) (62,838) -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of debt 16,667 10,527 147,806 Debt repayments (926) (1,063) (39,878) Deferred debt expense (199) -- (5,772) -------- -------- --------- Net cash provided by financing activities 15,542 9,464 102,156 -------- -------- --------- Net (decrease) increase in cash and cash equivalents (2,789) (2,991) 6,108 Cash and cash equivalents at the beginning of the period 5,480 8,471 2,363 -------- -------- --------- Cash and cash equivalents at the end of the period $ 2,691 $ 5,480 $ 8,471 ======== ======== ========= SUPPLEMENTAL INFORMATION Cash payments for interest $ 20,729 $ 20,140 $ 16,352 ======== ======== ========= Capitalized interest $ 9,079 $ 8,552 $ 6,575 ======== ======== ========= The 1995 amounts exclude an increase in real estate of $20,838 and debt of $21,812 and a reduction in minority interest of $974 as a result of the Company acquiring a partnership interest. See notes to consolidated financial statements. -25-

26 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS Alexander's is a real estate investment trust engaged in the business of leasing, managing, developing and redeveloping real estate properties, focusing on the properties where its department stores (which ceased operations in 1992) formerly operated. The Company's properties are located in mature, densely populated areas in New York City and Paramus, New Jersey. In May 1992, at a time when the Company's business consisted of retail store operations, the Company and sixteen of its subsidiaries filed petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). In September 1993, the Bankruptcy Court confirmed the Joint Plan of Reorganization (the "Plan"), pursuant to which the Company and its subsidiaries reorganized their business as a real estate company. In March 1995, the Company paid holders of allowed general unsecured claims in full, together with accrued interest in respect of their claims. Such payments aggregated approximately $24,000,000. The Official Committee of Unsecured Creditors has been dissolved and all secured and unsecured creditors having allowed claims in the Bankruptcy Court cases have received the cash payments or debt instruments contemplated to be delivered to them under the Plan. In the aggregate, Alexander's current operating properties (six of its nine properties) do not generate sufficient cash flow to pay all of its expenses. The Company's three non-operating properties (Lexington Avenue, Paramus, and Rego Park II) are in various stages of redevelopment. As rents commence from a portion of the development 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 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, and a partnership in which the Company held a majority interest at December 31, 1997. Investments in real estate and other property which are 50% owned joint ventures are accounted for under the equity method. All intercompany accounts and transactions have been eliminated. The consolidated financial statements are prepared in conformity with generally accepted accounting principles. Management has made 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. -26-

27 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 amounts 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) are considered appropriate, and reasonably approximate 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. 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 policy is to annually assess any impairment in value by making a comparison of the current and projected operating cash flows of each of its properties over its remaining useful life 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 Lease Expense -- The Company capitalizes the costs incurred in connection with obtaining long-term leases. Deferred lease expense is amortized on the straight-line method over the initial terms of the leases. Deferred Finance and Debt Expense -- The Company capitalizes the costs incurred in connection with obtaining short-term or long-term debt or refinancing existing debt. These costs are amortized on the straight-line method over the initial terms of the debt, which approximates the interest method. Leases -- All leases are operating leases whereby rents and reimbursements of operating expenses are recorded as real estate operating revenue. The straight-line basis is used to recognize rents under leases entered into which provide for varying rents over the lease terms. Income Taxes -- The Company elected, with its federal income tax return for 1995, to be taxed as a real estate investment trust ("REIT") under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). To qualify for taxation as a REIT, the Company must meet various federal income tax law requirements. In general, a REIT that distributes to its stockholders at least 95% of its taxable income as a dividend for a taxable year and that meets certain other conditions will not be taxed on income distributed that year. The net basis in the Company's assets and liabilities for tax purposes is approximately $74,000,000 lower than the amount reported for financial statement purposes. Amounts Per Share - In 1997, the Financial Accounting Standards Board issued Statement No. 128 "Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. No restatement of prior periods were required because the amounts did not change. -27-

28 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INVESTMENT IN UNCONSOLIDATED 50% OWNED JOINT VENTURE (KINGS PLAZA MALL) The Kings Plaza Shopping Center (the "Center") comprises a two-level mall (the "Kings Plaza Mall"), and two four-level anchor stores. The Company owns one anchor store in the Center (leased to Sears for use as a full-line department store which opened in October 1997) and an undivided one-half interest in the Kings Plaza Mall. The other anchor store is owned and operated as a Macy's store by Federated Department Stores, Inc. ("Federated"). Summary financial information for the Kings Plaza Mall is as follows: Year Ended December 31, Six Months Fiscal ----------------------------- Ended Year Ended 1997 1996 Dec. 31, 1995 June 30, 1995 ----------- ----------- ------------- ------------- Operating revenue $30,203,000 $26,530,000 $14,571,000 $24,828,000 ----------- ----------- ----------- ----------- Operating costs 19,040,000 16,511,000 9,035,000 18,176,000 Depreciation and amortization 1,418,000 1,269,000 593,000 1,101,000 Interest expense 710,000 838,000 465,000 1,204,000 ----------- ----------- ----------- ----------- 21,168,000 18,618,000 10,093,000 20,481,000 ----------- ----------- ----------- ----------- Income before taxes $ 9,035,000 $ 7,912,000 $ 4,478,000 $ 4,347,000 =========== =========== =========== =========== Assets $33,400,000 $35,400,000 $40,700,000 $28,100,000 =========== =========== =========== =========== Liabilities $15,200,000 $16,300,000 $20,100,000 $14,900,000 =========== =========== =========== =========== In June 1997, the Kings Plaza Shopping Center (the "Center"), in which the Company owns a 50% interest, commissioned an Environmental Study and Contamination Assessment Site Investigation (the Phase II "Study") to evaluate and delineate environmental conditions disclosed in a Phase I study. The results of the Study indicate the presence of petroleum and other hydrocarbons in the soil and groundwater. The Study recommends a remedial approach, but agreement has not yet been reached with the New York State Department of Environmental Conservation ("NYDEC") on the finalization of the approach. The Center has 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. If the NYDEC insists on a more extensive remediation approach, the Center could incur additional obligations. Such contamination may have resulted from activities of third parties; however, the sources of the contamination have not been fully identified. Although the Center intends to pursue all available remedies against any potentially responsible third parties, there can be no assurance that such parties will be identified, or if identified, whether these potentially responsible third parties will be solvent. In addition, the costs associated with pursuing any potentially responsible parties may be cost prohibitive. The Center has not recorded an asset as of December 31, 1997 for potential recoveries of environmental remediation costs from other parties. -28-

29 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. DISCONTINUED OPERATIONS The Company recorded income from discontinued operations of $11,602,000 in 1996, and $10,133,000 in 1995 of which $9,602,000 and $6,133,000 resulted from the settlement of tax certiorari proceedings and $2,000,000 and $4,000,000 resulted from the reduction of other liabilities of discontinued operations to amounts considered necessary to cover the remaining estimates of these liabilities. Management periodically evaluates the reserves and adjusts them accordingly. A reconciliation of the liabilities from the discontinued retail operations is as follows: Year Ended December 31, -------------------------------------------------- 1997 1996 1995 ----------- ----------- ------------ Balance at beginning of period $ 2,622,000 $ 5,797,000 $ 43,160,000 Adjustments during period -- (2,000,000) (4,000,000) Utilized during period (326,000) (1,175,000) (33,363,000) ----------- ----------- ------------ Balance at end of period $ 2,296,000 $ 2,622,000 $ 5,797,000 =========== =========== ============ 5. DEBT Debt comprises: December 31, ------------------------------- 1997 1996 ------------ ------------ First mortgage loan, secured by the Company's Fordham Road property (1) $ 22,684,000 $ 23,611,000 First mortgage loan, secured by Company's Paramus property (2) 13,591,000 13,591,000 Term loans (3) 75,000,000 75,000,000 Construction loan, secured by the Company's Rego Park I property (4) 75,000,000 58,333,000 Secured note (5) 21,812,000 21,812,000 ------------ ------------ $208,087,000 $192,347,000 ============ ============ (1) A five year loan which matures in February 2000. The loan bears annual interest at LIBOR plus 4.25% (10.22% at December 31, 1997). Beginning in 1998, all cash flow of the property (presently zero) after debt service, will further amortize the loan. The loan is prepayable without penalty. -29-

30 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (2) The loan matures on December 31, 1998. The loan bears interest at 2.50% above the one-year U.S. Treasury bill rate (8.19% at December 31, 1997). The loan is prepayable at any time. In March 1998, the Company prepaid $3,591,000 of the loan with a portion of the proceeds from the condemnation of a portion of the property, reducing the principal balance of the loan to $10,000,000. (3) The term loan, scheduled to mature in March 1998, was extended one year to March 1999. The loan is secured by mortgages on all of the Company's assets and/or pledges of the stock of subsidiaries owning the assets and/or guarantees of such subsidiaries and the parent. The loan bears interest at a blended rate of 12.93% per annum at December 31, 1997 and is comprised of two separate notes of $45,000,000 to Vornado and $30,000,000 to a bank. On March 15, 1998, the interest rate on the loan was reset to a blended rate of 11.50%, reflecting a reduction in both the spread and the underlying treasury rate. The loan is prepayable quarterly without penalty. No dividends can be paid unless required to maintain Real Estate Investment Trust ("REIT") status. (4) The Company's $75,000,000 loan, collateralized by a mortgage on its Rego Park I property, which was scheduled to mature on March 30, 1998 has been extended to September 30, 1998. The loan bears interest at LIBOR plus 1.00% (currently 6.69%) and is guaranteed by the Company. In connection with the loan extension, the Company paid a fee of 1/8%. The Company expects to complete the refinancing of the loan through the issuance of rated commercial mortgage backed securities. (5) The note matures on August 21, 1998 and is secured by a third mortgage on the Lexington Avenue property. The note bears annual interest at Prime plus 1% (9.50% at December 31, 1997). A summary of maturities of debt at December 31, 1997, is as follows: Year ended December 31, ----------------------- 1998 $185,974,000 ($75,000,000 of which has been extended to 1999--see below) 1999 628,000 2000 21,485,000 ------------ $208,087,000 ============ 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 $181,122,000 at December 31, 1997. -30-

31 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LEASES As Lessor The Company leases properties to tenants. The rental terms for the properties leased range from 10 years to approximately 34 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. Future base rental revenue under these noncancellable operating leases is as follows: Year Ending Total December 31, Amounts ------------ ---------- 1997 $ 16,333,000 1998 16,717,000 1999 16,740,000 2000 17,164,000 2001 17,479,000 Thereafter 406,222,000 The following tenants accounted for more than 10% of the Company's consolidated revenues: Years Ended December 31, ---------------------------- 1997 1996 1995 ---- ---- ---- Caldor 22% 36% 56% Sears 31% 23% -- In September 1995, Caldor filed for relief under Chapter 11 of the United States Bankruptcy Code. Caldor rejected its Fordham Road lease effective June 6, 1997 and accordingly, no longer pays rent; Alexander's has filed a claim for damages based on such rejection. The annual base rental under this lease was $3,537,000. The loss of property rental payments, if any, under the Caldor lease for the Flushing property, could have a material adverse affect on the Company's financial condition and results of operations. -31-

32 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As Lessee The Company is a tenant under a long-term lease for the Flushing property which expires on January 31, 2027. Future minimum lease payments under the operating lease are as follows: Year Ending Total December 31, Amounts ------------ ---------- 1998 $ 331,000 1999 331,000 2000 331,000 2001 331,000 2002 331,000 Thereafter 5,024,000 Rent expense was $331,000, $496,000 and $496,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 7. INTEREST AND OTHER INCOME, NET Interest and other income, net is comprised of: Year Ended December 31, -------------------------------------------- 1997 1996 1995 ---------- ---------- ---------- Interest income $ 522,000 $1,009,000 $1,601,000 Reimbursement of expenses from joint venture partner 197,000 764,000 -- Refund of previously paid taxes -- 199,000 115,000 Amortization of deferred gain on post retirement benefit -- 794,000 -- Workers compensation insurance refund -- 152,000 -- ---------- ---------- ---------- $ 719,000 $2,918,000 $1,716,000 ========== ========== ========== 8. INCOME TAXES The Company operates in a manner intended to enable it to continue to qualify as a real estate investment trust ("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. In addition, the Company had a deferred tax liability of approximately $1,406,000 at December 31, 1994, which amount was reversed in 1995 when the Company elected to be taxed as a REIT. -32-

33 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has reported NOL carryovers for federal tax purposes of approximately $156,000,000 at December 31, 1997, expiring from 2005 to 2012. The Company also had investment tax and targeted jobs tax credits of approximately $3,000,000 expiring in 2002 through 2005. 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 Realty Trust ("Vornado"). Interstate owns 27.1% of the outstanding common stock of the Company and owns 17.9% of the outstanding common shares of beneficial interest of Vornado. In addition, Mr. Roth owns 2.2% of the outstanding common shares of beneficial interest of Vornado. Mr. Roth, Interstate and the other two general partners of Interstate, David Mandelbaum and Russell B. Wight, Jr. (who are also directors of the Company and trustees of Vornado) own, in the aggregate, 21.3% of the outstanding common shares of beneficial interest of Vornado. Vornado owns 29.3% of the outstanding common stock of the Company. 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 $3,000,000, plus 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, the Company owes Vornado $6,244,000 at December 31, 1997. 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 on September 21, 1993, or at the time the transactions which gave rise to the Commissions occurred, if later. In March 1995, the Company borrowed $45,000,000 from Vornado, the subordinated tranche of a $75,000,000 secured financing. The Company incurred interest on the loan of $7,214,000 and $7,517,000 for the years ended December 31, 1997 and 1996, of which $4,815,000 and $3,989,000 was capitalized. The agreement with Vornado and Interstate not to own in excess of two-thirds of the Company's common stock expired in March 1998. During the years ended December 31, 1997, 1996 and 1995, Vornado through Interstate was paid $398,000, $1,007,000, and $463,000, respectively, by the Kings Plaza Shopping Center for performing leasing services. The Company owns 50% of the Kings Plaza Shopping Center. 10. COMMITMENTS AND CONTINGENCIES Lexington Avenue The Company is evaluating redevelopment plans for this site, which may involve razing the existing buildings (in which case, the carrying cost of approximately $15,000,000 would be written-off) and developing a large multi-use building requiring capital in excess of $300,000,000 to be expended. No development decisions have been finalized. -33-

34 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Letters of Credit Approximately $3,900,000 in standby letters of credit were issued at December 31, 1997. 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 60 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, none of which have been awarded as of December 31, 1997. 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, 1997 and 1996: 1997 1996 -------------- -------------- Net income: As reported $ 7,466,000 $ 24,699,000 Pro-forma $ 5,512,000 $ 24,495,000 Net income per share applicable to common shareholders: As reported $ 1.49 $ 4.94 Pro-forma $ 1.10 $ 4.90 The fair value of each option grant is estimated on the date of grant using the Binomial option-pricing model with the following weighted-average assumptions used for grants in the period ended December 31, 1996 (no options were granted in the year ended December 31, 1997): Expected volatility 19% Expected life 10 years Risk-free interest rate 5.9% Expected dividend yield 0% -34-

35 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the Plan's status, and changes during the years ended December 31, 1997 and 1996, are presented below: December 31, 1997 December 31, 1996 ----------------------------- ----------------------------- Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price ------ --------------- ------ --------------- Outstanding at January 1 350,000 $73.88 -- -- Granted -- -- 350,000 $73.88 Exercised -- -- -- -- ------- ------ ------- ------ Outstanding at December 31 350,000 $73.88 350,000 $73.88 ======= ====== ======= ====== Options exercised at December 31 -- -- Weighted-average fair value of options granted during the year ended December 31 (per option) -- $35.04 The following table summarizes information about options outstanding under the Plan at December 31, 1997: Exercise price $ 73.88 Options outstanding: Number outstanding at December 31, 1997 350,000 Weighted-average remaining contractual life 8.9 Years Weighted-average exercise price $ 73.88 Options exercisable: Number exercisable at December 31, 1997 70,000 Weighted-average exercise price $ 73.88 Shares available for future grant at December 31, 1997 were 700,000. -35-

36 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: December 31, 1997 1996 1995 ---------- ----------- --------- Numerator: Income (loss) from continuing operations $7,466,000 $13,097,000 $(7,696,000) ========== =========== ========== Denominator: Denominator for basic earnings per share - weighted average shares 5,000,850 5,000,850 5,000,850 Effect of dilutive securities: Employee stock options 8,302 -- -- ---------- ----------- ---------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 5,009,152 5,000,850 5,000,850 ========== =========== ========== Basic and diluted earnings (loss) per share $ 1.49 $ 2.62 $ (1.54) ========== =========== ========== -36-

37 ALEXANDER'S, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. SUMMARY OF QUARTERLY RESULTS (UNAUDITED) (amounts in thousands except per share amounts) Year Ended Year Ended December 31, 1997 December 31, 1996 ------------------------------------- ---------------------------------------- Quarter Ended Quarter Ended ------------------------------------- ---------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 ------- ------- ------- ------- ------- ------- ------- ------- Total Revenues $ 5,998 $ 6,761 $ 6,016 $ 6,594 $ 4,684 $ 5,686 $ 5,379 $ 6,084 ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) from continuing operations (208) 183 (135) 7,626(1) (462) 53 (630) 14,136(2) Income from discontinued operations -- -- -- -- -- 11,602(3) -- -- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) $ (208) $ 183 $ (135) $ 7,626 $ (462) $11,655 $ (630) $14,136 ======= ======= ======= ======= ======= ======= ======= ======= Income (loss) per common share (basic and diluted): Continuing operations $ (.04) $ .04 $ (.03) $ 1.52 $ (.09) $ .01 $ (.13) $ 2.83 Discontinued operations (3) -- -- -- -- -- 2.32 -- -- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) $ (.04) $ .04 $ (.03) $ 1.52 $ (.09) $ 2.33 $ (.13) $ 2.83 ======= ======= ======= ======= ======= ======= ======= ======= (1) Includes gain of $8,914,000 from the condemnation of a portion of the Paramus property net of the write-off of the carrying value of the building of $5,786,000. (2) Includes gain on reversal of postretirement healthcare liability in the amount of $14,372,000. (3) Comprised of (i) $9,602,000 upon completion of a tax certiorari proceeding and (ii) $2,000,000 from the reduction of other liabilities of discontinued operations to amounts considered necessary to cover the remaining estimates of these liabilities. -37-

38 PART III Item 10. Directors and Executive Officers of the Registrant Information relating to 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, 1997, and such information is incorporated herein by reference. Information relating to Executive Officers of the Registrant appears on page 11 of this Annual Report on Form 10-K. Item 11. Executive Compensation Information relating to 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 relating to 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 relating to 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. -38-

39 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. Pages in this Annual Report on Form 10-K Schedule III - Real Estate and Accumulated Depreciation 41 Kings Plaza Shopping Center and Marina (a Joint Venture): Independent Auditors' Report 43 Balance Sheets at December 31, 1997 and 1996 44 Statements of Earnings for the Years Ended December 31, 1997 and 1996, the Six Months Ended December 31, 1995 and the Year Ended June 30, 1995 45 Statements of Equity of the Co-Venturers for the Years Ended December 31, 1997 and 1996, the Six Months Ended December 31, 1995 and the Year Ended June 30, 1995 46 Statements of Cash Flows for the Years Ended December 31, 1997 and 1996, the Six Months Ended December 31, 1995 and the Year Ended June 30, 1995 47 Notes to Financial Statements 48 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 53 (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. -39-

40 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/ Joseph Macnow ------------------------------ Joseph Macnow, Vice President, Chief Financial Officer Date: March 17, 1998 ------------------------------ 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. Signature Title Date --------- ----- ---- /s/ Steven Roth Chief Executive Officer and Director March 17, 1998 - ------------------------- (Principal Executive Officer) Steven Roth /s/ Thomas R. DiBenedetto Director March 17, 1998 - ------------------------- Thomas R. DiBenedetto /s/ Michael D. Fascitelli Director March 17, 1998 - ------------------------- Michael D. Fascitelli /s/ David Mandelbaum Director March 17, 1998 - ------------------------- David Mandelbaum /s/ Stephen Mann Director March 17, 1998 - ------------------------- Stephen Mann /s/ Arthur I. Sonnenblick Director March 17, 1998 - ------------------------- Arthur I. Sonnenblick /s/ Neil Underberg Director March 17, 1998 - ------------------------- Neil Underberg /s/ Richard West Director March 17, 1998 - ------------------------- Richard West /s/ Russell B. Wight, Jr. Director March 17, 1998 - ------------------------- Russell B. Wight, Jr. -40-

41 ALEXANDER'S, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (amounts in thousands) Column A Column B Column C Column D Column E Column F Column G Gross Amount Initial at Which Cost to Carried at Company (2) Close of Period- Capitalized Building, Cost Buildings, Expenses Leaseholds Capitalized Leasehold and Pre- and Leasehold Subsequent to and Leasehold development Description Encumbrances Land Improvements Acquisition(3) Land Improvements Costs Total(3) - ---------------------- ------------ ------ ------------- -------------- ------- -------------- ----------- -------- Commercial Property: New York City, New York: Fordham Rd. $ 22,684 $ 2,301 $9,258 -- $ 2,301 $ 9,258 -- $ 11,559 Third Avenue - 1,201 4,437 -- 1,201 4,437 -- 5,638 Rego Park I 75,000 1,647 8,953 $ 56,713 1,647 65,666 -- 67,313 Rego Park II - 3,906 1,467 411 3,906 1,566 $ 312 5,784 Flushing - - 1,660 -- -- 1,660 -- 1,660 Lexington Ave. 21,812 14,432 12,355 61,576 33,979 13,647 40,737 88,363 Flatbush Ave. and Avenue U 497 9,542 16,032 497 25,574 -- 26,071 ------- ------- -------- ------- -------- ------- -------- Total New York 23,984 47,672 134,732 43,531 121,808 41,049 206,388 New Jersey - Paramus 13,591 1,441 -- 3,990 1,441 -- 3,990 5,431 Other Properties 599 1,804 2,124 599 1,804 2,124 4,527 ------- ------- -------- ------- -------- ------- -------- Other secured debt 75,000 (1) -------- TOTAL $208,087 $26,024 $49,476 $140,846 $45,571 $123,612 $47,163 $216,346 ======== ======= ======= ======== ======= ======== ======= ======== Column H Column I Column J Life on Which Accumulated Depreciation in Depreciation Latest Income and Date of Date Statement is Description Amortization Construction Acquired (2) Computed - ---------------------- ------------- ------------ ------------ ----------- Commercial Property: New York City, New York: Fordham Rd. $ 6,795 1933 1992 4-40 years Third Avenue 3,068 1928 1992 13 years Rego Park I 10,472 1959 1992 6-40 years Rego Park II 1,445 1965 1992 5-39 years Flushing 1,620 1975(4) 1992 10-22 years Lexington Ave. 3,754 1965 1992 29 years Flatbush Ave. and Avenue U 6,267 1970 1992 20-40 years -------- Total New York 33,421 New Jersey - Paramus -- 1962 1992 5-40 years Other Properties 1,803 Various 1992 7-25 years -------- Other secured debt TOTAL $ 35,224 ======== (1) The loan, scheduled to mature in March 1998, was extended one year to March 1999. The loan is secured by mortgages on all of the Company's assets and/or pledges of the stock of subsidiaries owning the assets and/or guarantees of such subsidiaries and the parent. (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 J. (3) The net basis in the Company's assets and liabilities for tax purposes is approximately $74,000,000 lower than the amount reported for financial statement purposes. (4) Date represents lease acquisition date. -41-

42 ALEXANDER'S, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (amounts in thousands) December 31, -------------------------- 1997 1996 --------- --------- REAL ESTATE: ACCUMULATED DEPRECIATION: Balance at beginning of period $ 207,767 $ 175,485 Additions during the period: Land -- -- Buildings, leaseholds and leasehold improvements (including $242 of construction in progress at December 31, 1996 ) 16,569 18,136 Capitalized expenses and predevelopment costs 4,056 14,322 --------- --------- 228,392 207,943 Less: Write-off of the Paramus property (12,046) -- Disposition of property -- (176) --------- --------- Balance at end of period $ 216,346 $ 207,767 ========= ========= Balance at beginning of period $ 39,375 $ 37,794 Additions charged to operating expenses 2,109 1,611 --------- --------- 41,484 39,405 Less: Write-off of the Paramus property (6,260) -- Disposition of property -- (30) --------- --------- Balance at end of period $ 35,224 $ 39,375 ========= ========= -42-

43 INDEPENDENT AUDITORS' REPORT To the Co-Venturers Kings Plaza Shopping Center and Marina Brooklyn, New York We have audited the accompanying balance sheets of Kings Plaza Shopping Center and Marina (a joint venture) as of December 31, 1997 and 1996, and the related statements of earnings, equity of the co-venturers and cash flows for the years ended December 31, 1997 and 1996, the six months ended December 31, 1995 and for the year ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 Kings Plaza Shopping Center and Marina at December 31, 1997 and 1996, and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, the six months ended December 31, 1995 and the year ended June 30, 1995 in conformity with generally accepted accounting principles. February 6, 1998 Deloitte & Touche LLP Parsippany, New Jersey -43-

44 KINGS PLAZA SHOPPING CENTER AND MARINA (A JOINT VENTURE) BALANCE SHEETS December 31, ----------------------------- ASSETS: 1997 1996 ----------- ----------- Cash $ 3,531,861 $ 1,398,813 Amounts due from tenants, less allowance for doubtful accounts of $211,000 and $230,000 608,057 1,243,437 Receivable arising from the straight-lining of rental income, net 1,604,869 815,622 Notes receivable -- 8,855 Prepaid expenses and other assets 574,780 516,332 Prepaid real estate tax expense-tax certiorari proceedings 820,198 5,633,679 Property and equipment, at cost: Land 4,219,795 4,219,795 Land improvements 1,503,417 1,503,417 Buildings and building equipment 48,571,692 46,690,716 Fixtures and equipment 62,856 62,856 Parking lot toll equipment 2,555,957 2,555,957 ----------- ----------- 56,913,717 55,032,741 Less accumulated depreciation 33,124,443 31,773,904 ----------- ----------- 23,789,274 23,258,837 Deferred charges, less accumulated amortization of $3,970,000 and $3,357,000 2,510,606 2,561,783 ----------- ----------- TOTAL ASSETS $33,439,645 $35,437,358 =========== =========== LIABILITIES AND EQUITY: LIABILITIES: Accounts payable $ 788,350 $ 506,788 Accrued expenses 806,738 487,916 Estimated environmental remediation costs 1,500,000 -- Mortgage notes payable 6,523,772 7,890,836 Accrued interest payable 53,060 64,179 Amounts due tenants - tax certiorari proceedings 5,518,351 7,000,180 Liabilities subject to settlement under reorganization proceeding -- 346,669 ----------- ----------- Total liabilities 15,190,271 16,296,568 COMMITMENTS AND CONTINGENCIES Equity of the co-venturers 18,249,374 19,140,790 ----------- ----------- TOTAL LIABILITIES AND EQUITY $33,439,645 $35,437,358 =========== =========== See notes to financial statements. -44-

45 KINGS PLAZA SHOPPING CENTER AND MARINA (A JOINT VENTURE) STATEMENTS OF EARNINGS Six Months Year Ended Ended Year Ended December 31, December 31, June 30, 1997 1996 1995 1995 ------------ ------------ ------------ ------------ Revenues: Rent $ 14,940,482 $ 12,994,912 $ 7,062,404 $ 11,995,203 Expense reimbursements: Central heating, cooling, air handling and electricity 2,525,417 2,459,496 1,247,501 2,435,660 Real estate taxes 1,782,060 1,599,985 904,312 2,968,046 Common area 6,467,201 5,833,560 2,682,261 3,841,110 Parking lot 2,078,697 1,938,748 1,085,073 2,094,210 Miscellaneous income 2,408,590 1,703,209 1,589,618 1,493,760 ------------ ------------ ------------ ------------ 30,202,447 26,529,910 14,571,169 24,827,989 ------------ ------------ ------------ ------------ Expenses: Central heating, cooling, air handling and electricity 4,638,159 4,736,774 2,215,391 4,779,409 Real estate taxes 1,958,117 1,845,382 915,749 3,152,717 Common area 4,002,653 4,039,642 2,065,609 3,993,106 Parking lot 3,454,875 3,009,643 1,553,262 3,180,002 Insurance and other expenses 1,083,267 1,092,931 1,140,610 1,206,884 Rent 71,156 71,156 35,578 71,156 Management, leasing and publicity 2,331,672 1,714,950 1,108,901 1,792,368 Environmental remediation 1,500,000 -- -- -- Depreciation 1,350,539 1,226,630 565,482 1,056,038 Amortization 67,723 42,609 27,590 44,727 ------------ ------------ ------------ ------------ 20,458,161 17,779,717 9,628,172 19,276,407 ------------ ------------ ------------ ------------ Operating income 9,744,286 8,750,193 4,942,997 5,551,582 Interest expense (709,716) (838,247) (464,607) (1,204,658) ------------ ------------ ------------ ------------ NET EARNINGS $ 9,034,570 $ 7,911,946 $ 4,478,390 $ 4,346,924 ============ ============ ============ ============ See notes to financial statements. -45-

46 KINGS PLAZA SHOPPING CENTER AND MARINA (A JOINT VENTURE) STATEMENTS OF EQUITY OF THE CO-VENTURERS Year Ended Six Months December 31, Ended Year Ended -------------------------------- December 31, June 30, 1997 1996 1995 1995 ------------ ------------ ------------ ------------ BALANCE, BEGINNING OF PERIOD $ 19,140,790 $ 20,524,510 $ 13,185,266 $ 14,297,104 Payments to the co-venturers (9,925,986) (9,295,666) (1,442,833) (6,743,226) Advances from the co-venturers -- -- 1,442,833 1,284,464 Reversal of previously accrued real estate taxes -- -- 2,860,854 -- Net earnings 9,034,570 7,911,946 4,478,390 4,346,924 ------------ ------------ ------------ ------------ BALANCE, END OF PERIOD $ 18,249,374 $ 19,140,790 $ 20,524,510 $ 13,185,266 ============ ============ ============ ============ See notes to financial statements. -46-

47 KINGS PLAZA SHOPPING CENTER AND MARINA (A JOINT VENTURE) STATEMENTS OF CASH FLOWS Year Ended Six Months December 31, Ended Years Ended -------------------------------- December 31, June 30, 1997 1996 1995 1995 ------------ ------------ ----------- ----------- Cash flows from operating activities Net earnings $ 9,034,570 $ 7,911,946 $ 4,478,390 $ 4,346,924 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,350,539 1,226,630 565,482 1,056,038 Amortization (including deferred charges) 613,039 247,459 171,749 287,752 Change in assets and liabilities: Decrease (increase) in amounts due from tenants 635,381 547,948 (948,459) (2,226) Increase in straight-lining of rental income (789,247) (150,492) (571,672) (93,458) Increase in deferred charges (561,862) (465,826) (515,423) (465,535) Increase (decrease) in accounts payable and accrued expenses (including accrued real estate taxes) 203,714 (1,153,930) (2,458,065) 1,514,948 Estimated environmental remediation costs 1,500,000 -- -- -- Decrease in accrued interest payable (11,119) (10,373) (4,923) (2,944,727) (Decrease) increase in amounts due to tenants (1,431,830) (1,391,774) 8,263,888 -- Decrease (increase) in prepaid expenses and other assets 4,755,035 3,711,977 (6,000,925) 290,550 ------------ ------------ ----------- ----------- Net cash provided by operating activities 15,298,220 10,473,565 2,980,042 3,990,266 ------------ ------------ ----------- ----------- Cash flows from investing activities: Additions to buildings and building equipment (1,880,977) (2,509,501) (1,135,025) (1,078,664) Decrease in note receivable 8,855 -- 2,132 12,145 ------------ ------------ ----------- ----------- Net cash used in investing activities (1,872,122) (2,509,501) (1,132,893) (1,066,519) ------------ ------------ ----------- ----------- Cash flows from financing activities: Payments to co-venturers (9,925,986) (9,295,666) (1,442,833) (6,743,226) Advances from co-venturers -- -- 1,442,833 1,284,464 Repayments of mortgage note (1,367,064) (1,275,414) (605,275) (3,105,031) ------------ ------------ ----------- ----------- Net cash used in financing activities (11,293,050) (10,571,080) (605,275) (8,563,793) ------------ ------------ ----------- ----------- Net increase (decrease) in cash 2,133,048 (2,607,016) 1,241,874 (5,640,046) Cash, beginning of period 1,398,813 4,005,829 2,763,955 8,404,001 ------------ ------------ ----------- ----------- Cash, end of period $ 3,531,861 $ 1,398,813 $ 4,005,829 $ 2,763,955 ============ ============ =========== =========== Supplemental disclosure of cash flow information: Interest paid $ 720,834 $ 848,621 $ 469,531 $ 4,111,697 ============ ============ =========== =========== Supplemental disclosure of noncash financing activities - see Note 9. See notes to financial statements. -47-

48 KINGS PLAZA SHOPPING CENTER AND MARINA (A Joint Venture) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS Kings Plaza Shopping Center of Avenue U, Inc. (a wholly-owned subsidiary of Federated Department Stores, Inc. (formerly R.H. Macy & Co. Inc. ("Macy's")) and Alexander's Department Stores of Brooklyn, Inc. (wholly-owned by Alexander's, Inc. ("Alexander's")), formed a joint venture for the purpose of owning and operating the Kings Plaza Shopping Center and Marina ("Center"), including the energy plant servicing the entire shopping center, but exclusive of the Macy's and Alexander's stores and land thereunder located in the Center. The co-venturers each have an undivided 50% interest as tenants in common in the property and equipment. 2. SIGNIFICANT ACCOUNTING POLICIES a. Basis of Presentation - The financial statements are prepared in conformity with generally accepted accounting principles. Management has made 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. Certain amounts have been reclassified for prior years to conform to 1997 presentation. b. Property and Equipment - Property and equipment is stated at cost. Depreciation of property and equipment is provided on a straight-line basis over the following periods: Land improvements 10-50 years Buildings and building equipment 20-50 years Fixtures and equipment 10 years Parking lot toll equipment 10 years Additions and improvements to property and equipment are capitalized and depreciated over their estimated remaining lives. Maintenance and repairs are charged to operations as incurred. Management of the Center assesses any impairment in value by making a comparison of the current and projected operating cash flow of the Center 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 an asset. c. Deferred Charges - Deferred charges include lease commissions and other costs paid to tenants to acquire the rights to their leased space. Lease commissions are amortized on a straight-line basis over the life of the applicable leases. Other lease acquisition costs are amortized over the life of the respective leases. -48-

49 d. Revenue Recognition - Base rents, additional rent based on tenant's sales volume and reimbursement of the tenant's share of certain operating expenses are generally recognized when due from tenants. The straight-line basis is used to recognize base rents on the leases which provide for varying rents over the lease terms. e. Environmental Remediation Costs - The Center accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably determinable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. 3. MORTGAGE NOTES PAYABLE The mortgage notes payable were issued by the co-venturers. The notes are collateralized by a mortgage on all property and equipment, and by assignment of leases and charges due thereunder. Mortgage notes payable consists of the following: December 31, --------------------------- 1997 1996 ---------- ---------- Alexander's note payable in quarterly installments of $235,507 (including interest at 7%) plus additional interest at 1.5% on the outstanding balance, due through December 2001 $3,261,886 $3,945,418 Macy's note payable in quarterly installments of $235,507 (including interest at 7%) plus additional interest at 4.02% on the outstanding balance, due through December 2001 3,261,886 3,945,418 ---------- ---------- $6,523,772 $7,890,836 ========== ========== -49-

50 4. COMMITMENTS a. Joint Venture as Lessor - The joint venture leases space to tenants in its shopping center for which the Center charges fixed minimum rents. The terms of the leases are generally ten years and provide for fixed minimum rents as follows: Year Ending Total December 31, Amounts --------------------- --------------- 1998 $ 14,072,871 1999 13,427,332 2000 12,824,664 2001 11,268,632 2002 9,559,418 Subsequent to 2002 46,843,584 ------------- $ 107,996,501 ============= In addition to minimum rents, most of the leases provide for percentage rents when the tenants' sales volumes exceed stated amounts per lease agreements and reimbursements for certain of the Center's operating expenses. During the six months ended December 31, 1995, the Center adjusted its billings to tenants for certain reimbursable expenses in accordance with the lease agreements. This adjustment gave rise to an increase of approximately $600,000 in other income attributable to the portion of the tenants' lease year included in the Center's year ended June 30, 1995. -50-

51 b. Joint Venture as Lessee - The joint venture leases certain real property from the City of New York. The lease extends to January 2020 at annual rentals (payable quarterly in advance) in future periods as follows: Year Ending Rental December 31, Commitment ------------------------ ------------------ 1998 $ 78,272 1999 85,387 2000 85,387 2001 85,387 2002 85,387 Subsequent to 2002 1,494,268 ----------- $ 1,914,088 =========== The lessee may extend the lease for a total of another forty-nine years, with individual renewal options and annual rentals of $122,957, $147,548, $177,058, $212,470 and $254,964, for each succeeding ten-year period and the final nine-year period. 5. FEDERAL INCOME TAX The Center is not subject to Federal income tax. The income or loss of the joint venture is reportable by the co-venturers in proportion to their respective investment in the joint venture. Similar circumstances apply to state and city income taxes. Further, any investment credit realized by the joint venture is passed on to the co-venturers. Accordingly, no provision or liabilities for Federal, state or city income taxes are required to be reflected on the books of the Center. 6. RELATED PARTY TRANSACTIONS Steven Roth is Chief Executive Officer and a Director of Alexander's, the Managing General Partner of Interstate Properties ("Interstate") and Chairman of the Board and Chief Executive Officer of Vornado Realty Trust ("Vornado"). Interstate owns 27.1% of the outstanding common stock of Alexander's and owns 17.9% of the outstanding common shares of beneficial interest of Vornado. Mr. Roth, Interstate and the other two general partners of Interstate, David Mandelbaum and Russell B. Wight, Jr. (who are also directors of Alexander's and trustees of Vornado) own, in the aggregate, 21.3% of the outstanding common shares of beneficial interest of Vornado. Vornado owns 29.3% of the outstanding common stock of Alexander's. During the year ended December 31, 1997 and 1996, for the six months ended December 31, 1995 and for the year in the period ended June 30, 1995, Vornado, through Interstate, was paid $398,000, $846,000, $389,000 and $165,000, respectively, by the Center for performing leasing services for space located in the Center. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of cash, accounts receivable, notes receivable, accounts payable, accrued expenses and mortgage notes payable are reflected in the balance sheet. The fair value estimates are based on information available as of December 31, 1997. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, a comprehensive revaluation has not been performed for purposes of this financial statement disclosure and current estimates of fair value may differ significantly from those amounts reflected in the balance sheet. -51-

52 8. ENVIRONMENTAL INVESTIGATION In June 1997, the Kings Plaza Shopping Center (the "Center"), in which the Company owns a 50% interest, commissioned an Environmental Study and Contamination Assessment Site Investigation (the Phase II "Study") to evaluate and delineate environmental conditions disclosed in a Phase I study. The results of the Study indicate the presence of petroleum and other hydrocarbons in the soil and groundwater. The Study recommends a remedial approach, but agreement has not yet been reached with the New York State Department of Environmental Conservation ("NYDEC") on the finalization of the approach. The Center has 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. If the NYDEC insists on a more extensive remediation approach, the Center could incur additional obligations. Such contamination may have resulted from activities of third parties; however, the sources of the contamination have not been fully identified. Although the Center intends to pursue all available remedies against any potentially responsible third parties, there can be no assurance that such parties will be identified, or if identified, whether these potentially responsible third parties will be solvent. In addition, the costs associated with pursuing any potentially responsible parties may be cost prohibitive. The Center has not recorded an asset as of December 31, 1997 for potential recoveries of environmental remediation costs from other parties. 9. TAX CERTIORARI PROCEEDINGS In December 1995, the Center completed a tax certiorari proceeding with the City of New York. Each of the co-venturers has agreed with the City of New York to a reduction in the assessed values covering the tax years 1988/1989 through 1995/1996, generating tax credits of $28,350,000, of which $18,836,000 relates to the co-venturer's stores. As a result, real estate taxes previously accrued for each of the co-venturers were reversed. The estimated amounts due to tenants resulting from the tax certiorari proceedings was $5,518,351 and $7,000,180 at December 31, 1997 and 1996, respectively. ****** -52-

53 Index to Exhibits The following is a list of all exhibits filed as part of this Report: Exhibit No. Document Page ----------- -------- ---- 3(i) Certificate of Incorporation, as amended. Incorporated herein * by reference from Exhibit 3.0 to the Registrant's Current Report on Form 8-K dated September 21, 1993. 3(ii) By-laws, as amended. Incorporated herein by reference from * Exhibit 3.1 to the Registrants Form 10-Q for the quarter ended September 30, 1996. 10(i)(A)(1) Agreement, dated as of December 4, 1985, among Seven Thirty One * Limited Partnership ("731 Limited Partnership"), Alexander's Department Stores of Lexington Avenue, Inc., the Company, Emanuel Gruss, Riane Gruss and Elizabeth Goldberg (collectively, the "Partners"). Incorporated herein by reference from Exhibit 10(i)(F)(1) to the Registrant's Form 10-K for the fiscal year ended July 26, 1986. 10(i)(A)(2) Amended and Restated Agreement of Limited Partnership in the 731 * Limited Partnership, dated as of August 21, 1986, among the Partners. Incorporated herein by reference from Exhibit 1 to the Registrant's Current Report on Form 8-K, dated August 21, 1986. 10(i)(A)(3) Third Amendment to Amended and Restated Agreement of Limited * Partnership dated December 30, 1994, among the Partners. Incorporated herein by reference from Exhibit 10(i)(A)(3) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(i)(B)(1) Promissory Note Modification Agreement, dated October 4, 1993, between * Alexander's Department Stores of New Jersey, Inc. and New York Life Insurance Company ("New York Life"). Incorporated herein by reference from Exhibit 10(i)(3)(a) to the Registrant's Form 10-K for the Transition Period August 1, 1993 to December 31, 1993. 10(i)(B)(2) Mortgage Modification Agreement, dated October 4, 1993, by Alexander's * Department Stores of New Jersey, Inc. and New York Life Incorporated herein by reference from Exhibit 10(i)(E)(3)(a) to the Registrant's Form 10-K for the Transition Period August 1, 1993 to December 31, 1993. 10(i)(C) Credit Agreement, dated March 15, 1995, among the Company and Vornado * Lending Corp. Incorporated herein by reference from Exhibit 10(i)(C) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. * Incorporated by reference -53-

54 Exhibit No. Document Page ----------- -------- ---- 10(i)(D) Credit Agreement, dated March 15, 1995, among the Company and First * Union Bank, National Association. Incorporated herein by reference from Exhibit 10(i)(D) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(i)(E) Building Loan Agreement, dated as of March 29, 1995, among the * Company, Union Bank of Switzerland ("UBS") (New York Branch), as Lender, and UBS (New York Branch), as Agent. Incorporated by reference from Exhibit 10(i)(E) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(i)(F) Project Loan Agreement, dated as of March 29,1995, among the Company, * UBS (New York Branch), as Lender, and UBS (New York Branch), as Agent. Incorporated herein by reference from Exhibit 10(i)(F) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(i)(G)(1) Real Estate Retention Agreement dated as of July 20, 1992, between * Vornado Realty Trust and Keen Realty Consultants, Inc., each as special real estate consultants, and the Company. Incorporated herein by reference from Exhibit 10(i)(O) to the Registrant's Form 10-K for the fiscal year ended July 25, 1992. 10(i)(G)(2) Extension Agreement to the Real Estate Retention Agreement, dated * as of February 6, 1995, between the Company and Vornado Realty Trust. Incorporated herein by reference from Exhibit 10(i)(G)(2) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(i)(H) Management and Development Agreement, dated as of February 6, 1995, * between Vornado Realty Trust and the Company, on behalf of itself and each subsidiary listed therein. Incorporated herein by reference from Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated February 6, 1995. 10(i)(I) Commitment letter, dated as of February 6, 1995, between Vornado * Realty Trust and the Company. Incorporated herein by reference from Exhibit 10.3 to the Registrant's Current Report on Form 8-K dated February 6, 1995. 10(ii)(A)(1) Agreement of Lease, dated April 22, 1966, between S&E Realty * Company and Alexander's Department Stores of Valley Stream, Inc. Incorporated herein by reference from Exhibit 13N to the Registrant's Registration Statement on Form S-1 (Registration No. 2-29780). * Incorporated by reference -54-

55 Exhibit No. Document Page ----------- -------- ---- 10(ii)(A)(2) Guarantee, dated April 22, 1966, of the Lease described as * Exhibit 10(ii)(A)(1) above by Alexander's Department Stores, Inc. Incorporated herein by reference from Exhibit 13N(1) to the Registrant's Registration Statement on Form S-1 (Registration No. 2-29780). 10(ii)(A)(3) Agreement of Lease for Rego Park, Queens, New York, between * Alexander's, Inc. and Sears Roebuck & Co. Incorporated herein by reference from Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994. 10(ii)(A)(4)(a) Lease for Roosevelt Avenue, Flushing, New York, dated as of * December 1, 1992, between the Company, as landlord, and Caldor, as tenant. Incorporated herein by reference from Exhibit 10(ii)(E)(7) to the Registrant's Form 10-K for the fiscal year ended July 25, 1992. 10(ii)(A)(4)(b) First Amendment to Sublease for Roosevelt Avenue, Flushing, New York, * dated as of February 22, 1995 between the Company, as sublandlord, and Caldor, as tenant. Incorporated herein by reference from Exhibit 10(ii)(A)(8)(b) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(ii)(A)(5) Lease Agreement, dated March 1, 1993 by and between the Company and * Alex Third Avenue Acquisition Associates. Incorporated by reference from Exhibit 10(ii)(F) to the Registrant's Form 10-K for the fiscal year ended July 31, 1993. 10(ii)(A)(6) Agreement of Lease for Rego Park, Queens, New York, between the * Company and Marshalls of Richfield, MN., Inc., dated as of March 1, 1995. Incorporated herein by reference from Exhibit 10(ii)(A)(12)(a) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(ii)(A)(7) Guaranty, dated March 1, 1995, of the Lease described in Exhibit * 10(ii)(A)(12)(a) above by the Company. Incorporated herein by reference from Exhibit 10(ii)(A)(12)(b) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. * Incorporated by reference -55-

56 Exhibit No. Document Page ----------- -------- ---- 10(iii)(A) ** Employment Agreement, dated March 29, 1995, between Brian M. Kurtz * and the Company. Incorporated herein by reference from Exhibit 10(iii)(A) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(iii)(A)(1) ** Amendment to Employment Agreement, dated December 11, 1996, between * Brian M. Kurtz and the Company. Incorporated herein by reference from Exhibit 10(iii)(A)(1) to the Registrant's Form 10-K for the fiscal year ended December 31, 1996. 10(iii)(B) ** Employment Agreement, dated February 9, 1995, between the Company * and Stephen Mann. Incorporated herein by reference from Exhibit 10(iii)(B) to the Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(iv)(A) Registrant's Omnibus Stock Plan, as amended, dated May 28, 1997, Incorporated herein by reference from Exhibit 10 to the Registrant's Form 10-Q for the fiscal quarter ended June 30, 1997. * 11 Not applicable. 12 Consolidated Ratios of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements. 57 13 Not applicable. 16 Not applicable. 18 Not applicable. 19 Not applicable. 21 Subsidiaries of Registrant. 58 22 Not applicable. 23 Consent by independent auditors to incorporation by reference. 59 25 Not applicable. 27 Financial Data Schedule. 60 29 Not applicable. * Incorporated by reference ** Management contract or compensatory plan -56-

1 EXHIBIT 12 ALEXANDER'S, INC. CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES (amounts in thousands except ratios) Year Ended -------------------------------------------------------------------- December 31, December 31, December 31, December 31, December 31, 1997 1996 1995 1994 1993 (1) ------- ------- -------- ------- ------- Income/(loss) from continuing operations before reversal of deferred taxes $ 7,466 (4) $13,097 (5) $ (9,102) $ 4,033 $ 9,644 Fixed charges (3) 13,749 14,464 13,607 4,228 2,621 ------- ------- -------- ------- ------- Income/(loss) from continuing operation before income taxes and fixed charges $ 21,215 $27,561 $ 4,505 $ 8,261 $12,265 ======== ======= ======== ======= ======= Fixed charges: Interest and debt expense $13,639 $14,299 $ 13,442 $ 4,063 $ 2,456 1/3 of rent expense - interest factor 110 165 165 165 165 ------- ------- -------- ------- ------- 13,749 14,464 13,607 4,228 2,621 Capitalized interest 9,079 8,552 6,575 1,718 753 ------- ------- -------- ------- ------- $22,828 $23,016 $ 20,182 $ 5,946 $ 3,374 ======= ======= ======== ======= ======= Ratio of earnings to fixed charges -- 1.20 -- 1.39 3.64 Deficiency in earnings available to cover fixed charges $(1,613)(4) -- $(15,677) -- -- ======= ======== (amounts in thousands except ratios) Five Months Fiscal Ended Year Ended December 31, July 31, 1993 (1) 1993 (2) ------- ------- Income/(loss) from continuing operations before reversal of deferred taxes $ 946 $27,151 (6) Fixed charges (3) 633 1,300 ------- ------- Income/(loss) from continuing operation before income taxes and fixed charges $ 1,579 $28,451 ======= ======= Fixed charges: Interest and debt expense $ 468 $ 1,135 1/3 of rent expense - interest factor 165 165 ------- ------- 633 1,300 Capitalized interest 753 -- ------- ------- $ 1,386 $ 1,300 ======= ======= Ratio of earnings to fixed charges 1.14 21.89 Deficiency in earnings available to cover fixed charges -- -- Notes: (1) In November 1993, the Company changed to a calendar year from a fiscal year ending on the last Saturday in July. The amounts for the year ended December 31, 1993 are included for comparative purposes only. (2) Includes 53 weeks. (3) For purposes of this calculation, earnings before fixed charges consist of earnings plus fixed charges. Fixed charges consist of interest expense on all indebtedness (including amortization of debt issuance costs) from continuing operations and the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third of operating lease rentals). Fixed charges does not include any interest paid to unsecured creditors or charged against the reserve from discontinued operations. Fixed charges also does not include any interest expensed or capitalized during the period the Company was in the retail business (prior to 5/15/92) except for its share of the Kings Plaza Mall interest expense. (4) Includes a gain of $8,914,000 from the condemnation of a portion of the Paramus property net of the write-off of the carrying value of the building of $5,786,000, without which the Company would have a deficiency in earnings to cover fixed charges of $10,527,000. (5) Includes gain of $14,372,000 from the reversal of the Company's postretirement healthcare liability without which the Company would have a deficiency in earnings to cover fixed charges of $9,827,000. (6) Includes a gain on sales of leases of $28,779,000 without which the Company would have a deficiency in earnings to cover fixed charges of $1,628,000. -57-

1 EXHIBIT 21 ALEXANDER'S, INC. SUBSIDIARIES OF REGISTRANT Alexander's of Brooklyn, Inc. Alexander's of Fordham Road, Inc. Alexander's Rego Park Center, Inc. Alexander's of Rego Park, Inc. Alexander's of Rego Park II, Inc. Alexander's of Rego Park III, Inc. Alexander's of Third Avenue, Inc. Alexander's of Flushing, Inc. Alexander's Department Stores of New Jersey, Inc. Alexander's Department Stores of Lexington Avenue, Inc. Alexander's Department Stores of Brooklyn, Inc. U & F Realty Corp. ADMO Realty Corp. Ownreal Inc. Sakraf Wine & Liquor Store, Inc. -58-

1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation in Amendment No. 3 to Registration Statement No. 33-62779 on Form S-3 of our report dated March 17, 1998 appearing in this Annual Report on Form 10-K of Alexander's, Inc. for the year ended December 31, 1997 and our report dated February 6, 1998 appearing in this Annual Report on Form 10-K of Kings Plaza Shopping Center and Marina for the year ended December 31, 1997. Parsippany, New Jersey March 17, 1998 -59-

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

YEAR DEC-31-1997 DEC-31-1997 2,691 0 1,211 (147) 0 0 216,346 (35,224) 235,074 0 208,087 0 0 5,174 7,855 235,074 0 25,369 0 14,106 0 0 13,430 7,466 0 7,466 0 0 0 7,466 1.49 0