| ALEXANDERS INC ITEM 1A RISK FACTORS Set forth below are material factors that may adversely affect our business and operations |
| Real Estate Investments &apos Value and Income Fluctuate Due to Various Factors |
| The value of real estate fluctuates depending on conditions in the general economy and the real estate business |
| These conditions may also limit our revenues and available cash |
| The factors that affect the value of our real estate include, among other things: • national, regional and local economic conditions; • local conditions such as an oversupply of space or a reduction in demand for real estate in the area; • competition from other available space; • whether tenants and users such as customers and shoppers consider a property attractive; • the financial condition of our tenants, including the extent of tenant bankruptcies or defaults; • whether we are able to pass some or all of any increased operating costs through to tenants; • how well we manage our properties; • fluctuations in interest rates; • changes in real estate taxes and other expenses; • changes in market rental rates; • the timing and costs associated with property improvements and rentals; • changes in taxation or zoning laws; • government regulation; • Alexanderapstas failure to continue to qualify as a real estate investment trust; • availability of financing on acceptable terms or at all; • consequences of any armed conflict involving, or terrorist attacks against, the United States; • our ability to secure adequate insurance; • potential liability under environmental or other laws or regulations; and • general competitive factors |
| The rents we receive and the occupancy levels at our properties may decline as a result of adverse changes in any of these factors |
| If our rental revenues decline, we generally would expect to have less cash available to pay our indebtedness and distribute to our stockholders |
| In addition, some of our major expenses, including mortgage payments, real estate taxes and maintenance costs, generally do not decline when the related rents decline |
| We depend on leasing space to tenants on economically favorable terms and collecting rent from our tenants, who may not be able to pay |
| Our financial results depend significantly on leasing space in our properties to tenants on economically favorable terms |
| In addition, because a substantial majority of our income comes from renting of real property, our income, funds available to pay indebtedness and funds available for distribution to our stockholders will decrease if a significant number of our tenants cannot pay their rent or if we are not able to maintain our level of occupancy on favorable terms |
| Bankruptcy or insolvency of tenants may decrease our revenues, net income and available cash |
| From time to time, some of our tenants, have declared bankruptcy, and other tenants may declare bankruptcy or become insolvent in the future |
| If a major tenant declares bankruptcy or becomes insolvent, the rental property at which it leases space may have lower revenues and operational difficulties |
| In the case of our shopping centers, the bankruptcy or insolvency of a major tenant could cause us to have difficulty leasing the remainder of the affected property |
| Our leases generally do not contain restrictions designed to ensure the creditworthiness of our tenants |
| As a result, the bankruptcy or insolvency of a major tenant could result in a lower level of net income and funds available for the payment of our indebtedness or distribution to our stockholders |
| 7 _________________________________________________________________ Some of the our tenants represent a significant portion of our revenues |
| Loss of these tenant relationships or deterioration in the tenants &apos credit quality could adversely affect results |
| Bloomberg LP accounted for 34prca and 36prca of our consolidated revenues for the years ended December 31, 2005 and 2004, respectively |
| Sears accounted for 11prca of our consolidated revenues for the year ended December 31, 2004 |
| If we fail to maintain a relationship with any of our significant tenants or fail to perform our obligations under agreements with these tenants, or if any of these tenants fails or becomes unable to perform its obligations under the agreements, we expect that any one or more of these events would adversely affect our results of operations and financial condition |
| Real estate is a competitive business |
| We operate in a highly competitive environment |
| All of our properties are located in the greater New York City metropolitan area |
| We compete with a large number of real estate property owners and developers, some of which may be willing to accept lower returns on their investments |
| Principal factors of competition are rents charged, attractiveness of location, the quality of the property and breadth and quality of services provided |
| Our success depends upon, among other factors, trends of national and local economies, the financial condition and operating results of current and prospective tenants and customers, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends |
| We may incur costs to comply with environmental laws |
| Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment including air and water quality, hazardous or toxic substances and health and safety |
| Under some environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances released at a property |
| The owner or operator may also be held liable to a governmental entity or to third parties for property damage or personal injuries and for investigation and clean-up costs incurred by those parties because of the contamination |
| The presence of contamination or the failure to remediate contamination may impair our ability to sell or lease real estate or to borrow using the real estate as collateral |
| Other laws and regulations govern indoor and outdoor air quality including those that can require the abatement or removal of asbestos-containing materials in the event of damage, demolition, renovation or remodeling and also govern emissions of and exposure to asbestos fibers in the air |
| The maintenance and removal of lead paint and certain electrical equipment containing polychlorinated biphenyls (PCBs) and underground storage tanks are also regulated by federal and state laws |
| We are also subject to risks associated with human exposure to chemical or biological contaminants such as molds, pollens, viruses and bacteria which, above certain levels, can be alleged to be connected to allergic or other health effects and symptoms in susceptible individuals |
| We could incur fines for environmental compliance and be held liable for the costs of remedial action with respect to the foregoing regulated substances or tanks or related claims arising out of environmental contamination or human exposure at or from our properties |
| Each of our properties has been subjected to varying degrees of environmental assessment at various times |
| Except as referenced below, the environmental assessments did not, as of this date, reveal any environmental condition material to our business |
| However, identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, discovery of additional sites, human exposure to the contamination or changes in cleanup or compliance requirements could result in significant costs to us |
| In June 1997, the Kings Plaza Regional Shopping Center commissioned the Phase II Study to evaluate and delineate environmental conditions disclosed in a Phase I study |
| The results of the Phase II study indicated the presence of petroleum and bis (2-ethylhexyl) phthalate contamination in the soil and groundwater |
| We have delineated the contamination and have developed a remediation approach, which is ongoing |
| The New York State Department of Environmental Conservation ( "e NYSDEC "e ) has approved a portion of the remediation approach |
| We accrued dlra2cmam675cmam000 in previous years, of which dlra2cmam612cmam000 has been paid as of December 31, 2005, for our estimated obligation with respect to the cleanup of the site, and which includes costs of (i) remedial investigation, (ii) feasibility studies, (iii) remedial design, (iv) remedial action and (v) professional fees |
| If NYSDEC insists on a more extensive remediation approach, we could incur additional obligations |
| We can make no assurance that we will not incur additional environmental costs with respect to this property |
| We carry comprehensive liability and all risk property insurance ((i) fire, (ii) flood, (iii) extended coverage, (iv) "e acts of terrorism "e as defined in the Terrorism Risk Insurance Extension Act of 2005 which expires in 2007, and (v) rental loss insurance) with respect to our assets |
| On June 30, 2005, we renewed our annual all risk policy with limits of (i) dlra960cmam000cmam000 per occurrence including certified terrorist acts and dlra350cmam000cmam000 for non-certified terrorist acts for its 731 Lexington Avenue property, and (ii) dlra510cmam000cmam000 per occurrence including certified terrorist acts and dlra350cmam000cmam000 for non-certified terrorist acts for the remaining properties |
| Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to Alexanderapstas), contain customary covenants requiring us to maintain insurance |
| Although we believe that we have adequate insurance coverage under these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs in the future |
| Further, if lenders insist on greater coverage than we are able to obtain, or if the Terrorism Risk Insurance Extension Act of 2005 is not extended past 2007, it could adversely affect our ability to finance and/or refinance our properties |
| Compliance or failure to comply with the Americans with Disabilities Act or other safety regulations and requirements could result in substantial costs |
| The Americans with Disabilities Act generally requires that public buildings, including our properties, be made accessible to disabled persons |
| Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants |
| If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations, as well as the amount of cash available for distribution to our stockholders |
| Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements |
| If we fail to comply with these requirements, we could incur fines or private damage awards |
| We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that will affect our cash flow and results of operations |
| All of our properties are in the greater New York City metropolitan area and are affected by the economic cycles and risks inherent in that area |
| During the years ended December 31, 2005, 2004 and 2003, all of our revenues came from properties located in the greater New York City metropolitan area |
| Like other real estate markets, the real estate market in this area has experienced economic downturns in the past, and we cannot predict how economic conditions will impact this market in both the short and long term |
| Declines in the economy or a decline in the real estate market in this area could hurt the value of our properties and our financial performance |
| The factors affecting economic conditions in this region include: • business layoffs or downsizing; • industry slowdowns; • relocations of businesses; • changing demographics; • increased telecommuting and use of alternative work places; • financial performance and productivity of the publishing, advertising, financial, technology, retail, insurance and real estate industries; • infrastructure quality; and • any oversupply of, or reduced demand for, real estate |
| It is impossible for us to assess the future effects of the current uncertain trends in the economic and investment climates of the greater New York City metropolitan region, and more generally of the United States, on the real estate market in this area |
| If these conditions persist, or if there is any local, national or global economic downturn, our businesses and future profitability may be adversely affected |
| 9 _________________________________________________________________ We are subject to risks that affect the general retail environment |
| A substantial proportion of our properties are in the retail shopping center real estate market |
| This means that we are subject to factors that affect the retail environment generally, including the level of consumer spending and consumer confidence, the threat of terrorism and increasing competition from discount retailers, outlet malls, retail websites and catalog companies |
| These factors could adversely affect the financial condition of our retail tenants and the willingness of retailers to lease space in our shopping centers |
| Terrorist attacks, such as those of September 11, 2001 in New York City, may adversely affect the value of our properties and our ability to generate cash flow |
| All of our properties are located in the greater New York City metropolitan area |
| In the aftermath of any terrorist attacks, tenants in this area may choose to relocate their businesses to less populated, lower-profile areas of the United States that are not as likely to be targets of future terrorist activity and fewer customers may choose to patronize businesses in this area |
| This would trigger a decrease in the demand for space in these markets, which could increase vacancies in our properties and force us to lease our properties on less favorable terms |
| As a result, the value of our properties and the level of our revenues could decline materially |
| Our Failure or Inability to Consummate These Transactions or Manage the Results of These Transactions Could Adversely Affect Our Operations and Financial Results |
| We may acquire or develop properties when we believe that an acquisition or development is consistent with our business strategies, although currently our stated business strategy is not to engage in acquisitions |
| We may not, however, succeed in consummating desired acquisitions or in completing developments on time or within budget |
| In addition, we may face competition in pursuing acquisition or development opportunities that could increase our costs |
| When we do pursue a project or acquisition, we may not succeed in leasing newly developed or acquired properties at rents sufficient to cover their costs of acquisition or development and operations |
| Difficulties in integrating acquisitions may prove costly or time-consuming and could divert managementapstas attention |
| Acquisitions or developments in new markets or industries where we do not have the same level of market knowledge may result in poorer than anticipated performance |
| We may abandon acquisition or development opportunities that we have begun pursuing and consequently fail to recover expenses already incurred and have devoted management time to a matter not consummated |
| It may be difficult to buy and sell real estate quickly |
| Real estate investments are relatively difficult to buy and sell quickly |
| Consequently, we may have limited ability to vary our portfolio promptly in response to changes in economic or other conditions |
| Our Organizational and Financial Structure Gives Rise to Operational and Financial Risks |
| Alexanderapstas depends on dividends and distributions from its direct and indirect subsidiaries |
| The creditors of these subsidiaries are entitled to amounts payable to them by the subsidiaries before the subsidiaries may pay any dividends or distributions to Alexanderapstas, Inc |
| Substantially all of Alexanderapstas properties and assets are held through subsidiaries |
| Alexanderapstas depends on cash distributions and dividends from its subsidiaries for substantially all of its cash flow |
| The creditors of each of its direct and indirect subsidiaries are entitled to payment of that subsidiaryapstas obligations to them, when due and payable, before that subsidiary may make distributions or dividends to Alexanderapstas |
| Thus, Alexanderapstas ability to pay its indebtedness and to pay dividends, if any, to its security holders depends on its subsidiaries &apos ability to first satisfy their obligations to their creditors |
| In addition, Alexanderapstas participation in any distribution of the assets of any of its direct or indirect subsidiaries upon the liquidation, reorganization or insolvency of the subsidiary, is only after the claims of the creditors, including trade creditors, and preferred security holders, if any, of the applicable direct or indirect subsidiaries are satisfied |
| 10 _________________________________________________________________ Our existing financing documents contain covenants and restrictions that may restrict our operational and financial flexibility and restrict or prohibit our ability to make payments upon securities |
| At December 31, 2005, substantially all of our properties were pledged to secure obligations under dlra1cmam079cmam465cmam000 of existing secured indebtedness |
| If we were to fail to perform our obligations under existing indebtedness or become insolvent or were liquidated, secured creditors would be entitled to payment in full from the proceeds of the sale of the pledged assets prior to any proceeds being paid to other creditors or to any holders of our securities |
| In addition, the existing financing documents contain restrictive covenants which limit the ability to incur indebtedness and make prepayments of indebtedness |
| These covenants may significantly restrict our operational and financial flexibility and may restrict its ability to obtain additional financing or pursue other business activities that may be beneficial |
| We have indebtedness, and this indebtedness, and its cost, may increase |
| As of December 31, 2005, we had approximately dlra1cmam079cmam465cmam000 in total debt outstanding |
| Our ratio of total debt to total enterprise value was 62dtta2prca at December 31, 2005 |
| "e Enterprise value "e means the market equity value of our common stock, plus debt, less cash and cash equivalents at such date |
| In addition, we have significant debt service obligations |
| For the year ended December 31, 2005, our scheduled cash payments for principal and interest were dlra70cmam216cmam000 |
| In the future, we may incur additional debt, and thus increase the ratio of total debt to total enterprise value |
| If our level of indebtedness increases there may be an increased risk of default that could adversely affect our financial condition and results of operations |
| In addition, in a rising interest rate environment, the cost of refinancing our existing debt and any new debt or market rate security or instrument may increase |
| We have issued outstanding and exercisable stock appreciation rights |
| The exercise of these stock appreciation rights may impact our liquidity |
| As of January 31, 2006, 850cmam000 stock appreciation rights ( "e SARs "e ) were outstanding and exercisable at a weighted-average exercise price of dlra141dtta80 |
| Since the SARs agreements require that they be settled in cash, the Company would have had to pay dlra89cmam295cmam000 if the holders of these SARs had exercised their SARs on January 31, 2006 |
| Any change in the Companyapstas stock price from the closing price of dlra246dtta85 at January 31, 2006 would increase or decrease the amount the Company would have to pay upon exercise |
| Alexanderapstas might fail to qualify or remain qualified as a REIT, and may be required to pay income taxes at corporate rates |
| Although we believe that we will remain organized and will continue to operate so as to qualify as a REIT for federal income tax purposes, we might fail to remain qualified |
| Qualification as a REIT for federal income tax purposes is governed by highly technical and complex provisions of the Internal Revenue Code (the "e Code "e ) for which there are only limited judicial or administrative interpretations |
| Qualification as a REIT also depends on various facts and circumstances that are not entirely within our control |
| In addition, legislation, new regulations, administrative interpretations or court decisions might significantly change the tax laws with respect to the requirements for qualification as a REIT or the federal income tax consequences of qualification as a REIT In order to qualify and maintain our qualification as a REIT for federal income tax purposes, we are required, among other conditions, to distribute as dividends to our stockholders, at least 90prca of annual REIT taxable income |
| As of December 31, 2005, we had reported net operating loss carryovers ( "e NOLs "e ) of dlra31cmam739cmam000, which generally would be available to offset the amount of REIT taxable income that we otherwise would be required to distribute |
| However, the NOLs reported on the tax returns are not binding on the Internal Revenue Service and are subject to adjustment as a result of future audits |
| In addition, under Section 382 of the Code, the ability to use our NOLs could be limited if, generally, there are significant changes in the ownership of our outstanding stock |
| Since our reorganization as a REIT commencing in 1995, we have not paid regular dividends and do not believe that we will be required to, and may not, pay regular dividends until the NOLs have been fully utilized |
| 11 _________________________________________________________________ We face possible adverse changes in tax laws |
| From time to time changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability |
| The shortfall in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such changes |
| If such changes occur, we may be required to pay additional taxes on our assets or income |
| These increased tax costs could adversely affect our financial condition and results of operations and the amount of cash available for payment of dividends |
| Loss of our key personnel could harm our operations and adversely affect the value of our common stock |
| We are dependent on the efforts of Steven Roth, our Chief Executive Officer, and Michael D Fascitelli, our President |
| While we believe that we could find replacements for these key personnel, the loss of their services could harm our operations and adversely affect the value of our common stock |
| Alexanderapstas charter documents and applicable law may hinder any attempt to acquire us |
| Provisions in Alexanderapstas certificate of incorporation and by laws, as well as provisions of the Code and Delaware corporate law, may delay or prevent a change of control over the Company or a tender offer, even if such action might be beneficial to stockholders, and limit the stockholders &apos opportunity to receive a potential premium for their shares of common stock over then prevailing market prices |
| Primarily to facilitate maintenance of its qualification as a REIT, Alexanderapstas certificate of incorporation generally prohibits ownership, directly, indirectly or beneficially, by any single stockholder of more than 9dtta9prca of the outstanding shares of preferred stock of any class or 4dtta9prca of outstanding common stock of any class |
| The Board of Directors may waive or modify these ownership limits with respect to one or more persons if it is satisfied that ownership in excess of these limits will not jeopardize Alexanderapstas status as a REIT for federal income tax purposes |
| In addition, the Board of Directors has, subject to certain conditions and limitations, exempted Vornado and certain of its affiliates from these ownership limitations |
| Shares owned in violation of these ownership limits will be subject to the loss of rights and other restrictions |
| These ownership limits may have the effect of inhibiting or impeding a change in control |
| Alexanderapstas Board of Directors is divided into three classes of directors |
| Directors of each class are chosen for three-year staggered terms |
| Staggered terms of directors may have the effect of delaying or preventing changes in control or management, even though changes in management or a change in control might be in the best interest of our stockholders |
| In addition, Alexanderapstas charter documents authorize the Board of Directors to: • cause Alexanderapstas to issue additional authorized but unissued shares of common stock or preferred stock; and • set the preferences, rights and other terms of any classified or reclassified shares that Alexanderapstas issues without any further action by our stockholders |
| The Board of Directors could establish a series of preferred stock whose terms could delay, deter or prevent a change in control of Alexanderapstas or other transaction that might involve a premium price or otherwise be in the best interest of our stockholders, although the Board of Directors does not now intend to establish a series of preferred stock of this kind |
| Alexanderapstas charter documents contain other provisions that may delay, deter or prevent a change in control of the Company or other transaction that might involve a premium price or otherwise be in the best interest of our stockholders |
| In addition, Vornado and Interstate Properties (the three general partners of which are both trustees of Vornado and Directors of Alexanderapstas) together beneficially own approximately 60dtta5prca of our outstanding shares of common stock |
| This degree of ownership may also reduce the possibility of a tender offer or an attempt to change control of the Company |
| 12 _________________________________________________________________ We may change our policies without obtaining the approval of our stockholders |
| Our operating and financial policies, including our policies with respect to acquisitions of real estate or other assets, growth, operations, indebtedness, capitalization and dividends, are exclusively determined by our Board of Directors |
| Accordingly, our stockholders do not control these policies |
| Our Ownership Structure and Related-Party Transactions May Give Rise to Conflicts of Interest |
| Steven Roth, Vornado and Interstate may exercise substantial influence over us |
| They and some of our other directors and officers have interests or positions in other entities that may compete with us |
| As of December 31, 2005, Interstate and its partners owned approximately 9dtta2prca of the common shares of beneficial interest of Vornado, our manager, and approximately 27dtta7prca of the outstanding common stock of Alexanderapstas |
| Wight and Mr |
| Mandelbaum are both trustees of Vornado and members of the Companyapstas Board of Directors |
| In addition, Vornado manages and leases the real estate assets of Interstate |
| As of December 31, 2005, Vornado owned 33prca of our outstanding common stock, in addition to that owned by Interstate and its partners |
| In addition to the relationships described in the immediately preceding paragraph, Michael D Fascitelli, the President and a trustee of Vornado, is our President and a member of our Board of Directors |
| Richard West is a trustee of Vornado and a member of our Board of Directors |
| In addition, Joseph Macnow, our Executive Vice President and Chief Financial Officer, holds the same positions with Vornado |
| Roth, Interstate and the other individuals noted in the preceding paragraphs may have substantial influence over both Vornado and Alexanderapstas, and on the outcome of any matters submitted to Vornado shareholders or Alexanderapstas stockholders for approval |
| In addition, certain decisions concerning our operations or financial structure may present conflicts of interest among Messrs |
| Roth, Mandelbaum and Wight and Interstate and other security holders |
| Roth and Interstate may, in the future, engage in a wide variety of activities in the real estate business which may result in conflicts of interest with respect to matters affecting Vornado or us, such as which of these entities or persons, if any, may take advantage of potential business opportunities, the business focus of these entities, the types of properties and geographic locations in which these entities make investments, potential competition between business activities conducted, or sought to be conducted, by Vornado or us, competition for properties and tenants, possible corporate transactions such as acquisitions, and other strategic decisions affecting the future of these entities |
| There may be conflicts of interest between Vornado, its affiliates and us |
| Vornado manages, develops and leases our properties under agreements that have one-year terms expiring in March of each year, which are automatically renewable |
| Because we and Vornado share common senior management and because five of the trustees of Vornado also constitute the majority of our directors, the terms of the foregoing agreements and any future agreements between us and Vornado and its affiliates may not be comparable to those we could have negotiated with an unaffiliated third party |
| For a description of Interstateapstas ownership of Vornado and Alexanderapstas, see "e Steven Roth, Vornado and Interstate may exercise substantial influence over us |
| They and some of our other directors and officers have interests or positions in other entities that may compete with us "e |
| Alexanderapstas has available for issuance shares of its common stock and outstanding and exercisable options to purchase its common stock |
| The issuance of this stock or the exercise of these options could decrease the market price of the shares of common stock currently outstanding |
| As of December 31, 2005, Alexanderapstas had authorized but unissued 4cmam826cmam550 shares of its common stock, par value of dlra1dtta00 per share and 3cmam000cmam000 shares of its preferred stock, par value dlra1dtta00 per share |
| In addition, as of December 31, 2005, 81cmam850 options were outstanding and exercisable at a weighted-average exercise price of dlra70dtta38 and as of January 31, 2006, 850cmam000 SARs were outstanding and exercisable at a weighted-average exercise price of dlra141dtta80 |
| Additionally, 895cmam000 shares are available for future grant under the terms of our Omnibus Stock Plan that may be in the form of options, restricted stock, SARs or other equity-based interests |
| Since the SARs agreements require that they be settled in cash, the number of shares available for future grant under the terms of our Omnibus Stock Plan will increase upon the exercise of the outstanding SARs |
| The Company cannot predict the impact that future issuances of common or preferred stock or any exercise of outstanding options or grants of additional equity-based interests would have on the market price of its common stock |
| Changes in market conditions could decrease the market price of our securities |
| The value of our securities depends on various market conditions, which may change from time to time |
| Among the market conditions that may affect the value of our securities are the following: • the extent of institutional investor interest in us; • the reputation of REITs generally and the attractiveness of their equity securities in comparison to other equity securities, including securities issued by other real estate companies, and fixed income securities; • our NOLs which are generally available to offset the amount of the REIT taxable income that we otherwise would be required to distribute as dividends; • our financial condition and performance; and • general financial market conditions |
| The stock market in recent years has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies |