##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q (Mark one)[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2004 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to Commission File Number 001-6064 ALEXANDERS, INC. 
  Delaware
    
    51-0100517(State or other jurisdiction of incorporation or
organization)
    
    (I.R.S. Employer Identification No.)210 Route 4 East, Paramus, New Jersey
    
    07652(Address of principal executive office)
    
    (Zip Code)
 (201) 587-8541 
  N/A 
  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.  Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  As of October 22, 2004, there were 5,012,850 shares of common stock, par value
$1 per share, outstanding.




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ALEXANDERS, INC. AND SUBSIDIARIES
INDEX Page NumberPART I. Financial InformationItem 1. Financial Statements:Consolidated Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003
    
    
    3Consolidated Statements of Operations (unaudited)
for the Three and Nine Months Ended September 30, 2004 and September 30,
2003
    
    
    4Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30,
2004 and September 30, 2003
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6Report of Independent Registered Public Accounting Firm
    
    
    12Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Control and Procedures
    
    
    19PART II. Other InformationItem 1. Legal Proceedings
    
    
    20Item 6. Exhibits
    
    
    20Signatures
    
    
    21Exhibit Index
    
    
    22LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATIONCERTIFICATIONCERTIFICATIONCERTIFICATIONCERTIFICATION
  2




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PART I. FINANCIAL INFORMATION 
 Item 1.Financial Statements ALEXANDERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSReal estate, at cost:Land
    
    $
    91,677
    
    
    $
    91,496Buildings, leaseholds and leasehold improvements
    
    
    464,681
    
    
    
    371,353Construction in progress
    
    
    351,357
    
    
    
    346,166Air rights acquired for 731 Lexington Avenue
    
    
    17,531
    
    
    
    17,531Total
    
    
    925,246
    
    
    
    826,546Accumulated depreciation and amortization
    
    
    (70,821
    )
    
    
    (62,744
    )Real estate, net
    
    
    854,425
    
    
    
    763,802Asset held for sale
    
    
    
    
    
    
    432Cash and cash equivalents
    
    
    126,750
    
    
    
    21,336Escrow deposits and restricted cash
    
    
    55,273
    
    
    
    16,291Accounts receivable, net of allowance for doubtful accounts of $272 and
$55
    
    
    4,124
    
    
    
    3,101Receivable arising from the straight-lining of rents
    
    
    66,103
    
    
    
    27,412Deferred lease and other property costs (including unamortized leasing
fees to Vornado Realty Trust (Vornado) of $38,677 and $31,021), net
    
    
    68,443
    
    
    
    61,594Deferred debt expense, net
    
    
    15,954
    
    
    
    10,806Other assets
    
    
    9,757
    
    
    
    16,222TOTAL ASSETS
    
    $
    1,200,829
    
    
    $
    920,996LIABILITIES AND STOCKHOLDERS EQUITYDebt (including $124,000 due to Vornado)
    
    $
    933,979
    
    
    $
    731,485Amounts due to Vornado
    
    
    47,129
    
    
    
    34,427Accounts payable and accrued expenses
    
    
    42,355
    
    
    
    47,402Liability for stock appreciation rights
    
    
    108,191
    
    
    
    44,917Other liabilities
    
    
    49,570
    
    
    
    11,842TOTAL LIABILITIES
    
    
    1,181,224
    
    
    
    870,073COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock: $1.00 par value per share; 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
    
    
    
    5,174Additional capital
    
    
    25,621
    
    
    
    24,843(Accumulated deficit) retained earnings
    
    
    (10,296
    )
    
    
    21,86620,499
    
    
    
    51,883Treasury shares: 160,600 and 172,600 shares at cost
    
    
    (894
    )
    
    
    (960
    )TOTAL STOCKHOLDERS EQUITY
    
    
    19,605
    
    
    
    50,923TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    1,200,829
    
    
    $
    920,996
 See notes to consolidated financial statements. 3




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ALEXANDERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003REVENUESProperty rentals
    
    $
    29,009
    
    
    $
    12,478
    
    
    $
    80,712
    
    
    $
    38,259Expense reimbursements
    
    
    9,826
    
    
    
    7,424
    
    
    
    26,687
    
    
    
    21,522Total revenues
    
    
    38,835
    
    
    
    19,902
    
    
    
    107,399
    
    
    
    59,781EXPENSESOperating (including management fees to
Vornado of $474, $365, $1,446 and $1,096)
    
    
    12,732
    
    
    
    9,491
    
    
    
    33,969
    
    
    
    27,919General and administrative (including stock
appreciation rights compensation expense of
$26,656, $18,708, $63,274 and $28,631 and
management fees to Vornado of $540 and
$1,620 in each three and nine month period).
    
    
    27,627
    
    
    
    19,668
    
    
    
    66,488
    
    
    
    31,534Depreciation and amortization
    
    
    3,785
    
    
    
    1,790
    
    
    
    11,193
    
    
    
    5,046Total expenses
    
    
    44,144
    
    
    
    30,949
    
    
    
    111,650
    
    
    
    64,499OPERATING LOSS
    
    
    (5,309
    )
    
    
    (11,047
    )
    
    
    (4,251
    )
    
    
    (4,718
    )Interest and other income, net
    
    
    353
    
    
    
    161
    
    
    
    1,090
    
    
    
    499Interest and debt expense (including interest
on loans from Vornado)
    
    
    (10,599
    )
    
    
    (2,674
    )
    
    
    (29,813
    )
    
    
    (8,933
    )Write-off of unamortized deferred debt expense
    
    
    
    
    
    
    
    
    
    
    (3,050
    )
    
    
    Loss before gain on sale of real estate
    
    
    (15,555
    )
    
    
    (13,560
    )
    
    
    (36,024
    )
    
    
    (13,152
    )Gain on sale of real estate
    
    
    3,862
    
    
    
    
    
    
    
    3,862
    
    
    
    NET LOSS
    
    $
    (11,693
    )
    
    $
    (13,560
    )
    
    $
    (32,162
    )
    
    $
    (13,152
    )Net loss per common share (basic and diluted):Loss before gain on sale of real estate
    
    $
    (3.10
    )
    
    $
    (2.71
    )
    
    $
    (7.19
    )
    
    $
    (2.63
    )Gain on sale of real estate
    
    
    0.77
    
    
    
    
    
    
    
    0.77
    
    
    
    Net loss
    
    $
    (2.33
    )
    
    $
    (2.71
    )
    
    $
    (6.42
    )
    
    $
    (2.63
    )
 See notes to consolidated financial statements. 4




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ALEXANDERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended September 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (32,162
    )
    
    $
    (13,152
    )Adjustments to reconcile net loss to net cash provided by operating
activities:Write-off of unamortized deferred debt expense
    
    
    3,050
    
    
    
    Gain on sale of real estate
    
    
    (3,862
    )
    
    
    Depreciation and amortization (including deferred debt expense)
    
    
    13,689
    
    
    
    7,912Straight-lining of rental income
    
    
    (38,691
    )
    
    
    (1,313
    )Change in operating assets and liabilities:Accounts receivable, net
    
    
    (1,023
    )
    
    
    956Amounts due to Vornado
    
    
    8,840
    
    
    
    (382
    )Accounts payable and accrued expenses
    
    
    8,460
    
    
    
    (289
    )Liability for stock appreciation rights
    
    
    63,274
    
    
    
    28,631Other liabilities
    
    
    (168
    )
    
    
    (267
    )Other
    
    
    (3,501
    )
    
    
    1,463Net cash provided by operating activities
    
    
    17,906
    
    
    
    23,559CASH FLOWS FROM INVESTING ACTIVITIESAdditions to real estate
    
    
    (115,577
    )
    
    
    (180,423
    )Cash restricted for operating liabilities
    
    
    (1,086
    )
    
    
    (2,461
    )Net proceeds from sale of real estate
    
    
    4,294
    
    
    
    Net cash used in investing activities
    
    
    (112,369
    )
    
    
    (182,884
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from borrowings (including $0 and $5,000 from Vornado)
    
    
    458,306
    
    
    
    136,756Repayments of borrowings
    
    
    (255,812
    )
    
    
    (2,010
    )Deferred debt expense
    
    
    (3,461
    )
    
    
    Exercise of share options
    
    
    844
    
    
    
    Net cash provided by financing activities
    
    
    199,877
    
    
    
    134,746Net increase (decrease) in cash and cash equivalents
    
    
    105,414
    
    
    
    (24,579
    )Cash and cash equivalents at beginning of period
    
    
    21,336
    
    
    
    45,239Cash and cash equivalents at end of period
    
    $
    126,750
    
    
    $
    20,660SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash payments for interest (of which $18,628 and $28,607 have been
capitalized)
    
    $
    45,086
    
    
    $
    34,444
 See notes to consolidated financial statements. 5




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ALEXANDERS, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. ORGANIZATION Alexanders, Inc. is a real estate investment trust (REIT), incorporated
in Delaware, engaged in leasing, managing, developing and redeveloping its
properties. The activities of Alexanders, Inc. are conducted through its
manager, Vornado Realty Trust (Vornado). 2. BASIS OF PRESENTATION The consolidated balance sheet as of September 30, 2004, the consolidated
statements of operations for the three and nine months ended September 30, 2004
and 2003, and the consolidated statements of cash flows for the nine months
ended September 30, 2004 and 2003 are unaudited. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows
have been made. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted in accordance with Article 10 of Regulation S-X and the instructions to
Form 10-Q. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K of Alexanders, Inc. for the year
ended December 31, 2003 as filed with the Securities and Exchange Commission.
The results of operations for the three and nine months ended September 30,
2004 are not necessarily indicative of the operating results for the full year. The accompanying consolidated financial statements include the accounts of
Alexanders, Inc. and all of its wholly-owned subsidiaries (collectively, the
Company). All significant intercompany amounts have been eliminated. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
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 in the prior periods consolidated financial
statements have been reclassified to conform to the current period
presentation. The Company currently operates in one business segment. 3. RELATIONSHIP WITH VORNADO REALTY TRUST Vornado owned 33.0% of the common stock of Alexanders, Inc. as of
September 30, 2004. Steven Roth is the Chairman of the Board and Chief
Executive Officer of the Company, the Managing General Partner of Interstate
Properties (Interstate), a New Jersey general partnership, and the Chairman
of the Board and Chief Executive Officer of Vornado. At September 30, 2004,
Mr. Roth, Interstate and its other two general partners, David Mandelbaum and
Russell B. Wight, Jr. (who are also directors of the Company and trustees of
Vornado) owned, in the aggregate, 27.4% of the outstanding common stock of
Alexanders, Inc., and 11.0% of the outstanding common shares of beneficial
interest of Vornado. The Company is managed, and its properties are leased and developed, by
Vornado pursuant to agreements with one-year terms, expiring in March of each
year, which are automatically renewable. In conjunction with the original
closing of the 731 Lexington Avenue construction loan (the Construction Loan)
on July 3, 2002, these agreements were modified to cover the Companys 731
Lexington Avenue property separately. Further, the management and development
agreements with Vornado for the 731 Lexington Avenue property were amended to
provide for a term lasting until substantial completion of the property with
automatic renewals, and for the payment of the 731 Lexington Avenue development
fee upon the earlier of January 3, 2006 or the full repayment of the
Construction Loan encumbering the property. On May 27, 2004, the Company entered into a further agreement with Vornado
under which Vornado provides property management services to the Company for an
annual fee of $0.50 per square foot of tenant-occupied office and retail space
at 731 Lexington Avenue. In addition, as of February 2003, the Company hired
Building Maintenance Services (BMS), a wholly owned subsidiary of Vornado, to
supervise the cleaning, engineering and security services at 731 Lexington
Avenue for a fee of 6% of the Companys costs for such services. Both of these
agreements expire in March of each year and are automatically renewable. 6




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ALEXANDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) Vornado is paid a development fee equal to 6% of development costs, as
defined, with a minimum guaranteed fee and cash payment of $750,000 per annum.
For the Companys 731 Lexington Avenue project, the development fee is
estimated to be $26,300,000. Further, Vornado has agreed to guarantee to the
construction lender, the lien free, timely completion of the construction of
the 731 Lexington Avenue project and funding of project costs in excess of a
stated loan budget, if not funded by the Company (the Completion Guarantee).
The $6,300,000 estimated fee payable by the Company to Vornado for the
Completion Guarantee is 1% of construction costs, as defined, and is due at the
same time that the development fee is due. In addition, if Vornado should
advance any funds under the Completion Guarantee in excess of $21,000,000,
which was the amount available at September 30, 2004 under the line of credit
with Vornado, discussed below, interest on those advances would be at 15% per
annum. The annual fee payable to Vornado for management of the Company is
$3,000,000 and, for property management at the Companys Kings Plaza Regional
Shopping Center (the Mall), 3% of the Malls annual gross income. Vornado also provides all leasing services for the Company for a fee of
(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 rent for the first ten
years of a lease term, 2% of rent for the eleventh through the twentieth year
of a lease term, and 1% of rent for the twenty-first through thirtieth year of
a lease term, subject to the payment of rents by tenants. Such amounts are
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 they been paid at the time the
transactions which gave rise to the commissions occurred. Pursuant to the
leasing agreement, in the event third party real estate brokers are used, the
fees to Vornado increase by 1% and Vornado is responsible for the fees to the
third party real estate brokers, except in connection with the Bloomberg L.P.
lease, where the tenant paid the third party broker directly. At September 30, 2004, the Company owed Vornado (i) $17,881,000 for
development fees, (ii) $23,336,000 for leasing fees, (iii) $4,689,000 for the
guarantee fee, (iv) $505,000 for interest, and (v) $718,000 for management fees
and property management and cleaning fees. The following table shows the amounts accrued under the agreements
discussed above. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(amounts in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Company management fees
    
    $
    750
    
    
    $
    750
    
    
    $
    2,250
    
    
    $
    2,250Development fee,
guarantee fee and rent
for development office
    
    
    1,384
    
    
    
    1,968
    
    
    
    4,696
    
    
    
    8,916Leasing fees
    
    
    790
    
    
    
    209
    
    
    
    10,993
    
    
    
    834Property management
fees and payments for
cleaning, engineering
and security services
    
    
    633
    
    
    
    277
    
    
    
    1,756
    
    
    
    588$
    3,557
    
    
    $
    3,204
    
    
    $
    19,695
    
    
    $
    12,588
 At September 30, 2004, in addition to the fees and costs described above,
the Company was indebted to Vornado in the amount of $124,000,000 comprised of
(i) a $95,000,000 note and (ii) $29,000,000 under a $50,000,000 line of credit
(which carries a 1% unused commitment fee). Effective April 1, 2004, the term
loan and line of credit were modified to reduce the spread from 9.48% to 6.00%
and accordingly, the current interest rate on the loan and line of credit is
9.00%. The rate resets quarterly using the 6.00% spread to one-year treasuries
with a 3% floor for treasuries. On July 3, 2002, in conjunction with the
original closing of the Construction Loan, the maturity of the Vornado debt was
extended to the earlier of January 3, 2006 or the date the Construction Loan is
fully repaid. The Company incurred interest (including the 1% unused
commitment fee) on this debt of $2,906,000 and $4,010,000 in the three months
ended September 30, 2004 and 2003, respectively, and $9,745,000 and $11,625,000
in the nine months ended September 30, 2004 and 2003, respectively. 7




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ALEXANDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 4. 731 LEXINGTON AVENUE 731 Lexington Avenue is an approximately 1.3 million square foot multi-use
building. The building contains approximately 885,000 net rentable square feet
of office space, approximately 171,000 net rentable square feet of retail space
and approximately 248,000 net saleable square feet of residential space
consisting of 105 condominium units (through a taxable REIT subsidiary). Of
the construction budget of $630,000,000 (which excludes the development and
guarantee fees to Vornado), $468,900,000 has been expended through September
30, 2004 and there is an additional $24,400,000 to which the Company has
committed at such date. Construction is expected to be completed in 2005. At September 30, 2004, 707,000 square feet of office space has been leased
and delivered to tenants including 695,000 square feet delivered to Bloomberg
L.P. in November and December 2003. Payment of base rent for the Bloomberg
L.P. space commences nine months from delivery of each parcel of space; rent
recognition on a straight-line basis commenced on delivery. At September 30, 2004, 153,000 square feet of retail space has been leased
of which 119,000 square feet has been delivered to tenants including (i) 83,000
square feet delivered to The Home Depot on March 29, 2004 and (ii) 27,000
square feet delivered to Hennes & Mauritz on May 15, 2004. Payment of base
rent on the 119,000 square feet commences six to nine months from delivery of
each space; rent recognition on a straight-line basis commenced on delivery. The residential space is comprised of 105 condominium units. The original
offering plan filed for these units, as amended for price increases through
September 30, 2004, would produce an aggregate sale price of approximately
$500,000,000 (reflecting the value of existing contracts and the offering price
for the remaining units). As of September 30, 2004, the Company has received
deposits of $48,321,000 on sales of the condominium units. During the nine months ended September 30, 2004, the Company transferred
approximately $93,480,000 from Construction in progress to Land and
Buildings, leaseholds and leasehold improvements, representing the space
delivered to tenants and placed into service during such period. Financing of the Project On February 13, 2004, the Company closed a $400,000,000 mortgage financing
on the office space. The loan was placed by German American Capital
Corporation, an affiliate of Deutsche Bank. The loan bears interest at 5.33%,
matures in February 2014 and, beginning in the third year, provides for
principal payments based on a 25-year amortization schedule such that over the
remaining eight years of the loan, ten years of amortization will be paid.
$7,223,000 of the $10,692,000 of Deferred debt expense, net associated with
this financing was included in Other assets in the Consolidated Balance Sheet
at December 31, 2003 and was reclassified in the three months ended March 31,
2004. Of the loan proceeds, $253,529,000 were used to repay the entire amount
outstanding under the previously existing Construction Loan with Hypo Real
Estate Capital Corporation. The Construction Loan was modified on February 13, 2004 so that the
remaining availability was $237,000,000, which was approximately the amount
estimated to complete the 731 Lexington Avenue project at the closing date (not
including the development and guarantee fees to Vornado). The interest rate on
the Construction Loan of LIBOR plus 2.5% (4.34% at September 30, 2004) and the
maturity date of January 2006, with two one-year extensions, were not changed.
The collateral for the Construction Loan is the same except that the office
space has been removed from the lien. Further, the Construction Loan permits
the release of the retail space for a payment of $15 million and requires all
proceeds from the sale of the residential condominium units to be applied to
the Construction Loan balance until it is fully repaid. In connection with
reducing the principal amount of the Construction Loan, the Company wrote -off
$3,050,000, the proportionate share of unamortized deferred debt expense, in
the first quarter of 2004 (shown in the Consolidated Statement of Operations as
Write-off of unamortized deferred debt expense). Vornado has agreed to
guarantee to the construction lender, the lien free, timely completion of the
construction of 731 Lexington Avenue and funding of project costs in excess of
a stated loan budget, if not funded by the Company. If Vornado should advance
any funds under the Completion Guarantee in excess of $21,000,000, which was
the amount available at September 30, 2004 under the line of credit with
Vornado, interest on those advances would be at 15% per annum. 8




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ALEXANDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) There can be no assurance that the 731 Lexington Avenue project will be
completed on time or completed for the budgeted amount. Any failure to
complete the 731 Lexington Avenue project on time or within budget may
adversely affect future cash flows and the Companys financial condition. 5. LEASES The Company leases space to tenants in retail centers and an office
building. Future base rental revenue under these non-cancelable operating
leases is as follows (amounts in thousands): Year Ending December 31,2004
    
    $
    20,7502005
    
    
    90,5922006
    
    
    89,6072007
    
    
    86,5562008
    
    
    90,057Thereafter
    
    
    1,666,571
 Bloomberg L.P. and Sears accounted for 39% and 11% of the Companys
consolidated revenues in the nine months ended September 30, 2004,
respectively. Sears accounted for 20% of consolidated revenues in the nine
months ended September 30, 2003. 6. DEBT The following is a summary of the Companys outstanding debt. InterestRate at
    
    Balance atSeptember
    
    September 30,
    
    December 31,(amounts in thousands except for percentages)
    
    Maturity
    
    30, 2004
    
    2004
    
    2003Fixed rate:First mortgage secured by the office space at
731 Lexington Avenue
    
    Feb. 2014
    
    
    5.33
    %
    
    $
    400,000
    
    
    $
    First mortgage secured by the Kings Plaza
Regional Shopping Center
    
    June 2011
    
    
    7.46
    %
    
    
    214,463
    
    
    
    216,586First mortgage secured by the Rego Park I
Shopping Center
    
    June 2009
    
    
    7.25
    %
    
    
    81,840
    
    
    
    82,000First mortgage secured by the Paramus property
    
    Oct. 2011
    
    
    5.92
    %
    
    
    68,000
    
    
    
    68,000Variable rate:Term loan and line of credit to Vornado
    
    Jan. 2006
    
    
    9.00
    %
    
    
    124,000
    
    
    
    124,000Construction loan secured by the retail and
residential space at 731 Lexington Avenue
    
    Jan. 2006
    
    
    4.34
    %
    
    
    45,676
    
    
    
    240,899$
    933,979
    
    
    $
    731,485
 At September 30, 2004, the principal repayments for the next five years
and thereafter are as follows (amounts in thousands): Year Ending December 31,2004
    
    
    
    
    
    $
    9442005
    
    
    
    
    
    
    3,8952006
    
    
    
    
    
    
    173,8752007
    
    
    
    
    
    
    4,5262008
    
    
    
    
    
    
    4,817Thereafter
    
    
    
    
    745,922
 9




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##### Table of Contents



ALEXANDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 7. COMMITMENTS AND CONTINGENCIES Neither Alexanders, Inc. 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 routine legal actions will not be material to the Companys
financial condition or results of operations. Flushing In the fourth quarter of 2003, the Company recognized $1,289,000 of income
representing a non-refundable deposit of $1,875,000 from a party that had
agreed to purchase the Companys Flushing property, net of $586,000 of costs
associated with the transaction, as the party had not met its obligations under
a May 30, 2002 purchase contract. On September 10, 2002, November 7, 2002, and
July 8, 2004, the Company received letters from the party demanding return of
the deposit. The Company, after consulting with its legal counsel, does not
believe the party is entitled to a return of the deposit. There can be no
assurance that the party will not institute legal action and, if it does, that
it will not be successful in requiring the Company to return all or a portion
of the deposit. Insurance The Company carries comprehensive liability and all-risk property
insurance (fire, flood, extended coverage and rental loss insurance) with
respect to its assets but is at risk for financial loss in excess of the
policies limits. Such a loss could be material. Pursuant to the Terrorism Risk Insurance Act of 2002, regulated insurers
must offer coverage through 2005 in their commercial property policies for
losses resulting from defined acts of terrorism. As a result of the
legislation, since June 2003, the Company has maintained $500,000,000 of
coverage per occurrence for certified terrorist acts, as defined in the
legislation, and $200,000,000 per occurrence for non-certified acts. The
Company is at risk for financial loss in excess of these limits, which loss
could be material. The Companys debt instruments, consisting of mortgage loans secured by
its properties (which are generally non-recourse to the Company), contain
customary covenants requiring the Company to maintain insurance. There can be
no assurance that the lenders under these instruments will not take the
position that a future exclusion from all-risk insurance coverage for losses
due to terrorist acts is a breach of these debt instruments, allowing the
lenders to declare an event of default and accelerate repayment of debt. In
addition, if lenders insist on coverage for these risks and the Company is
unable to obtain coverage once the Terrorism Risk Insurance Act of 2002 has
lapsed, it may adversely affect the Companys ability to finance and/or
refinance its properties and businesses. Environmental Remediation In June 1997, the Kings Plaza Regional Shopping Center commissioned an
Environmental Study and Contamination Assessment Site Investigation (the Phase
II Study) to evaluate and delineate environmental conditions disclosed in a
Phase I study. The results of the Phase II Study indicated the presence of
petroleum and bis (2-ethylhexyl) phthalate contamination in the soil and
groundwater. The Company has delineated the contamination and has developed a
remediation approach, which is ongoing. The New York State Department of
Environmental Conservation (NYDEC) has approved a portion of the remediation
approach. The Company accrued $2,675,000 in previous years, of which
$2,504,000 has been paid as of September 30, 2004, for its 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 NYDEC insists on a more
extensive remediation approach, the Company could incur additional obligations. The Company has concluded that the large majority of the contamination at
the site is historic and the result of past activities of third parties.
Although the Company is pursuing claims against potentially responsible third
parties, and negotiations are ongoing with a former owner of the property,
there can be no assurance as to the extent that the Company will be successful
in obtaining recovery from such parties of the remediation costs incurred. In
addition, the costs associated with further pursuit of responsible parties may
be prohibitive. The Company has not recorded an asset as of September 30, 2004
for possible recoveries of environmental remediation costs from potentially
responsible third parties. 10




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##### Table of Contents



ALEXANDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) Kings Plaza The Company plans to construct a two-story freestanding building adjacent
to the Kings Plaza Regional Shopping Center of approximately 200,000 square
feet. The first floor of approximately 120,000 square feet has been leased to
Lowes Home Improvement Warehouse (Lowes) and the lease is expected to
commence in 2006. The cost of the project will be approximately $15,000,000,
net of a reimbursement from Lowes and before reimbursement, if any, from the
second story tenant(s). There can be no assurance that this project will be
completed, completed on time or completed for the budgeted amount. Letters of Credit Approximately $4,130,000 in standby letters of credit were issued at
September 30, 2004. 8. LOSS PER SHARE The following table sets forth the computation of basic and diluted loss
per share. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(amounts in thousands except share and per share amounts)
    
    2004
    
    2003
    
    2004
    
    2003Numerator:Loss before gain on sale of real estate
    
    $
    (15,555
    )
    
    $
    (13,560
    )
    
    $
    (36,024
    )
    
    $
    (13,152
    )Gain on sale or real estate
    
    
    3,862
    
    
    
    
    
    
    
    3,862
    
    
    
    Net loss
    
    $
    (11,693
    )
    
    $
    (13,560
    )
    
    $
    (32,162
    )
    
    $
    (13,152
    )Denominator:Denominator (basic and diluted) -
weighted-average shares
    
    
    5,010,627
    
    
    
    5,000,850
    
    
    
    5,006,660
    
    
    
    5,000,850Net loss per common share (basic and diluted):Loss before gain on sale of real estate
    
    $
    (3.10
    )
    
    $
    (2.71
    )
    
    $
    (7.19
    )
    
    $
    (2.63
    )Gain on sale of real estate
    
    
    0.77
    
    
    
    
    
    
    
    0.77
    
    
    
    Net loss
    
    $
    (2.33
    )
    
    $
    (2.71
    )
    
    $
    (6.42
    )
    
    $
    (2.63
    )
 Options to purchase 93,000 shares of the common stock of Alexanders, Inc.
were not included in the computation of loss per share as they are
anti-dilutive. 9. GAIN ON SALE OF REAL ESTATE On August 12, 2004, the Company sold 1.29 acres of land in White Plains,
New York for $4,500,000, resulting in a gain of $3,862,000. The Company paid a
commission of $135,000 to Vornado, which is included in the expenses relating
to the sale. 11




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders of Alexanders, Inc.
Paramus, New Jersey We have reviewed the accompanying condensed consolidated balance sheet of
Alexanders, Inc. and subsidiaries as of September 30, 2004, and the related
condensed consolidated statements of operations for the three-month and
nine-month periods ended September 30, 2004 and 2003, and of cash flows for the
nine-month periods ended September 30, 2004 and 2003. These interim financial
statements are the responsibility of the Companys management. We conducted our reviews in accordance with standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures
and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion. Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated interim financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America. We have previously audited, in accordance with standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Alexanders, Inc. and subsidiaries as of December 31, 2003, and the
related consolidated statements of operations, stockholders equity, and cash
flows for the year then ended (not presented herein); and in our report dated
March 2, 2004, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2003 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Parsippany, New Jersey
November 3, 2004 12




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS Certain statements contained herein and throughout this Quarterly Report
on Form 10-Q constitute forward-looking statements as such term is defined in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements are
not guarantees of performance. The Companys future results, financial
condition, results of operations and business may differ materially from those
expressed in these forward-looking statements. You can find many of these
statements by looking for words such as believes, expects, anticipates,
estimates, intends, plans, would, may, will or other similar
expressions in this Quarterly Report on Form 10-Q. These forward-looking
statements represent our intentions, plans, expectations and beliefs and are
subject to numerous assumptions, risks and uncertainties. Many of the factors
that will determine these items are beyond our ability to control or predict.
Factors that might cause such a material difference include, but are not
limited to: (a) national, regional and local economic conditions; (b) the
consequences of any armed conflict involving, or terrorist attack against, the
United States; (c) our ability to secure adequate insurance; (d) local
conditions, such as an oversupply of space or a reduction in demand for real
estate in the area; (e) competition from other available space; (f) whether
tenants consider a property attractive; (g) the financial condition of our
tenants, including the extent of tenant bankruptcies or defaults; (h) whether
we are able to pass some or all of any increased operating costs we incur
through to our tenants; (i) how well we manage our properties; (j) any increase
in interest rates; (k) any decreases in market rental rates; (l) the timing and
costs associated with property development, improvements and rentals; (m)
changes in taxation or zoning laws; (n) government regulations; (o) our failure
to continue to qualify as a real estate investment trust; (p) the availability
of financing on acceptable terms or at all; (q) potential liabilities under
environmental or other laws or regulations; (r) general competitive factors;
(s) dependence upon Vornado Realty Trust (Vornado); and (t) possible
conflicts of interest with Vornado. For these forward-looking statements, the Company claims the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. You are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of
this Quarterly Report on Form 10-Q or the date of the applicable document
incorporated by reference. All subsequent written and oral forward-looking
statements attributable to the Company or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Overview Managements Discussion and Analysis of Financial Condition and Results of
Operations includes a discussion of the Companys consolidated financial
statements for the three and nine months ended September 30, 2004 and 2003.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make 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. A summary of the Companys critical accounting policies is included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2003 in
Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations and Note 2  Summary of Significant Accounting
Policies to the consolidated financial statements included therein. There
have been no significant changes to those policies during the nine months ended
September 30, 2004. Application of Critical Accounting Policies Real Estate As construction of 731 Lexington Avenue progresses and as components of
the building are placed into service, the Company ceases capitalizing property
operating expenses and interest expense and expenses these items, as well as
depreciation, for those components. During the nine months ended September 30,
2004, the Company transferred approximately $93,480,000 from Construction in
progress to Land and Buildings, leaseholds and leasehold improvements,
representing the space delivered to tenants and placed into service during such
period. 13




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##### Table of Contents



Condominium Sales Income on deposits received for sales of residential condominium units at
the 731 Lexington Avenue project has been deferred in accordance with the
deposit method of Statement of Financial Accounting Standards No. 66,
Accounting for Sales of Real Estate. As of September 30, 2004, the Company has
received deposits of $48,321,000 on sales of the condominium units (included on
the Consolidated Balance Sheets as an asset in Escrow deposits and restricted
cash and as a liability in Other liabilities). Stock Appreciation Rights Compensation expense for each stock appreciation right (SAR) is measured
by the excess of the stock price at the current balance sheet date over the
stock price at the previous balance sheet date. If the stock price is lower at
the current balance sheet date, any previously recognized expense for a SAR
would be reversed but not in excess of the net previously recognized expense.
Based on Alexanders, Inc. closing stock price of $199.10 at September 30, 2004
(compared to $167.74 at June 30, 2004 and $124.66 at December 31, 2003), the
Company recorded SARs compensation expense of $26,656,000 and $63,274,000 in
the three and nine months ended September 30, 2004, respectively. The Company
recorded SARs compensation expense of $18,708,000 and $28,631,000 in the three
and nine months ended September 30, 2003, respectively. Results of Operations The Company had a net loss of $11,693,000 for the quarter ended September
30, 2004, compared to a net loss $13,560,000 in the prior year quarter. The
results for the current year quarter include (i) an accrual of $26,656,000 for
SARs compensation expense, and (ii) income of $3,862,000 from the sale of land
in White Plains, New York. The results in the prior year quarter include an
accrual of $18,708,000 for SARs compensation expense. The Company had a net loss of $32,162,000 in the nine months ended
September 30, 2004, compared to a net loss $13,152,000 in the prior year
period. The results for the current year nine months include (i) an accrual of
$63,274,000, for SARs compensation expense, (ii) expense of $3,050,000 from the
write-off of unamortized deferred debt expense in connection with the reduction
of the principal amount of the construction loan for the 731 Lexington Avenue
project (the Construction Loan), and (iii) income of $3,862,000 from the sale
of land in White Plains, New York. The results in the prior year nine months
include an accrual of $28,631,000, for SARs compensation expense. Property rentals were $29,009,000 in the quarter ended September 30, 2004,
compared to $12,478,000 in the prior year quarter, an increase of $16,531,000,
and $80,712,000 in the nine months ended September 30, 2004, compared to
$38,259,000 in the prior year period, an increase of $42,453,000. These
increases were primarily attributable to rent recognition under leases with
tenants to whom space was delivered at 731 Lexington Avenue. The following
table shows the amounts recognized. (amounts in thousands except square feet) Three Months Ended
    
    Nine Months EndedTenant
    
    Delivery Date
    
    Square Feet
    
    September 30, 2004
    
    September 30, 2004Bloomberg L.P.

    
    Various
    
    
    695,000
    
    
    $
    11,723
    
    
    $
    34,376The Home Depot
    
    Mar. 29, 2004
    
    
    83,000
    
    
    
    2,053
    
    
    
    4,044Hennes & Mauritz
    
    May 15, 2004
    
    
    27,000
    
    
    
    1,412
    
    
    
    2,117Other tenants
    
    Various
    
    
    21,000
    
    
    
    1,074
    
    
    
    1,620$
    16,262
    
    
    $
    42,157
 Tenant expense reimbursements were $9,826,000 in the quarter ended
September 30, 2004, compared to $7,424,000 in the prior year quarter, an
increase of $2,402,000, and $26,687,000 in the nine months ended September 30,
2004, compared to $21,522,000 in the prior year period, an increase of
$5,165,000. These increases were largely due to (i) reimbursements from
Bloomberg L.P. and (ii) a non-recurring billing adjustment of $394,000 for two
tenants at the Kings Plaza Regional Shopping Center. Operating expenses were $12,732,000 in the quarter ended September 30,
2004, compared to $9,491,000 in the prior year quarter, an increase of
$3,241,000. This increase resulted primarily from operating expenses at 731
Lexington Avenue of $2,688,000, of which $2,019,000 was reimbursed by Bloomberg
L.P. Operating expenses were $33,969,000 in the nine months ended September 30,
2004, compared to $27,919,000 in the prior year period, 14




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##### Table of Contents



an increase of $6,050,000. This increase resulted primarily from
operating expenses at 731 Lexington Avenue of $5,469,000, of which $4,046,000,
was reimbursed by Bloomberg L.P. General and administrative expenses were $27,627,000 in the quarter ended
September 30, 2004, compared to $19,668,000 in the prior year quarter, an
increase of $7,959,000, and $66,488,000 in the nine months ended September 30,
2004, compared to $31,534,000 in the prior year period, an increase of
$34,954,000. The increases for the quarter and nine month period primarily
resulted from increases in the accrual for SARs compensation expense. Depreciation and amortization expense was $3,785,000 in the quarter ended
September 30, 2004, compared to $1,790,000 in the prior year quarter, an
increase of $1,995,000, and $11,193,000 in the nine months ended September 30,
2004, compared to $5,046,000 in the prior year period, an increase of
$6,147,000. These increases were due to depreciation on the space delivered to
tenants at 731 Lexington Avenue, as noted above. Interest and other income, net, was $353,000 in the quarter ended
September 30, 2004, compared to $161,000 in the prior year quarter, an increase
of $192,000, and $1,090,000 in the nine months ended September 30, 2004,
compared to $499,000 in the prior year period, an increase of $591,000. These
increases resulted primarily from higher average cash balances in the current
year periods. Interest and debt expense was $10,599,000 in the quarter ended September
30, 2004, compared to 2,674,000 in the prior year quarter, an increase of
$7,925,000, and $29,813,000 in the nine months ended September 30, 2004,
compared to $8,933,000 in the prior year period, an increase of $20,880,000.
These increases resulted from (i) lower amounts of capitalized interest in the
current year periods as the Company began to place portions of 731 Lexington
Avenue in service beginning in November 2003 (interest of $6,061,000 and
$18,628,000 has been capitalized in 2004, as compared to $10,485,000 and
$28,607,000 in 2003) and (ii) an increase in average debt outstanding in this
years quarter of $259,300,000 and this years nine months of $272,200,000,
primarily due to the 731 Lexington Avenue office financing of $400,000,000,
partially offset by (iii) a decline in average interest rates of 0.76% in this
years quarter and 0.92% in this years nine months. In connection with reducing the principal amount of the Construction Loan
on February 13, 2004, the Company wrote-off $3,050,000, the proportionate share
of unamortized deferred debt expense, in the first quarter of 2004. On August 12, 2004, the Company sold 1.29 acres of land in White Plains,
New York for $4,500,000, resulting in a gain of $3,862,000. Liquidity and Capital Resources In the aggregate, the Companys operating properties do not generate
sufficient cash flow to pay all of its expenses. After the completion of the
731 Lexington Avenue property, which is expected in 2005, the Company expects
that cash flow will become positive. Development Projects 731 Lexington Avenue 731 Lexington Avenue is an approximately 1.3 million square foot multi-use
building. The building contains approximately 885,000 net rentable square feet
of office space, approximately 171,000 net rentable square feet of retail space
and approximately 248,000 net saleable square feet of residential space
consisting of 105 condominium units (through a taxable REIT subsidiary). Of
the construction budget of $630,000,000 (which excludes the development and
guarantee fees to Vornado), $468,900,000 has been expended through September
30, 2004 and there is an additional $24,400,000 to which the Company has
committed at such date. Construction is expected to be completed in 2005. At September 30, 2004, 707,000 square feet of office space has been leased
and delivered to tenants including 695,000 square feet delivered to Bloomberg
L.P. in November and December 2003. Payment of base rent for the Bloomberg
L.P. space commences nine months from delivery of each parcel of space; rent
recognition on a straight-line basis commenced on delivery. At September 30, 2004, 153,000 square feet of retail space has been leased
of which 119,000 square feet has been delivered to tenants including (i) 83,000
square feet delivered to The Home Depot on March 29, 2004 and (ii) 27,000
square feet delivered to Hennes & Mauritz on May 15, 2004. Payment of base
rent on the 119,000 square feet commences six to nine months from delivery of
each space; rent recognition on a straight-line basis commenced on delivery. 15




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##### Table of Contents



The residential space is comprised of 105 condominium units. The original
offering plan filed for these units, as amended for price increases through
September 30, 2004, would produce an aggregate sale price of approximately
$500,000,000 (reflecting the value of existing contracts and the offering price
for the remaining units). As of September 30, 2004, the Company has received
deposits of $48,321,000 on sales of the condominium units. During the nine months ended September 30, 2004, the Company transferred
approximately $93,480,000 from Construction in progress to Land and
Buildings, leaseholds and leasehold improvements, representing the space
delivered to tenants and placed into service during such period. Financing of the Project On February 13, 2004, the Company closed a $400,000,000 mortgage financing
on the office space. The loan was placed by German American Capital
Corporation, an affiliate of Deutsche Bank. The loan bears interest at 5.33%,
matures in February 2014 and, beginning in the third year, provides for
principal payments based on a 25-year amortization schedule such that over the
remaining eight years of the loan, ten years of amortization will be paid. Of
the loan proceeds, $253,529,000 were used to repay the entire amount
outstanding under the previously existing Construction Loan with Hypo Real
Estate Capital Corporation. The Construction Loan was modified on February 13, 2004 so that the
remaining availability was $237,000,000, which was approximately the amount
estimated to complete the 731 Lexington Avenue project at the closing date (not
including the development and guarantee fees to Vornado). The interest rate on
the Construction Loan of LIBOR plus 2.5% (4.34% at September 30, 2004) and the
maturity date of January 2006, with two one-year extensions, were not changed.
The collateral for the Construction Loan is the same except that the office
space has been removed from the lien. Further, the Construction Loan permits
the release of the retail space for a payment of $15 million and requires all
proceeds from the sale of the residential condominium units to be applied to
the Construction Loan balance until it is fully repaid. Vornado has agreed to
guarantee to the construction lender, the lien free, timely completion of the
construction of 731 Lexington Avenue and funding of project costs in excess of
a stated loan budget, if not funded by the Company (the Completion
Guarantee). If Vornado should advance any funds under the Completion
Guarantee in excess of $21,000,000, which was the amount available at September
30, 2004 under the line of credit with Vornado, interest on those advances
would be at 15% per annum. Proceeds from the Mortgage Financing As noted above, $253,529,000 of the proceeds from the $400,000,000
mortgage financing on the 731 Lexington Avenue office space were used to repay
the entire amount outstanding under the previously existing Construction Loan.
The Company used approximately $43,000,000 of the proceeds to fund capital
expenditures for the 731 Lexington Avenue project in lieu of borrowings under

the Construction Loan. There can be no assurance that the 731 Lexington Avenue project will be
completed on time or completed for the budgeted amount. Any failure to
complete the 731 Lexington Avenue project on time or within budget may
adversely affect future cash flows and funds from operations and the Companys
financial condition. Kings Plaza The Company plans to construct a two-story freestanding building adjacent
to the Kings Plaza Regional Shopping Center of approximately 200,000 square
feet. The first story of approximately 120,000 square feet has been leased to
Lowes Home Improvement Warehouse (Lowes) and the lease is expected to
commence in 2006. The cost of the project will be approximately $15,000,000,
net of a reimbursement from Lowes and before reimbursement, if any, from the
second story tenant(s). There can be no assurance that this project will be
completed, completed on time or completed for the budgeted amount. Sale of Real Estate On August 12, 2004, the Company sold 1.29 acres of land in White Plains,
New York for $4,500,000, resulting in a gain of $3,862,000. The Company paid a
commission of $135,000 to Vornado, which is included in the expenses relating
to the sale. 16




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##### Table of Contents



Flushing In the fourth quarter of 2003, the Company recognized $1,289,000 of income
representing a non-refundable deposit of $1,875,000 from a party that had
agreed to purchase the Companys Flushing property, net of $586,000 of costs
associated with the transaction, as the party had not met its obligations under
a May 30, 2002 purchase contract. On September 10, 2002, November 7, 2002, and
July 8, 2004, the Company received letters from the party demanding return of
the deposit. The Company, after consulting with its legal counsel, does not
believe the party is entitled to a return of the deposit. There can be no
assurance that the party will not institute legal action and, if it does, that
it will not be successful in requiring the Company to return all or a portion
of the deposit. Insurance Pursuant to the Terrorism Risk Insurance Act of 2002, regulated insurers
must offer coverage through 2005 in their commercial property policies for
losses resulting from defined acts of terrorism. As a result of the
legislation, since June 2003, the Company has maintained $500,000,000 of
coverage per occurrence for certified terrorist acts, as defined in the
legislation, and $200,000,000 per occurrence for non-certified acts. The
Company is at risk for financial loss in excess of these limits, which loss
could be material. The Companys debt instruments, consisting of mortgage loans secured by
its properties (which are generally non-recourse to the Company), contain
customary covenants requiring the Company to maintain insurance. There can be
no assurance that the lenders under these instruments will not take the
position that a future exclusion from all-risk insurance coverage for losses
due to terrorist acts is a breach of these debt instruments, allowing the
lenders to declare an event of default and accelerate repayment of debt. In
addition, if lenders insist on coverage for these risks and the Company is
unable to obtain coverage once the Terrorism Risk Insurance Act of 2002 has
lapsed, it may adversely affect the Companys ability to finance and/or
refinance its properties and businesses. Stock Appreciation Rights As of September 30, 2004, 850,000 SARs were outstanding and exercisable at
a weighted-average exercise price of $71.82. The agreements for these SARs
require that they be settled in cash. Had the holders of these SARs chosen to
exercise their rights as of September 30, 2004, the Company would have had to
pay $108,191,000 in cash. Any further appreciation in the Alexanders, Inc.
stock price from the closing stock price of $199.10 at September 30, 2004 will
increase the cash the Company would have to pay upon exercise and may impact
liquidity by requiring the Company to secure additional borrowings to replace
such a cash outflow. Cash Flows Nine Months Ended September 30, 2004 Net cash provided by operating activities of $17,906,000 was comprised of
(i) the net change in operating assets and liabilities of $75,882,000,
partially offset by (ii) a net loss of $32,162,000 and (iii) non-cash items of
$25,814,000. The adjustments for non-cash items were comprised of (a) the
effect of straight-lining of rental income of $38,691,000, (b) the gain on sale
of real estate of $3,862,000, partially offset by (c) $13,689,000 of
depreciation and amortization and (d) $3,050,000 resulting from the write-off
of unamortized deferred debt expense. Net cash used in investing activities of $112,369,000 was comprised of (i)
capital expenditures of $115,577,000 and (ii) net cash restricted for operating
liabilities of $1,086,000, partially offset by net (iii) proceeds from the sale
of real estate of $4,294,000. The capital expenditures were primarily related
to the 731 Lexington Avenue project. Net cash provided by financing activities of $199,877,000 resulted
primarily from (i) borrowings collateralized by 731 Lexington Avenue of
$458,306,000, partially offset by (ii) debt repayments of $255,812,000 and
(iii) debt issuance costs of $3,461,000. Nine Months Ended September 30, 2003 Net cash provided by operating activities of $23,559,000 was comprised of
(i) non-cash items of $6,599,000 and (ii) the net change in operating assets
and liabilities of $30,112,000, partially offset by (iii) a net loss of
$13,152,000. The non-cash items were comprised of depreciation and
amortization of $7,912,000, partially offset by the effect of straight-lining
of rental income of $1,313,000. Net cash used in investing activities of $182,884,000 was primarily
comprised of capital expenditures of $180,423,000. The capital expenditures
were primarily related to the 731 Lexington Avenue project. Net cash provided by financing activities of $134,746,000 resulted from
increased borrowings of $136,756,000 primarily to fund the 731 Lexington Avenue
project, partially offfset by debt repayments of $2,010,000. 17




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##### Table of Contents



Funds from Operations for the Three and Nine Months Ended September 30, 2004
and 2003 Funds from operations (FFO) was a negative $7,908,000 in the quarter
ended September 30, 2004, compared to a negative $11,770,000 in the prior year
quarter, an increase of $3,862,000, and a negative $20,969,000 in the nine
months ended September 30, 2004, compared to a negative $8,106,000 in the prior
year period, a decrease of $12,863,000. FFO for the three and nine months
ended September 30, 2004 includes (i) accruals for SARs compensation expense of
$26,656,000 and $63,274,000, respectively, and (ii) $3,862,000 resulting from
the gain on the sale of non-depreciable real estate in White Plains, New York.
FFO for the nine months ended September 30, 2004 includes $3,050,000 resulting
from the write-off of unamortized deferred debt expense in connection with the
reduction of the principal amount of the Construction Loan for the 731
Lexington Avenue project. FFO for the three and nine months ended September
30, 2003 includes an accrual for SARs compensation expense of $18,708,000 and
$28,631,000, respectively. The following table reconciles net loss to FFO. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(amounts in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Net loss
    
    $
    (11,693
    )
    
    $
    (13,560
    )
    
    $
    (32,162
    )
    
    $
    (13,152
    )Depreciation and amortization of real property
    
    
    3,785
    
    
    
    1,790
    
    
    
    11,193
    
    
    
    5,046Funds from operations
    
    $
    (7,908
    )
    
    $
    (11,770
    )
    
    $
    (20,969
    )
    
    $
    (8,106
    )
 FFO is computed in accordance with the definition adopted by the Board of
Governors of the National Association of Real Estate Investment Trusts
(NAREIT). NAREIT defines FFO as net income or loss determined in accordance
with generally accepted accounting principles in the United States of America
(GAAP), excluding extraordinary items as defined under GAAP and gains or
losses from sales of previously depreciated operating real estate assets, plus
specified non-cash items, such as real estate asset depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. FFO is used by management, investors and industry analysts as a
supplemental measure of operating performance of equity REITs. FFO should be
evaluated along with GAAP net income and net income per diluted share (the most
directly comparable GAAP measures), as well as cash flow from operating
activities, investing activities and financing activities, in evaluating the
operating performance of equity REITs. Management believes that FFO is helpful
to investors as a supplemental performance measure because this measure
excludes the effect of depreciation, amortization and gains or losses from
sales of real estate, all of which are based on historical costs which
implicitly assumes that the value of real estate diminishes predictably over
time. Since real estate values have instead historically risen or fallen with
market conditions, these non-GAAP measures can facilitate comparisons of
operating performance between periods and among other equity REITs. FFO does not represent cash generated from operating activities in
accordance with GAAP and is not necessarily indicative of cash available to
fund cash needs as disclosed in the Companys Statements of Cash Flows. FFO
should not be considered as an alternative to net loss as an indicator of the
Companys operating performance or as an alternative to cash flows as a measure
of liquidity. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The following table summarizes the Companys exposure to a change in
interest rates. Weighted-
    
    Annual Effect ofSeptember 30, 2004
    
    Average Interest
    
    Change In Base(amounts in thousands except per shareamounts and percentages)
    
    Balance
    
    Rate
    
    Rates of 1%Variable rate
    
    $
    169,676
    
    
    
    7.75
    %
    
    $
    1,697Fixed rate
    
    
    764,303
    
    
    
    6.19
    %
    
    
    $
    933,979
    
    
    
    
    
    
    $
    1,697Total effect on
annual net earnings
per share  diluted.
    
    
    
    
    
    
    
    
    
    $
    0.34
 The fair value of the Companys debt, estimated by discounting future cash
flows using the current rates available to borrowers with similar credit
ratings for the remaining terms of such debt, is less than the aggregate
carrying amount by approximately $40,268,000 at September 30, 2004. Such fair
value estimates are not necessarily indicative of the amounts that would be
paid upon liquidation of the Companys debt. 18




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES (a) Disclosure
Controls and Procedures The Companys management, with
the participation of the Companys Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Companys disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Companys disclosure controls and
procedures are effective. (b) Internal
Control Over Financial Reporting There have not been any changes
in the Companys internal control over financial reporting during the fiscal
quarter to which this Quarterly Report on Form 10-Q relates that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting. 19




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings Neither Alexanders, Inc. 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 routine legal actions will not be material to the Companys
financial condition or results of operations. 
 Item 6. Exhibits Exhibits required by Item 601 of Regulation S-K are filed herewith and are
listed in the attached Exhibit Index. 20




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. ALEXANDERS, INC.(Registrant)Date: November 3, 2004
    
    /s/ Joseph MacnowJoseph MacnowExecutive Vice President and Chief Financial Officer(duly authorized officer and principal financial andaccounting officer)
 21




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##### Table of Contents



EXHIBIT INDEX ExhibitNo.3.1
    
    Amended and Restated Certificate of Incorporation.
Incorporated herein by reference from Exhibit 3.1 to the
registrants Registration Statement on Form S-3 filed on
September 20, 1995.
    
    *3.2
    
    By-laws, as amended. Incorporated herein by reference
from Exhibit 10.1 to the registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000.
    
    *15.1
    
    Letter regarding unaudited interim financial information31.1
    
    Rule 13a-14(a) certification of the Chief Executive Officer31.2
    
    Rule 13a-14(a) certification of the Chief Financial Officer32.1
    
    Section 1350 certification of the Chief Executive Officer32.2
    
    Section 1350 certification of the Chief Financial Officer
    22