|
Item 1.
|
Financial
Statements
|
TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
55,464
|
|
|
$
|
60,384
|
|
Asset held for sale
|
|
|
11,379
|
|
|
|
-
|
|
Cash and cash equivalents
|
|
|
34,555
|
|
|
|
4,678
|
|
Restricted cash
|
|
|
4,387
|
|
|
|
3,688
|
|
Investment in unconsolidated joint venture
|
|
|
13,337
|
|
|
|
13,939
|
|
Receivables, net
|
|
|
244
|
|
|
|
220
|
|
Deferred rents receivable
|
|
|
581
|
|
|
|
543
|
|
Prepaid expenses and other assets,
net
|
|
|
2,432
|
|
|
|
2,149
|
|
Total assets
|
|
$
|
122,379
|
|
|
$
|
85,601
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable, net
|
|
$
|
48,425
|
|
|
$
|
48,705
|
|
Secured lines of credit
|
|
|
-
|
|
|
|
-
|
|
Accounts payable and accrued expenses
|
|
|
3,216
|
|
|
|
2,935
|
|
Pension liabilities
|
|
|
5,530
|
|
|
|
5,936
|
|
Total liabilities
|
|
|
57,171
|
|
|
|
57,576
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, 40,000,000 shares authorized; no shares
issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Preferred stock, $0.01 par value; 2 shares authorized, no shares issued
and outstanding at June 30, 2017 and December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
Special stock, $0.01 par value; 1 share authorized, issued and outstanding
at June 30, 2017 and December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.01 par value; 79,999,997 shares authorized; 36,796,915
and 30,679,566 shares issued at June 30, 2017 and December 31, 2016, respectively; 31,445,493
and 25,663,820 shares outstanding at June 30, 2017 and December 31, 2016, respectively
|
|
|
368
|
|
|
|
307
|
|
Additional paid-in capital
|
|
|
129,654
|
|
|
|
87,521
|
|
Treasury stock (5,351,422 and 5,015,746 shares at June
30, 2017 and December 31, 2016, respectively)
|
|
|
(53,640
|
)
|
|
|
(51,086
|
)
|
Accumulated other comprehensive loss
|
|
|
(3,161
|
)
|
|
|
(3,161
|
)
|
Accumulated deficit
|
|
|
(8,013
|
)
|
|
|
(5,556
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
65,208
|
|
|
|
28,025
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders'
equity
|
|
$
|
122,379
|
|
|
$
|
85,601
|
|
See Notes to Condensed Consolidated Financial
Statements
TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
|
|
Three Months
Ended June
30, 2017
|
|
|
Three Months
Ended June
30, 2016
|
|
|
Six Months
Ended June
30, 2017
|
|
|
Six Months
Ended June
30, 2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
342
|
|
|
$
|
328
|
|
|
$
|
681
|
|
|
$
|
646
|
|
Tenant reimbursements
|
|
|
153
|
|
|
|
70
|
|
|
|
274
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
495
|
|
|
|
398
|
|
|
|
955
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
200
|
|
|
|
144
|
|
|
|
371
|
|
|
|
301
|
|
Real estate taxes
|
|
|
150
|
|
|
|
55
|
|
|
|
221
|
|
|
|
104
|
|
General and administrative
|
|
|
1,341
|
|
|
|
1,568
|
|
|
|
2,691
|
|
|
|
3,743
|
|
Transaction related costs
|
|
|
22
|
|
|
|
16
|
|
|
|
68
|
|
|
|
50
|
|
Depreciation and amortization
|
|
|
125
|
|
|
|
109
|
|
|
|
249
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,838
|
|
|
|
1,892
|
|
|
|
3,600
|
|
|
|
4,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,343
|
)
|
|
|
(1,494
|
)
|
|
|
(2,645
|
)
|
|
|
(3,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net loss from unconsolidated joint venture
|
|
|
(237
|
)
|
|
|
-
|
|
|
|
(508
|
)
|
|
|
-
|
|
Interest (expense) income, net
|
|
|
(41
|
)
|
|
|
22
|
|
|
|
(109
|
)
|
|
|
95
|
|
Amortization of deferred finance costs
|
|
|
(118
|
)
|
|
|
(20
|
)
|
|
|
(200
|
)
|
|
|
(22
|
)
|
Reduction of claims liability
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
1,043
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(1,739
|
)
|
|
|
(1,493
|
)
|
|
|
(2,419
|
)
|
|
|
(3,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
|
37
|
|
|
|
-
|
|
|
|
38
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(1,776
|
)
|
|
$
|
(1,493
|
)
|
|
$
|
(2,457
|
)
|
|
$
|
(3,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares - basic and diluted
|
|
|
31,290
|
|
|
|
25,458
|
|
|
|
29,436
|
|
|
|
25,371
|
|
See Notes to Condensed Consolidated Financial
Statements
TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKOLDERS'
EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury Stock
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Loss
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016 (audited)
|
|
|
30,680
|
|
|
$
|
307
|
|
|
$
|
87,521
|
|
|
|
(5,016
|
)
|
|
$
|
(51,086
|
)
|
|
$
|
(5,556
|
)
|
|
$
|
(3,161
|
)
|
|
$
|
28,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,457
|
)
|
|
|
-
|
|
|
|
(2,457
|
)
|
Sale of common stock, net
|
|
|
5,472
|
|
|
|
55
|
|
|
|
40,506
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,561
|
|
Settlement of stock awards
|
|
|
645
|
|
|
|
6
|
|
|
|
-
|
|
|
|
(335
|
)
|
|
|
(2,554
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,548
|
)
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
1,627
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,627
|
|
Balance as of June 30, 2017 (unaudited)
|
|
|
36,797
|
|
|
$
|
368
|
|
|
$
|
129,654
|
|
|
|
(5,351
|
)
|
|
$
|
(53,640
|
)
|
|
$
|
(8,013
|
)
|
|
$
|
(3,161
|
)
|
|
$
|
65,208
|
|
See Notes to Condensed Consolidated Financial
Statements
TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(In thousands)
|
|
Six Months
Ended June 30,
2017
|
|
|
Six Months
Ended June 30,
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(2,457
|
)
|
|
$
|
(3,331
|
)
|
Adjustments to reconcile net loss available to common stockholders to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
249
|
|
|
|
213
|
|
Amortization of deferred finance costs
|
|
|
195
|
|
|
|
22
|
|
Stock-based compensation expense
|
|
|
612
|
|
|
|
1,411
|
|
Deferred rents receivable
|
|
|
(38
|
)
|
|
|
(257
|
)
|
Reduction of claims liability
|
|
|
-
|
|
|
|
(135
|
)
|
Equity in net loss from unconsolidated joint venture
|
|
|
508
|
|
|
|
-
|
|
Distribution of cumulative earnings from unconsolidated joint venture
|
|
|
163
|
|
|
|
-
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
Restricted cash, net
|
|
|
(699
|
)
|
|
|
(102
|
)
|
Receivables, net
|
|
|
(24
|
)
|
|
|
9
|
|
Prepaid expenses and other assets, net
|
|
|
(529
|
)
|
|
|
(325
|
)
|
Decrease in operating liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(1,452
|
)
|
|
|
(2,208
|
)
|
Pension liabilities
|
|
|
(406
|
)
|
|
|
(406
|
)
|
Obligation to former Majority Shareholder
|
|
|
-
|
|
|
|
(6,931
|
)
|
Net cash used in operating activities
|
|
|
(3,878
|
)
|
|
|
(12,040
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additions to real estate
|
|
|
(3,775
|
)
|
|
|
(7,907
|
)
|
Investment in unconsolidated joint venture
|
|
|
(69
|
)
|
|
|
-
|
|
Restricted cash
|
|
|
-
|
|
|
|
(200
|
)
|
Net cash used in investing activities
|
|
|
(3,844
|
)
|
|
|
(8,107
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from loan, net
|
|
|
-
|
|
|
|
8,653
|
|
Deferred financing costs
|
|
|
(414
|
)
|
|
|
-
|
|
Settlement of stock awards
|
|
|
(2,548
|
)
|
|
|
(1,876
|
)
|
Net proceeds from sale of common stock
|
|
|
40,561
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
37,599
|
|
|
|
6,777
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
29,877
|
|
|
|
(13,370
|
)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
4,678
|
|
|
|
38,173
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
34,555
|
|
|
$
|
24,803
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,172
|
|
|
$
|
976
|
|
Taxes
|
|
$
|
37
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Adjustment of liability related to stock-based compensation
|
|
$
|
-
|
|
|
$
|
(5,140
|
)
|
Adjustment to accumulated deficit for capitalized
stock-based compensation expense
|
|
$
|
-
|
|
|
$
|
(541
|
)
|
Accrued development costs included in accounts payable
and accrued expenses
|
|
$
|
1,733
|
|
|
$
|
1,133
|
|
Capitalized amortization of deferred financing costs
|
|
$
|
59
|
|
|
$
|
171
|
|
Capitalized stock-based compensation expense
|
|
$
|
1,015
|
|
|
$
|
3,124
|
|
See Notes to Condensed
Consolidated Financial Statements
Trinity Place Holdings Inc.
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
June 30, 2017
|
Note 1 – Business
Overview
Trinity Place Holdings Inc. (“Trinity,”
“we”, “our”, or “us”) is a real estate holding, investment and asset management company. Our
business is primarily to acquire, invest in, own, manage, develop or redevelop and sell real estate assets and/or real estate
related securities. Our largest asset is a property located at 77 Greenwich Street (“77 Greenwich”) in Lower Manhattan.
77 Greenwich is a vacant building that is being demolished and under development as a residential condominium tower that also
includes plans for retail and a New York City elementary school. We also own a retail strip center located in West Palm Beach,
Florida, properties formerly occupied by a retail tenant in Westbury, New York (see Note 13 – Subsequent Event) and Paramus,
New Jersey, and, through a joint venture, a 50% interest in a newly constructed 95-unit multi-family property, known as The Berkley,
located in Brooklyn, New York. We continue to evaluate new investment opportunities.
We control a variety of intellectual property
assets focused on the consumer sector, including our on-line marketplace at FilenesBasement.com, our rights to the Stanley Blacker®
brand, as well as the intellectual property associated with the Running of the Brides® event and An Educated Consumer is Our
Best Customer® slogan. We also had approximately $232.9 million of federal net operating loss carryforwards (“NOLs”)
at June 30, 2017.
Trinity is the successor to Syms Corp. (“Syms”),
which also owned Filene’s Basement. Syms and its subsidiaries filed for relief under the United States Bankruptcy Code in
2011. In September 2012, the Syms Plan of Reorganization (the “Plan”) became effective and Syms and its subsidiaries
consummated their reorganization under Chapter 11 through a series of transactions contemplated by the Plan and emerged from bankruptcy.
As part of those transactions, reorganized Syms merged with and into Trinity, with Trinity as the surviving corporation and successor
issuer pursuant to Rule 12g-3 under the Exchange Act.
On or about March 8, 2016, a General Unsecured
Claim Satisfaction occurred under the Plan. On March 14, 2016, we made the final Majority Shareholder payment (as defined in the
Plan) to the former Majority Shareholder in the amount of approximately $6.9 million. Together these satisfied our remaining payment
and reserve obligations under the Plan.
Note 2 – Summary of Significant
Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial
statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
and include our financial statements and the financial statements of our wholly-owned subsidiaries.
The accompanying unaudited condensed consolidated
interim financial information has been prepared according to the rules and regulations of the Securities and Exchange Commission
(the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared
in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. Our management believes
that the disclosures presented in these unaudited condensed consolidated financial statements are adequate to make the information
presented not misleading. In management’s opinion, all adjustments and eliminations, consisting only of normal recurring
adjustments, necessary to present fairly the financial position and results of operations for the reported periods have been included.
The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying
unaudited condensed consolidated interim financial information should be read in conjunction with our December 31, 2016 audited
consolidated financial statements, as previously filed with the SEC in our 2016 Annual Report on Form 10-K (the “2016 Annual
Report”), and other public information.
|
a.
|
Principles of Consolidation -
The condensed consolidated financial statements include our accounts and those of our
subsidiaries, which are wholly-owned or controlled by us. Entities which we do not control
through our voting interest and entities which are variable interest entities, but where
we are not the primary beneficiary, are accounted for under the equity method. Accordingly,
our share of the earnings of these unconsolidated joint ventures is included in our condensed
consolidated statements of operations. All significant intercompany balances and transactions
have been eliminated. As of June 30, 2017, we account for our investment in one joint
venture under the equity method (see Note 12 - Investment in Unconsolidated Joint
Venture).
|
We consolidate a variable interest
entity (the “VIE”) in which we are considered the primary beneficiary. The primary beneficiary is the entity that
has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the
obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. As
of June 30, 2017, we had no VIEs.
We assess the accounting
treatment for joint venture investments. This assessment includes a review of the joint venture or limited liability company agreement
to determine which party has what rights and whether those rights are protective or participating. For potential VIEs, we
review such agreements in order to determine which party has the power to direct the activities that most significantly
impact the entity's economic performance. In situations where we and our partner approve, among other things, the annual
budget, receive a detailed monthly reporting package, meet on a quarterly basis to review the results of the joint venture,
review and approve the joint venture's tax return before filing, and approve all leases that cover more than a nominal amount
of space relative to the total rentable space at each property, we do not consolidate the joint venture as we consider these
to be substantive participation rights that result in shared power of the activities that most significantly impact the
performance of the joint venture. Our joint venture agreements may contain certain protective rights such as requiring
partner approval to sell, finance or refinance the property and the payment of capital expenditures and operating
expenditures outside of the approved budget or operating plan. As of June 30, 2017, we account for our investment in one
joint venture under the equity method (see Note 12 - Investment in Unconsolidated Joint Venture).
|
b.
|
Investment in Unconsolidated Joint
Venture -
We account for our investment in our unconsolidated joint venture under
the equity method of accounting. We also assess our investment in unconsolidated joint
venture for recoverability, and if it is determined that a loss in value of the investment
is other than temporary, we write down the investment to its fair value. We evaluate
our equity investment for impairment based on the joint ventures' projected discounted
cash flows. We do not believe that the value of our equity investment was impaired at June
30, 2017 or December 31, 2016.
|
|
c.
|
Use of Estimates
- The preparation
of financial statements in conformity with GAAP 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 period. Accordingly, actual
results could differ from those estimates.
|
|
d.
|
Reportable Segments
- We operate
in one reportable segment, commercial real estate.
|
|
e.
|
Concentrations of Credit Risk
- Our financial instruments that are exposed to concentrations of credit risk consist
primarily of cash and cash equivalents. We hold substantially all of our cash and cash
equivalents in banks. Such cash balances at times exceed federally-insured limits. We
have not experienced any losses in such accounts.
|
|
f.
|
Real Estate
- Real estate assets
are stated at historical cost, less accumulated depreciation and amortization. All costs
related to the improvement or replacement of real estate properties are capitalized.
Additions, renovations and improvements that enhance and/or extend the useful life of
a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements
that do not materially prolong the normal useful life of an asset are charged to operations
as incurred. Depreciation and amortization are determined using the straight-line method
over the estimated useful lives described in the table below:
|
Category
|
|
Terms
|
|
|
|
Buildings and improvements
|
|
10 - 39 years
|
Tenant improvements
|
|
Shorter of remaining term of the lease or useful life
|
|
g.
|
Real Estate Under Development
- We capitalize certain costs related to the development and redevelopment of real estate
including initial project acquisition costs, pre-construction costs and construction
costs for each specific property. Additionally, we capitalize operating costs, interest,
real estate taxes, insurance and salaries and related costs of personnel directly involved
with the specific project related to real estate under development. Capitalization of
these costs begins when the activities and related expenditures commence, and ceases
when the property is held available for occupancy upon substantial completion of tenant
improvements, but no later than one year from the completion of major construction activity
at which time the project is placed in service and depreciation commences. Revenue earned
under short-term license agreements at properties under development is offset against
these capitalized costs.
|
|
h.
|
Valuation of Long-Lived Assets
- We periodically review long-lived assets for impairment whenever changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable. We consider
relevant cash flow, management’s strategic plans and significant decreases in the
market value of the asset and other available information in assessing whether the carrying
value of the assets can be recovered. When such events occur, we compare the carrying
amount of the asset to the expected future cash flows, excluding interest charges, from
the use and eventual disposition of the asset. If this comparison indicates an impairment,
the carrying amount would then be compared to the estimated fair value of the long-lived
asset. An impairment loss would be measured as the amount by which the carrying value
of the long-lived asset exceeds its estimated fair value. No provision for impairment
was recorded during the six months ended June 30, 2017 or June 30, 2016.
|
|
i.
|
Trademarks and Customer Lists
- Trademarks and customer lists are stated at cost, less accumulated amortization. Amortization
is determined using the straight-line method over useful lives of 10 years.
|
|
j.
|
Fair Value Measurements
- We
determine fair value in accordance with Accounting Standards Codification (“ASC”)
820-10-05 for financial assets and liabilities. This standard defines fair value, provides
guidance for measuring fair value and requires certain disclosures.
|
Fair value is defined as the price
that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement
date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters.
Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level
of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market
and the instruments’ complexity.
Assets and liabilities disclosed
at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical
levels, which are defined by ASC 820-10-35, are directly related to the amount of subjectivity associated with the inputs to fair
valuation of these assets and liabilities. Determining which category an asset or liability falls within the hierarchy requires
significant judgment and we evaluate our hierarchy disclosures each quarter.
Level 1
- Valuations based
on quoted prices for identical assets and liabilities in active markets.
Level 2
- Valuations based
on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data.
Level 3
- Valuations based
on unobservable inputs reflecting management’s own assumptions, consistent with reasonably available assumptions made by
other market participants. These valuations require significant judgment.
|
k.
|
Cash and Cash Equivalents
- Cash
and cash equivalents include securities with original maturities of three months or less
when purchased.
|
|
l.
|
Restricted Cash -
Restricted
cash represents amounts required to be restricted under our loan agreements and secured
lines of credit (see Note 5 - Loans Payable and Secured Lines of Credit) and tenant related
security deposits.
|
|
m.
|
Revenue Recognition
- Leases
with tenants are accounted for as operating leases. Minimum rents are recognized on a
straight-line basis over the term of the respective leases, beginning when the tenant
takes possession of the space. The excess of rents recognized over amounts contractually
due pursuant to the underlying leases are included in deferred rents receivable. In addition,
leases typically provide for the reimbursement of real estate taxes, insurance and other
property operating expenses. These reimbursements are recognized as revenue in the period
the expenses are incurred. We make estimates of the collectability of our accounts receivable
related to tenant revenues. An allowance for doubtful accounts has been provided against
certain tenant accounts receivable that are estimated to be uncollectible. Once the amount
is ultimately deemed to be uncollectible, it is written off.
|
|
n.
|
Stock-Based Compensation
–
We have granted stock-based compensation, which is described in Note 11 – Stock-Based
Compensation. We account for stock-based compensation in accordance with ASC 718-30-30,
which establishes accounting for stock-based awards exchanged for employee services.
Under the provisions of ASC 718-10-35, stock-based compensation cost is measured at the
grant date, based on the fair value of the award on that date, and is expensed at the
grant date (for the portion that vests immediately) or ratably over the respective vesting
periods.
|
|
o.
|
Income Taxes
- We account for
income taxes under the asset and liability method as required by the provisions of ASC
740-10-30, “Income Taxes”. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. We provide a valuation allowance
for deferred tax assets for which we do not consider realization of such assets to be
more likely than not.
|
ASC 740-10-65 addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under
ASC 740-10-65, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater
than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10-65 also provides guidance on de-recognition,
classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of
both June 30, 2017 and December 31, 2016, we had determined that no liabilities are required in connection with unrecognized tax
positions. As of June 30, 2017, our tax returns for the prior three years are subject to review by the Internal Revenue Service.
We are subject to certain federal,
state, and certain local and franchise taxes.
|
p.
|
Earnings (loss) Per Share
- We
present both basic and diluted earnings (loss) per share. Basic earnings (loss) per share
is computed by dividing net income (loss) available to common stockholders by the weighted
average number of shares of common stock outstanding for the period. Diluted earnings
(loss) per share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock, where
such exercise or conversion would result in a lower per share amount. Shares issuable
under restricted stock units that have vested but not yet settled were excluded from
the computation of diluted earnings (loss) per share because the awards would have been
antidilutive for the periods presented.
|
|
q.
|
Deferred Financing Costs
–
Deferred financing costs represent commitment fees, legal, title and other third party
costs associated with obtaining commitments for mortgage financing which result in a
closing of such financing. These costs are being offset against loans payable in the
condensed consolidated balance sheets for mortgage financings and are included in other
assets for our secured lines of credit. These costs are amortized over the terms of the
related financing arrangements. Unamortized deferred financing costs are expensed when
the associated debt is refinanced or repaid before maturity. Costs incurred in seeking
financing transactions which do not close are expensed in the period in which it is determined
that the financing will not close.
|
|
r.
|
Deferred Lease Costs
–
Deferred lease costs consist of fees and direct costs incurred to initiate and renew
operating leases and are amortized on a straight-line basis over the related lease term.
|
|
s.
|
Underwriting Commissions and Costs
– Underwriting commissions and costs incurred in connection with our stock
offerings are reflected as a reduction of additional paid-in-capital.
|
|
t.
|
Reclassifications -
Certain prior
year financial statement amounts have been reclassified to conform to the current year
presentation.
|
Recent Accounting
Pronouncements
In February 2017, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-05, Other Income-Gains and
Losses from the De-recognition of Nonfinancial Assets (Subtopic 610-20) to add guidance for partial sales of nonfinancial assets,
including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether
the transfer of certain assets qualified for sale treatment. ASU 2017-05 reduces the number of potential accounting models that
might apply and clarifies which model does apply in various circumstances. ASU 2017-05 is effective for annual reporting periods
after December 16, 2017, including interim reporting period within that reporting period. The adoption of ASU 2017-05 is not expected
to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business. The guidance clarifies the definition of a business
and provides guidance to assist with determining whether transactions should be accounted for as acquisitions of assets or businesses.
The main provision is that an acquiree is not a business if substantially all of the fair value of the gross assets is concentrated
in a single identifiable asset or group of assets. We adopted the guidance on the issuance date effective January 5, 2017. We
expect that most of our real estate acquisitions will be considered asset acquisitions under the new guidance and that transaction
costs will be capitalized to the investment basis which is then subject to a purchase price allocation based on relative fair
value.
Note 3 – Real Estate, Net
As of June 30, 2017 and December 31, 2016,
real estate, net, includes the following (in thousands):
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
Real estate under development
|
|
$
|
48,890
|
|
|
$
|
53,712
|
|
Buildings and building improvements
|
|
|
5,817
|
|
|
|
5,794
|
|
Tenant improvements
|
|
|
571
|
|
|
|
569
|
|
Land
|
|
|
2,452
|
|
|
|
2,452
|
|
|
|
|
57,730
|
|
|
|
62,527
|
|
Less: accumulated depreciation
|
|
|
2,266
|
|
|
|
2,143
|
|
|
|
$
|
55,464
|
|
|
$
|
60,384
|
|
Real estate under development as of June
30, 2017 consists of the 77 Greenwich and Paramus, New Jersey properties while real estate under development as of December
31, 2016 consists of the 77 Greenwich, Paramus, New Jersey and Westbury, New York properties. As disclosed in Note 13 –
Subsequent Event, the Westbury, New York property was sold on August 4, 2017 and thus is classified as an asset held for sale as of
June 30, 2017. Buildings and building improvements, tenant improvements and land at both dates consist of the West Palm
Beach, Florida property.
Depreciation expense amounted to $62,000 and
$47,000 for the three months ended June 30, 2017 and June 30, 2016, respectively, and $123,000 and $88,000 for the six months
ended June 30, 2017 and June 30, 2016, respectively.
Note 4 – Prepaid Expenses and Other
Assets, Net
As of June 30, 2017 and December 31, 2016,
prepaid expenses and other assets, net, include the following (in thousands):
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
Trademarks and customer lists
|
|
$
|
2,090
|
|
|
$
|
2,090
|
|
Prepaid expenses
|
|
|
915
|
|
|
|
867
|
|
Lease commissions
|
|
|
440
|
|
|
|
433
|
|
Other
|
|
|
891
|
|
|
|
417
|
|
|
|
|
4,336
|
|
|
|
3,807
|
|
Less: accumulated amortization
|
|
|
1,904
|
|
|
|
1,658
|
|
|
|
$
|
2,432
|
|
|
$
|
2,149
|
|
Note 5 – Loans Payable and Secured
Lines of Credit
Mortgages
77 Greenwich Loan
On February 9, 2015, our wholly-owned subsidiary
that owns 77 Greenwich and related assets (“TPH Greenwich Borrower”), entered into a loan agreement with Sterling
National Bank as lender and administrative agent (the “Agent”), and Israel Discount Bank of New York, as lender (the
“Lender”), pursuant to which we borrowed $40.0 million (the “77 Greenwich Loan”). The 77 Greenwich Loan
can be increased up to $50.0 million, subject to satisfaction of certain conditions. The 77 Greenwich Loan, which was scheduled
to mature on August 8, 2017, was extended to mature on November 8, 2017 and has a further option to extend to February 8, 2018,
provided certain requirements are met. We are also evaluating our options which include, among others, refinancing the 77 Greenwich
Loan as part of a construction loan.
The 77 Greenwich Loan bears interest at a
rate per annum equal to the greater of (i) the rate published from time to time by the Wall Street Journal as the U.S. Prime Rate
plus 1.25% (the “Contract Rate”) or (ii) 4.50% and requires interest only payments through maturity. The interest
rate on the 77 Greenwich Loan was 5.00% as of December 31, 2016 and 5.50% as of June 30, 2017. The Contract Rate will be increased
by 1.5% per annum during any period in which TPH Greenwich Borrower does not maintain funds in its deposit accounts with the Agent
and the Lender sufficient to make payments then due under the 77 Greenwich Loan documents. TPH Greenwich Borrower can prepay the
77 Greenwich Loan at any time, in whole or in part, without premium or penalty.
The collateral for the 77 Greenwich Loan is
TPH Greenwich Borrower’s fee interest in 77 Greenwich and the related air rights, which is the subject of a mortgage in
favor of the Agent. TPH Greenwich Borrower also entered into an environmental compliance and indemnification undertaking.
The 77 Greenwich Loan agreement requires TPH
Greenwich Borrower to comply with various affirmative and negative covenants including restrictions on debt, liens, business activities,
distributions and dividends, disposition of assets and transactions with affiliates. TPH Greenwich Borrower has established blocked
accounts with the initial lenders, and pledged the funds maintained in such accounts, in the amount of 9% of the outstanding loans.
The 77 Greenwich Loan agreement also provides for certain events of default. As of June 30, 2017, TPH Greenwich Borrower was in
compliance with all 77 Greenwich Loan covenants.
We entered into a Nonrecourse Carve-Out Guaranty
pursuant to which we agreed to guarantee certain items, including losses arising from fraud, intentional harm to 77 Greenwich,
or misapplication of loan, insurance or condemnation proceeds, a voluntary bankruptcy filing by TPH Greenwich Borrower, and the
payment by TPH Greenwich Borrower of maintenance costs, insurance premiums and real estate taxes.
West Palm Beach, Florida Loan
On May 11, 2016, our subsidiary that owns
our West Palm Beach, Florida property commonly known as The Shoppes at Forest Hill (the “TPH Forest Hill Borrower”),
entered into a loan agreement with Citizens Bank, National Association, as lender (the “WPB Lender”), pursuant to
which the WPB Lender will provide a loan to the TPH Forest Hill Borrower in the amount of up to $12.6 million, subject to the
terms and conditions as set forth in the loan agreement (the “WPB Loan”). TPH Forest Hill Borrower borrowed $9.1 million
under the WPB Loan at closing. The WPB Loan requires interest-only payments and bears interest at the 30-day LIBOR plus 230 basis
points. The effective interest rate was 2.75% as of December 31, 2016 and 3.52% as of June 30, 2017. The WPB Loan matures on May
11, 2019, subject to extension until May 11, 2021 under certain circumstances. The TPH Forest Hill Borrower can prepay the WPB
Loan at any time, in whole or in part, without premium or penalty.
The collateral for the WPB Loan is the TPH
Forest Hill Borrower’s fee interest in our West Palm Beach, Florida property. The WPB Loan requires the TPH Forest Hill
Borrower to comply with various customary affirmative and negative covenants and provides for certain events of default, the occurrence
of which permit the WPB Lender to declare the WPB Loan due and payable, among other remedies. As of June 30, 2017, the TPH Forest
Hill Borrower was in compliance with all WPB Loan covenants.
On May 11, 2016 we entered into an
interest rate cap agreement as required under the WPB Loan. The interest rate cap agreement provides the right to receive
cash if the reference interest rate rises above a contractual rate. We paid a premium of $14,000 for the 3.0% interest rate
cap for the 30-day LIBOR rate on the notional amount of $9.1 million. The fair value of the interest rate cap as of June 30,
2017 and December 31, 2016 is recorded in prepaid expenses and other assets, net in our condensed consolidated balance
sheets. We did not designate this interest rate cap as a hedge and are recognizing the change in estimated fair value in
interest expense. During the six months ended June 30, 2017, we recognized the change in value of the interest rate cap of
approximately $2,000 in interest expense. As of June 30, 2017, the unamortized balance of the interest rate cap was
approximately $7,000.
Secured Lines of Credit
On February 22, 2017, we entered into two
secured lines of credit for an aggregate of $12.0 million, with Sterling National Bank as the lender. The lines, which are
secured by our properties located in Paramus, New Jersey, and Westbury, New York, respectively, mature on February 22, 2018.
We have an option to extend the maturity date of each line for an additional 12 months, subject to certain conditions. The
lines, which bear interest at 100 basis points over Prime, as defined, with a floor of 3.75%, are pre-payable at any
time without penalty. As of June 30, 2017, we have not borrowed under these lines of credit. On August 4, 2017, we closed on
the sale of the Westbury, New York property and the line of credit that was secured by this property, which was undrawn,
matured on that date. There is a $9.1 million line of credit remaining which is secured by the Paramus, New Jersey property
and which is undrawn at August 9, 2017.
Interest
Consolidated interest expense (income), net includes the following
(in thousands):
|
|
Three Months
Ended June 30,
2017
|
|
|
Three Months
Ended June 30,
2016
|
|
|
Six Months
Ended June 30,
2017
|
|
|
Six Months
Ended June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
613
|
|
|
$
|
516
|
|
|
$
|
1,188
|
|
|
$
|
997
|
|
Interest capitalized
|
|
|
(536
|
)
|
|
|
(480
|
)
|
|
|
(1,040
|
)
|
|
|
(953
|
)
|
Interest income
|
|
|
(36
|
)
|
|
|
(58
|
)
|
|
|
(39
|
)
|
|
|
(139
|
)
|
Interest expense (income), net
|
|
$
|
41
|
|
|
$
|
(22
|
)
|
|
$
|
109
|
|
|
$
|
(95
|
)
|
Note 6 – Fair Value Measurements
The fair value of our financial instruments
are determined based upon applicable accounting guidance. Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance
requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements
using quoted process in active markets for identical assets or liabilities (Level 1), quoted process for similar instruments in
active markets or quoted process for identical or similar instruments in markets that are not active (Level 2), and significant
valuation assumptions that are not readily observable in the market (Level 3).
The fair values of cash and cash equivalents,
receivables, prepaid expenses and other assets, accounts payable and accrued expenses, and other liabilities approximated their
carrying value because of the short-term nature of these instruments. The fair value of each of the loans payable approximated
their carrying value as all our loans are variable-rate instruments.
Note 7 – Pension and Profit Sharing
Plans
Pension Plans
– Our predecessor,
Syms, sponsored a defined benefit pension plan for certain eligible employees not covered under a collective bargaining agreement.
The pension plan was frozen effective December 31, 2006. As of June 30, 2017 and December 31, 2016, we had a recorded liability
of $3.4 million, which is included in pension liabilities on the accompanying condensed consolidated balance sheets. We currently
intend to maintain the Syms pension plan and make all contributions required under applicable minimum funding rules, although
we may terminate the Syms pension plan. In the event that we terminate the Syms pension plan, we intend that any such termination
shall be a standard termination.
Prior to the bankruptcy, certain employees
were covered by collective bargaining agreements and participated in multiemployer pension plans. Syms ceased to have an obligation
to contribute to these plans in 2012, thereby triggering a complete withdrawal from the plans within the meaning of section 4203
of the Employee Retirement Income Security Act of 1974. Consequently, we are subject to the payment of a withdrawal liability
to the remaining pension fund. As of June 30, 2017 and December 31, 2016, we had a recorded liability of $2.1 million and $2.5
million, respectively, which is reflected in pension liabilities on the accompanying condensed consolidated balance sheets. We
are required to make quarterly distributions in the amount of $0.2 million until this liability is completely paid to the multiemployer
plan.
In accordance with minimum funding requirements
and court ordered allowed claims distributions, we paid approximately $3.6 million to the Syms sponsored plan and approximately
$4.8 million to the multiemployer plans from September 17, 2012 through June 30, 2017. No amounts were funded during the six months
ended June 30, 2017 and June 30, 2016 to the Syms sponsored plan and $0.4 million was funded to the multiemployer plan during
each of the six months ended June 30, 2017 and June 30, 2016.
Note 8 – Commitments
|
a.
|
Leases
-
Our corporate
office located at 717 Fifth Avenue, New York, New York has a remaining lease obligation
of $0.1 million payable through September 2017. The rent expense paid for this operating
lease for the three and six months ended June 30, 2017 was approximately $75,000 and
$150,000, respectively.
|
|
b.
|
Legal Proceedings -
We are a party to routine litigation incidental to our business. Some of the actions
to which we are a party are covered by insurance and are being defended or reimbursed
by our insurance carriers.
|
Note 9 – Income Taxes
At June 30, 2017, we had federal NOLs of approximately
$232.9 million. These NOLs will expire in years through fiscal 2034. At June 30, 2017, we also had state NOLs of approximately
$102.9 million. These NOLs expire between 2029 and 2034. We also had the New York State and New York City prior NOL conversion
(“PNOLC”) subtraction pools of approximately $31.1 million and $25.5 million, respectively. The conversion to the
PNOLC under the New York State and New York City corporate tax reforms does not have any material tax impact.
Based on management’s assessment,
we believe it is more likely than not that the entire deferred tax assets will not be realized by future taxable income or
tax planning strategy. In recognition of this risk, we have provided a valuation allowance of $96.2 million and $95.3 million
as of June 30, 2017 and December 31, 2016, respectively. If our assumptions change and we determine we will be able to
realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets would be
recognized as a reduction of income tax expense and an increase in equity.
Note 10 – Stockholders’ Equity
Capital Stock
Our authorized capital stock consists of 120,000,000
shares, $0.01 par value per share, consisting of 79,999,997 shares of common stock, $0.01 par value per share, two (2) shares
of preferred stock, $0.01 par value per share (which have been redeemed in accordance with their terms and may not be reissued),
one (1) share of special stock, $0.01 par value per share, and 40,000,000 shares of a new class of blank check preferred stock,
$0.01 par value per share. As of June 30, 2017 and December 31, 2016, there were 36,796,915 shares and 30,679,566 shares of common
stock issued, respectively, and 31,445,493 shares and 25,663,820 shares of common stock outstanding, respectively.
On February 14, 2017, we issued an aggregate
of 3,585,000 shares of common stock in a private placement at a purchase price of $7.50 per share, and received gross proceeds
of $26.9 million. On April 5, 2017, we issued an aggregate of 1,884,564 shares of common stock in a rights offering at a purchase
price of $7.50 per share and received gross proceeds of $14.1 million (the “Rights Offering”). We anticipate using
the proceeds from the private placement and the Rights Offering for the development of 77 Greenwich, potential new real estate
acquisitions and investment opportunities and for working capital.
At-The-Market Equity Offering Program
In December 2016, we entered into an
"at-the-market" equity offering program (the “ATM Program”), to sell up to an aggregate of $12.0
million of our common stock. During the year ended December 31, 2016, we issued 120,299 shares of our common
stock for aggregate gross proceeds of $1.2 million (excluding approximately $218,000 in professional and brokerage fees) at a
weighted average price of $9.76 per share. For the three and six months ended June 30, 2017, we issued no shares and 2,492,
respectively, shares of our common stock and received gross proceeds of $0 and $23,000, respectively, at a weighted average
price of $9.32 per share. As of June 30, 2017, $10.8 million of common stock remained available for issuance under
the ATM Program.
Preferred Stock
We are authorized to issue two shares of preferred
stock, (one share each of Series A and Series B preferred stock), one share of special stock and 40,000,000 shares of blank-check
preferred stock. The share of Series A preferred stock was issued to a trustee acting for the benefit of our creditors. The share
of Series B preferred stock was issued to the former Majority Shareholder. The share of special stock was issued and sold to Third
Avenue Trust, on behalf of Third Avenue Real Estate Value Fund (“Third Avenue), and enables Third Avenue or its affiliated
designee to elect one member of the Board of Directors.
On or about March 8, 2016, a General Unsecured
Claim Satisfaction occurred. Under the Plan, a General Unsecured Claim Satisfaction occurs when all of the allowed creditor claims
of Syms Corp. and Filene’s Basement, LLC, have been paid in full their distributions provided for under the Plan and any
disputed creditor claims have either been disallowed or reserved for by Trinity. On March 14, 2016, we made the final Majority
Shareholder payment (as defined in the Plan) to the Majority Shareholder in the amount of approximately $6.9 million. Following
the General Unsecured Claim Satisfaction and payment to the former Majority Shareholder, we satisfied our payment and reserve
obligations under the Plan.
Upon the occurrence of the General Unsecured
Claim Satisfaction, the share of Series A preferred stock was automatically redeemed in accordance with its terms and may not
be reissued. In addition, upon the payment to the former Majority Shareholder, the share of Series B preferred stock was automatically
redeemed in accordance with its terms and may not be reissued.
Note 11 – Stock-Based Compensation
Stock Incentive Plan
We adopted
the Trinity Place Holdings Inc. 2015 Stock Incentive Plan (the “SIP”), effective September 9, 2015. Prior to
the adoption of the SIP, we granted restricted stock units (“RSUs”) to our executive officers and employees
pursuant to individual agreements. The SIP, which has a ten year term, authorizes (i) stock options that do not qualify as
incentive stock options under Section 422 of the Code, or NQSOs, (ii) stock appreciation rights, (iii) shares of restricted
and unrestricted common stock, and (iv) RSUs. The exercise price of stock options will
be determined by the compensation committee, but may not be less than 100% of the fair market value of the shares of common
stock on the date of grant. The SIP authorizes the issuance of up to 800,000 shares of our common stock. Our SIP activity was
as follows:
|
|
Six Months Ended June
30, 2017
|
|
|
Year Ended December
31, 2016
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Fair Value at Grant Date
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Fair Value at Grant Date
|
|
Balance available, beginning of period
|
|
|
614,500
|
|
|
|
|
|
|
|
770,000
|
|
|
|
|
|
Granted to employees
|
|
|
(8,600
|
)
|
|
$
|
9.13
|
|
|
|
(105,500
|
)
|
|
$
|
5.29
|
|
Granted to non-employee directors
|
|
|
(18,938
|
)
|
|
$
|
6.88
|
|
|
|
(50,000
|
)
|
|
$
|
9.85
|
|
Deferred under non-employee director's deferral program
|
|
|
(5,643
|
)
|
|
$
|
6.88
|
|
|
|
-
|
|
|
|
|
|
Balance available, end of period
|
|
|
581,319
|
|
|
|
|
|
|
|
614,500
|
|
|
|
|
|
We recognized stock-based
compensation expense of approximately $42,000 and $84,000 during the three and six months ended June 30,
2017, respectively, related to non-employee director stock grants.
Restricted Stock Units
We have typically granted RSUs
to certain employees and executive officers each year as part of compensation. These grants have vesting dates ranging
from immediate vest at grant date to five years, with a distribution of shares at various dates ranging from the time of
vesting to four years after vesting.
During the six months ended June 30, 2017,
we granted 8,600 RSUs to certain employees. These RSUs vest and settle over various times in a two year period, subject to each
employee’s continued employment. Approximately $16,000 and $35,000 in RSU expense related to these shares was amortized
for the three and six months, respectively, ended June 30, 2017, of which $5,000 and $13,000 was capitalized in real estate under
development for the three and six months, respectively, ended June 30, 2017.
Stock-based compensation expense recognized
in the condensed consolidated statements of operations during the three and six months ended June 30, 2017 totaled $243,000 and
$554,000, respectively, which is net of $347,000 and $1.0 million, respectively, capitalized as part of real estate under development.
Our RSU activity for the six months ended June 30, 2017 was as follows:
|
|
Six Months Ended June 30, 2017
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Fair Value at Grant Date
|
|
|
|
|
|
|
|
|
Non-vested at beginning of period
|
|
|
1,621,235
|
|
|
$
|
6.38
|
|
Granted RSUs
|
|
|
8,600
|
|
|
$
|
9.13
|
|
Vested
|
|
|
(659,917
|
)
|
|
$
|
6.44
|
|
Non-vested at end of period
|
|
|
969,918
|
|
|
$
|
6.36
|
|
As of June 30, 2017, there was approximately
$2.5 million of total unrecognized compensation cost related to unvested RSUs which is expected to be recognized through December
2020.
During the six months ended June 30, 2017,
we issued 626,356 shares of common stock to employees and executive officers to settle vested RSUs from previous RSU grants. In
connection with those transactions, we repurchased 335,676 shares to provide for the employees’ withholding tax liability.
Director Deferred Compensation Program
We adopted our Non-Employee
Director’s Deferral Program (the “Deferral Program”) on November 2, 2016. Under the Deferral Program, our
non-employee directors may elect to defer receipt of their annual equity compensation. The non-employee directors’
annual equity compensation, and any deferred amounts, are paid under the SIP. Compensation deferred under the Deferral
Program is reflected by the grant of stock units under the SIP equal to the number of shares that would have been received
absent a deferral election. The stock units, which are fully vested at grant, generally will be settled for an equal number
of shares of common stock within 10 days after the participant ceases to be a director. In the event that the Company
distributes dividends, each participant shall receive a number of additional stock units (including fractional stock units)
equal to the quotient of (i) the aggregate amount of the dividend that the participant would have received had all
outstanding stock units been shares of common stock divided by (ii) the closing price of a share of common stock on the date
the dividend was issued.
During the six months ended June 30, 2017,
5,643 stock units were deferred under the Deferral Program.
Note 12 – Investment in Unconsolidated
Joint Venture
Through a wholly-owned
subsidiary, we own a 50% interest in a joint venture formed to acquire and operate 223 North 8th Street, Brooklyn, New York, a
newly constructed 95-unit multi-family property, known as The Berkley, encompassing approximately 99,000 gross square feet.
On December 5, 2016, the joint venture closed on the acquisition of The Berkley through a wholly-owned special purpose entity
for a purchase price of $68.885 million, of which $42.5 million was financed through a 10-year loan (the “Loan”) secured
by The Berkley and the balance was paid in cash (half of which was funded by us). The Loan bears interest at the 30-day
LIBOR rate plus 216 basis points, is interest only for five years, is pre-payable after two years with a 1% prepayment premium
and has covenants and defaults customary for a Freddie Mac financing. Trinity and the joint venture partner are joint and
several recourse carve-out guarantors under the Loan pursuant to Freddie Mac’s standard form of guaranty. The effective
interest rate was 3.38% at June 30, 2017 and 2.93% at December 31, 2016.
This joint venture
is a voting interest entity. As we do not control this joint venture, we account for it under the equity method of accounting.
The balance sheets
for the unconsolidated joint venture at June 30, 2017 and December 31, 2016 are as follows (in thousands):
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
53,677
|
|
|
$
|
54,310
|
|
Cash and cash equivalents
|
|
|
306
|
|
|
|
77
|
|
Restricted cash
|
|
|
324
|
|
|
|
52
|
|
Tenant and other receivables, net
|
|
|
119
|
|
|
|
101
|
|
Prepaid expenses and other assets, net
|
|
|
117
|
|
|
|
169
|
|
Intangible assets, net
|
|
|
13,557
|
|
|
|
14,362
|
|
Total assets
|
|
$
|
68,100
|
|
|
$
|
69,071
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage payable, net
|
|
$
|
40,867
|
|
|
$
|
40,799
|
|
Accounts payable and accrued expenses
|
|
|
559
|
|
|
|
403
|
|
Total liabilities
|
|
|
41,426
|
|
|
|
41,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members' equity
|
|
|
28,307
|
|
|
|
28,485
|
|
Accumulated deficit
|
|
|
(1,633
|
)
|
|
|
(616
|
)
|
Total members' equity
|
|
|
26,674
|
|
|
|
27,869
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members' equity
|
|
$
|
68,100
|
|
|
$
|
69,071
|
|
|
|
|
|
|
|
|
|
|
Our investment in unconsolidated joint venture
|
|
$
|
13,337
|
|
|
$
|
13,939
|
|
The statements of
operations for the unconsolidated joint venture for the three and six months ended June 30, 2017 are as follows (in thousands):
|
|
Three Months
Ended June
30, 2017
|
|
|
Six Months
Ended June
30, 2017
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
882
|
|
|
$
|
1,677
|
|
Other income
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
883
|
|
|
|
1,679
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
212
|
|
|
|
409
|
|
Real estate taxes
|
|
|
11
|
|
|
|
23
|
|
General and administrative
|
|
|
2
|
|
|
|
5
|
|
Interest expense, net
|
|
|
352
|
|
|
|
701
|
|
Transaction related costs
|
|
|
6
|
|
|
|
11
|
|
Amortization
|
|
|
447
|
|
|
|
892
|
|
Depreciation
|
|
|
328
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,358
|
|
|
|
2,696
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(475
|
)
|
|
$
|
(1,017
|
)
|
|
|
|
|
|
|
|
|
|
Our equity in net loss from unconsolidated joint venture
|
|
$
|
(237
|
)
|
|
$
|
(508
|
)
|
Note 13 – Subsequent Event
On August 4, 2017, we closed on the sale of
our property located in Westbury, New York for a gross sale price of $16.0 million. The sale resulted
in an estimated gain of $3.9 million and generated approximately $15.2 million in net proceeds to us.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Executive Overview
Trinity Place Holdings Inc. (referred to in
this Quarterly Report on Form 10-Q as “Trinity,” “we,” “our,” or “us”) is a real
estate holding, investment and asset management company. Our business is primarily to acquire, invest in, own, manage, develop
or redevelop and sell real estate assets and/or real estate related securities. Our largest asset is a property located at 77
Greenwich Street (“77 Greenwich”) in Lower Manhattan. 77 Greenwich is a vacant building that is being demolished and
under development as a residential condominium tower that also includes plans for retail and a New York City elementary school.
We also own a retail strip center located in West Palm Beach, Florida, properties formerly occupied by a retail tenant in Westbury,
New York (see Note 13 – Subsequent Event to the condensed consolidated financial statements) and Paramus, New Jersey, and,
through a joint venture, a 50% interest in a newly constructed 95-unit multi-family property, known as The Berkley, located in
Brooklyn, New York (see Properties below for a more detailed description of our properties). We continue to evaluate new investment
opportunities.
We control a variety of intellectual property
assets focused on the consumer sector, including our on-line marketplace at FilenesBasement.com, our rights to the Stanley Blacker®
brand, as well as the intellectual property associated with the Running of the Brides® event and An Educated Consumer is Our
Best Customer® slogan. We also had approximately $232.9 million of federal net operating loss carryforwards (“NOLs”)
at June 30, 2017.
As described in greater detail in Note 1 –
Business - Overview to the condensed consolidated financial statements, the predecessor to Trinity is Syms Corp. (“Syms”).
Syms and its subsidiaries filed voluntary petitions for relief under Chapter 11 in the United States Bankruptcy Court for the
District of Delaware (the “Court”) in 2011. In August 2012, the Court entered an order confirming the Syms Plan of
Reorganization (the “Plan”). In September 2012, the Plan became effective and Syms and its subsidiaries consummated
their reorganization under Chapter 11 through a series of transactions contemplated by the Plan and emerged from bankruptcy. As
part of those transactions, reorganized Syms merged with and into Trinity, with Trinity as the surviving corporation and successor
issuer pursuant to Rule 12g-3 under the Exchange Act.
From the effective date of the Plan in 2012
through the date the General Unsecured Claims Satisfaction occurred, our business plan was historically focused on the monetization
of our commercial real estate properties, including the development of 77 Greenwich, and the payment of approved claims in accordance
with the terms of the Plan. During the period from the effective date of the Plan through March 2016, we sold 14 properties and
paid approximately $116.4 million for approved claims. These payments reflect cumulative improvements of approximately $11.5 million
in respect of all claim payments made to date as compared with amounts initially estimated. As of June 30, 2017, the amount of
remaining multiemployer pension plan claims was $2.1 million (see Note 7 – Pension and Profit Sharing Plans to the condensed
consolidated financial statements). In addition, we had other pension liabilities of $3.4 million as of June 30, 2017.
On February 14, 2017, we issued an aggregate
of 3,585,000 shares of common stock in a private placement at a purchase price of $7.50 per share, and received gross proceeds
of $26.9 million. On April 5, 2017, we issued an aggregate of 1,884,564 shares of common stock in a rights offering at a purchase
price of $7.50 per share and received gross proceeds of $14.1 million (the “Rights Offering”). We anticipate using
the proceeds from the private placement and the Rights Offering for the development of 77 Greenwich, potential new real estate
acquisitions and investment opportunities and for working capital.
Properties
The table below provides information on the
properties we owned at June 30, 2017:
Property Location
|
|
Type of Property
|
|
Building Size
(estimated
rentable
square feet)
|
|
|
Number
of Units
|
|
|
Leased at
June 30,
2017
|
|
|
Occupancy
at June 30,
2017
|
|
|
Occupancy
at June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Locations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York, New York (77 Greenwich) (1)
|
|
Property under development
|
|
|
57,000
|
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paramus, New Jersey (2)
|
|
Property under development
|
|
|
77,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100.0
|
%
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Palm Beach, Florida (3)
|
|
Operating property
|
|
|
112,000
|
|
|
|
-
|
|
|
|
68.9
|
%
|
|
|
68.9
|
%
|
|
|
67.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westbury, New York (4)
|
|
Property held for sale
|
|
|
92,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100.0
|
%
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Owned Square Feet
|
|
|
|
|
338,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
223 North 8th Street, Brooklyn, New York - 50% (5)
|
|
Multi-family
|
|
|
65,000
|
|
|
|
95
|
|
|
|
98.9
|
%
|
|
|
98.9
|
%
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total Square Feet
|
|
|
|
|
403,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
77 Greenwich.
The
77 Greenwich property consists of a vacant six-story commercial building of approximately 57,000 square feet, yielding approximately
173,000 square feet of zoning floor area as-of-right. We also have ownership of approximately 60,000 square feet of development
rights from adjacent tax lots, one of which is owned in fee by us and has a 4-story landmark building. We are currently in the
pre-development stage for the development of an over 300,000 gross square foot mixed-use building that corresponds to the approximate
total of 233,000 zoning square feet as described above. The plans call for approximately 90 luxury residential condominiums and
7,600 square feet of retail space on Greenwich Street, as well as a 476-seat elementary school serving New York City District
2. The school project has obtained city council and mayoral approval. Environmental remediation was completed and demolition is
expected to be completed in the third quarter of 2017, after which foundation work is expected to begin. The 77 Greenwich Loan,
which was scheduled to mature on August 8, 2017, was extended to mature on November 8, 2017 and has a further option to extend
to February 8, 2018, provided certain requirements are met. We are also evaluating our options which include, among others, refinancing
the 77 Greenwich Loan as part of a construction loan.
(2)
Paramus
Property
.
The Paramus property consists of a one-story and
partial two-story, 73,000 square foot freestanding building and an outparcel building of approximately 4,000 square feet, for
approximately 77,000 total square feet of rentable space. The primary building is comprised of approximately 47,000 square
feet of ground floor space, and two separate mezzanine levels of approximately 21,000 and 5,000 square feet. The 73,000
square foot building was occupied pursuant to a short-term license agreement to Restoration Hardware Holdings, Inc.
(NYSE: RH) (“Restoration Hardware”) from October 15, 2015 to February 29, 2016 when the tenant vacated the
property. Subsequently, we entered into a new twelve month license agreement with Restoration Hardware that began on June 1,
2016, which is terminable upon one month’s notice to the other party, which has since been extended to end on March 31,
2018. The outparcel building is leased to a tenant whose lease expires on March 31, 2018. The tenant has been in the space
since 1996. The land area of the Paramus property consists of approximately 292,000 square feet, or approximately 6.7 acres.
We have entered into an option agreement with Carmax (NYSE:KMX) who will construct a new building after we obtain approvals
and demolish the existing buildings. The option agreement includes a fully negotiated lease agreement. This transaction is
subject to town approvals.
(3)
West Palm Beach Property.
The
West Palm Beach property consists of a one-story neighborhood retail strip center that is comprised of approximately 112,000 square
feet of rentable area, which includes three outparcel locations with approximately 11,000 combined square feet. The land area
of the West Palm Beach property consists of approximately 515,000 square feet, or approximately 11.8 acres. Our redevelopment
and repositioning of the center was completed in 2016. We will incur additional lease-up costs as the current vacancies are filled.
Our two largest tenants are Walmart Marketplace, with 41,662 square feet of space and Tire Kingdom, a national credit tenant with
a 5,400 square feet outparcel.
(4)
Westbury Property
.
The
Westbury property is located at 695 Merrick Avenue, Westbury, New York and consists of a one-story building and lower level that
in the aggregate contains approximately 92,000 square feet of rentable space. The land area of the Westbury property consists
of approximately 256,000 square feet, or approximately 6.0 acres. As of March 28, 2016, we entered into a short term license agreement
with New York Community Bank to lease a portion of the parking lot of the Westbury property. This agreement ended on October 31,
2016. We also entered into a twelve month license agreement with Restoration Hardware that began on June 1, 2016, which expiration
date has since been extended to January 31, 2018. On August 4, 2017, we closed on the sale of this property for a gross sale
price of $16.0 million. This property was formerly a Syms retail store.
(5)
223 North 8
th
Street
.
Through a joint venture with Pacolet Milliken Enterprises, Inc., we own a 50% interest in the entity formed to acquire and operate
The Berkley, a newly constructed 95-unit multi-family property encompassing approximately 99,000 gross square feet (65,000 rentable
square feet) on 223 North 8th Street in North Williamsburg, Brooklyn, New York. The Berkley is in close proximity to public transportation
and offers a full amenity package. Apartments feature top-of-the-line unit finishes, central air conditioning and heating and
most units have private outdoor space. The property has a 25-year 421a real estate tax abatement.
Lease Expirations
The following chart shows the tenancy, by
year of lease expiration, of our retail properties for all tenants in place as of June 30, 2017, excluding the license agreements
with Restoration Hardware (dollars in thousands):
|
|
Number of
Tenants
|
|
|
Leased Square
Feet by Year of
Expiration
|
|
|
Annualized
Rent in Year of
Expiration (A)
|
|
2017 (B)
|
|
|
2
|
|
|
|
2,400
|
|
|
$
|
29
|
|
2018
|
|
|
1
|
|
|
|
4,000
|
|
|
|
140
|
|
2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2020
|
|
|
8
|
|
|
|
12,488
|
|
|
|
245
|
|
2021
|
|
|
2
|
|
|
|
7,063
|
|
|
|
119
|
|
Thereafter
|
|
|
6
|
|
|
|
55,462
|
|
|
|
1,121
|
|
|
|
|
19
|
|
|
|
81,413
|
|
|
$
|
1,654
|
|
|
(A)
|
This is calculated by multiplying
the rent in the final month of the lease by 12.
|
|
(B)
|
Reflects tenants with a month-to-month
tenancy.
|
Critical Accounting Policies and Estimates
Management’s discussion and analysis
of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The
preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the
reported amounts in our condensed consolidated financial statements. Actual results could differ from these estimates. A summary
of the accounting policies that management believes are critical to the preparation of the condensed consolidated financial statements
are included in this report (see Note 2 - Summary of Significant Accounting Policies - Basis of Presentation to our condensed
consolidated financial statements). Certain of the accounting policies used in the preparation of these condensed consolidated
financial statements are particularly important for an understanding of the financial position and results of operations presented
in the historical condensed consolidated financial statements included in this report and require the application of significant
judgment by management and, as a result, are subject to a degree of uncertainty. We believe there have been no material changes
to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” in our 2016 Annual Report on Form 10-K (the “2016 Annual Report”)
for the year ended December 31, 2016.
The
following discussion and analysis is intended to assist readers in understanding our
financial condition and results of operations during the three and six months ended June
30, 2017 and June 30, 2016 and should be read in conjunction with the condensed consolidated
financial statements and notes thereto included in this Quarterly Report on Form 10-Q
and our 2016 Annual Report.
These results include revenues
and expenses from the Westbury, New York property as of May 8, 2017 when the property was classified as an asset held for
sale. In prior periods, this property’s revenues and expenses were capitalized as the property was considered as real
estate under development.
Results of Operations for the Three
Months Ended June 30, 2017 Compared to the Three Months Ended June 30, 2016
Rental revenues increased by $14,000
to $342,000 during the three months ended June 30, 2017 from $328,000 during the three months ended June 30, 2016. The
increase in rental revenues was mainly due to increased tenancy at the West Palm Beach, Florida property as well as revenues
from the Westbury, New York property during the held for sale period, partially offset by a non-cash rent
adjustment for a tenant at the West Palm Beach, Florida property. Tenant reimbursements increased by $83,000 to $153,000
during the three months ended June 30, 2017 from $70,000 during the three months ended June 30, 2016. The increase in tenant
reimbursements was mainly due to increased tenancy at the West Palm Beach, Florida property as well as revenues from
the Westbury, New York property during the asset held for sale period.
Property operating expenses increased by
$56,000 to $200,000 for the three months ended June 30, 2017, compared to $144,000 during the three months ended June
30, 2016. These amounts consisted of costs incurred for maintenance and repairs, utilities and general operating expenses at
our West Palm Beach, Florida property as well as from the Westbury, New York during the asset held for sale period.
Real estate tax expense increased by
$95,000 to $150,000 for the three months ended June 30, 2017 from $55,000 during the three months ended June 30, 2016. The
increase related to increased real estate taxes at the West Palm Beach, Florida property as well as from the real estate
taxes at Westbury, New York property during the asset held for sale period.
General and administrative expenses for the
three months ended June 30, 2017 were approximately $1.3 million. Of this amount, approximately $243,000 related to stock-based
compensation, $477,000 related to payroll and payroll related expenses, $416,000 related to other corporate costs, including board
fees, corporate office rent and insurance and $205,000 related to legal, accounting and other professional fees. General and administrative
expenses for the three months ended June 30, 2016 were approximately $1.6 million. Of this amount, approximately $450,000, related
to stock-based compensation, $401,000 related to payroll and payroll related costs, $367,000 related to other corporate costs
including board fees, corporate office rent and insurance and $350,000 related to legal, accounting and other professional fees.
The overall decrease of $227,000 is mainly a result of a $200,000 reduction in stock-based compensation related to restricted
stock units (“RSUs”) that were granted during the first quarter of 2016.
Transaction related costs increased by $6,000
to $22,000 for the three months ended June 30, 2017 from $16,000 for the three months ended June 30, 2016. These costs represent
professional fees and other costs incurred in connection with formation activities and underwriting and evaluating potential acquisitions
and investments for deals that were not consummated.
Depreciation and amortization expense for
the three months ended June 30, 2017 was approximately $125,000. These costs consisted of depreciation for the West Palm Beach,
Florida property of approximately $62,000 and the amortization of trademarks and lease commissions of approximately $63,000. Depreciation
and amortization expense for the three months ended June 30, 2016 was approximately $109,000. These costs consisted of depreciation
for the West Palm Beach, Florida property of $47,000 and the amortization of trademarks and lease commissions of approximately
and $62,000.
Operating loss for the three months ended
June 30, 2017 was approximately $1.3 million compared with $1.5 million for the three months ended June 30, 2016 as a result of
the changes in revenues and operating expenses as described above.
Equity in net loss from
unconsolidated joint venture for the three months ended June 30, 2017 was approximately $237,000. This amount represents our
50% share in the joint venture of the newly constructed 95-unit multi-family property in Brooklyn, New York purchased on
December 5, 2016. Our share of the loss is primarily comprised of operating income before depreciation of $329,000 offset by
depreciation and amortization of $387,000, interest expense of $176,000 and other expenses of $3,000.
Interest expense, net, for the three months
ended June 30, 2017 was approximately $41,000, which consisted of $613,000 of gross interest incurred offset by $536,000 of capitalized
interest and $36,000 of interest income. Interest income, net, for the three months ended June 30, 2016 was approximately $22,000
which consisted of $516,000 of gross interest incurred offset by $480,000 of capitalized interest and $58,000 of interest income.
The increase in interest expense, net, for the three months ended June 30, 2017 of $63,000 is primarily attributable to the interest
on the WPB Loan (see Note 5 – Loans Payable and Secured Lines of Credit – to our condensed consolidated financial
statements) and interest rate increases period over period.
Amortization of deferred financing costs for
the three months ended June 30, 2017 was approximately $118,000, which consisted of $163,000 of amortization of costs related
to obtaining the loans encumbering 77 Greenwich, the West Palm Beach, Florida property and the lines of credit partially offset
by $45,000 of costs capitalized to real estate under development. Amortization of deferred financing costs for the three months
ended June 30, 2016 was approximately $20,000, which consisted of $107,000 of amortization of costs related to obtaining the loans
encumbering 77 Greenwich and the West Palm Beach, Florida property partially offset by $87,000 of costs capitalized to real estate
under development.
We recorded approximately $37,000 in tax expense
for the three months ended June 30, 2017. We recorded no tax expense for the three months ended June 30, 2016.
Net loss available to common stockholders
for the three months ended June 30, 2017 was approximately $1.8 million compared to $1.5 million for the three months ended June
30, 2016.
Results of Operations for the Six
Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016
Rental revenues increased by $35,000 to
$681,000 during the six months ended June 30, 2017 from $646,000 during the six months ended June 30, 2016. The increase in
rental revenues was mainly due to the increased tenancy at the West Palm Beach, Florida property as well as revenues at the
Westbury, New York property during the held for sale period, partially offset by a non-cash rent adjustment
for a tenant at the West Palm Beach, Florida property. Tenant reimbursements increased by $47,000 to $274,000 during the six
months ended June 30, 2017 from $227,000 during the six months ended June 30, 2016. The increase in tenant reimbursements was
mainly due to increased tenancy at the West Palm Beach, Florida property as well as revenues at the Westbury, New York
property during the asset held for sale period, partially offset by the catch-up of real estate tax recoveries in
2016 for certain tenants whose leases commenced in 2015.
Property operating expenses increased by
$70,000 to $371,000 for the six months ended June 30, 2017 from $301,000 during the six months ended June 30, 2016. These
amounts consisted of costs incurred for maintenance and repairs, utilities and general operating expenses at our West Palm
Beach, Florida property and the Westbury, New York property. The increase was mainly due to the increased tenancy at the
West Palm Beach, Florida property and the Westbury, New York property during the asset held for
sale period.
Real estate tax expense increased
by $117,000 to $221,000 for the six months ended June 30, 2017 from $104,000 during the six months ended June 30, 2016.
The increase related to increased real estate taxes at the West Palm Beach, Florida property and the Westbury, New York
property during the asset held for sale period.
General and administrative expenses
for the six months ended June 30, 2017 were approximately $2.7 million. Of this amount, approximately $554,000 related
to stock-based compensation, $888,000 related to payroll and payroll related expenses, $815,000 related to other corporate
costs including board fees, corporate office rent and insurance and $434,000 related to legal, accounting and other
professional fees. General and administrative expenses for the six months ended June 30, 2016 were approximately $3.7
million. Of this amount, approximately $1.4 million related to stock-based compensation, $796,000 related to payroll and
payroll related costs, $816,000 related to other corporate costs including board fees, corporate office rent and insurance
and $764,000 related to legal, accounting and other professional fees. The overall decrease of approximately $1.1 million is
mainly a result of a $850,000 reduction in stock-based compensation related to RSUs that were granted in the first quarter of
2016, including grants of 99,000 RSUs that vested immediately.
Transaction related costs increased by $18,000
to $68,000 for the six months ended June 30, 2017 from $50,000 for the six months ended June 30, 2016. These costs represent professional
fees and other costs incurred in connection with formation activities and underwriting and evaluating potential acquisitions and
investments.
Depreciation and amortization expense for
the six months ended June 30, 2017 was approximately $249,000. These costs consisted of depreciation for the West Palm Beach,
Florida property of approximately $121,000 and the amortization of trademarks and lease commissions of approximately $128,000.
Depreciation and amortization expense for the six months ended June 30, 2016 was approximately $213,000. These costs consisted
of depreciation for the West Palm Beach, Florida property of $88,000 and the amortization of trademarks and lease commissions
of approximately $125,000, with the increase in the six month period ended June 30, 2017 primarily attributable to increased depreciation
expense associated with the West Palm Beach, Florida property.
Operating loss for the six months ended June
30, 2017 was approximately $2.6 million compared with $3.5 million for the six months ended June 30, 2016 as a result of the changes
in revenues and operating expenses as described above.
Equity in net loss from
unconsolidated joint venture for the six months ended June 30, 2017 was approximately $508,000. This amount represents our
50% share in the joint venture of the newly constructed 95-unit multi-family property in Brooklyn, New York purchased on
December 5, 2016. Our share of the loss is primarily comprised of operating income before depreciation of $622,000 offset by
depreciation and amortization of $773,000, interest expense of $351,000 and other expenses of $6,000.
Interest expense, net, for the six months
ended June 30, 2017 was approximately $109,000, which consisted of $1.2 million of gross interest incurred offset by $1.0 million
of capitalized interest and $39,000 of interest income. Interest income, net, for the six months ended June 30, 2016 was approximately
$95,000 which consisted of $997,000 of gross interest incurred offset by $953,000 of capitalized interest and $139,000 of interest
income. The increase in interest expense, net, for the six months ended June 30, 2017 of $204,000 is primarily attributable to
interest on the WPB Loan (see Note 5 – Loans Payable and Secured Lines of Credit – to our condensed consolidated financial
statements), an increase in interest rates period over period, as well as a decrease in interest income due to a lower average
daily cash balance of $30.6 million during the six months ended June 30, 2017 compared with $33.5 million for the same period
last year.
Amortization of deferred financing costs for
the six months ended June 30, 2017 was approximately $200,000, which consisted of $259,000 of amortization of costs related to
obtaining the loans encumbering 77 Greenwich, the West Palm Beach, Florida property and the lines of credit, partially offset
by $59,000 of costs capitalized to real estate under development. Amortization of deferred financing costs for the six months
ended June 30, 2016 was approximately $22,000, which consisted of $194,000 of amortization of costs related to obtaining the loan
encumbering 77 Greenwich partially offset by $172,000 of costs capitalized to real estate under development.
We recorded an adjustment to our claims liability
for the six months ended June 30, 2017 of $1.0 million due to the settlement with our insurance carrier. We recorded an adjustment
to our claims liability for the six months ended June 30, 2016 of $134,000 which was due mainly to the positive settlement of
the former Majority Shareholder liability.
We recorded approximately $38,000 in tax expense
for the six months ended June 30, 2017. We recorded no tax expense for the six months ended June 30, 2016.
Net loss available to common stockholders
for the six months ended June 30, 2017 was approximately $2.5 million compared to $3.3 million for the six months ended June 30,
2016.
Liquidity and Capital Resources
We currently expect that our principal sources
of funds to meet our short-term and long-term liquidity requirements for working capital and funds for acquisition and development
or redevelopment of properties, tenant improvements, leasing costs, and repayments of outstanding indebtedness will include:
|
(2)
|
Increases to existing debt financings and/or other forms of secured
financing;
|
|
(3)
|
Proceeds from common stock or preferred equity offerings, including
rights offerings;
|
|
(4)
|
Cash flow from operations; and
|
|
(5)
|
Net proceeds from divestitures of properties.
|
Cash flow from operations is primarily dependent
upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent,
operating escalations and recoveries from our tenants and the level of operating and other costs.
As of June 30, 2017, we had total cash of
$38.9 million, of which approximately $34.5 million was cash and cash equivalents and approximately $4.4 million was restricted
cash. As of December 31, 2016, we had total cash of $8.4 million, of which approximately $4.7 million was cash and cash equivalents
and approximately $3.7 million was restricted cash. Restricted cash represents amounts required to be restricted under our loan
agreements (see Note 5 – Loans Payable and Secured Lines of Credit - to our condensed consolidated financial statements)
and tenant related security deposits. The increase in total cash during the period from January 1, 2017 to June 30, 2017 was primarily
the result of the closing on a private placement of shares of common stock in February 2017 in which we raised proceeds of approximately
$26.6 million (net of $0.3 million in costs) as well as the consummation of our Rights Offering on April 5, 2017 at a subscription
price of $7.50 per share which resulted in the issuance of 1,884,564 shares of our common stock, in which we received gross proceeds
of $14.1 million, which was partially offset by payments for operating expenses and pre-development activities.
On February 22, 2017, we entered into two
secured lines of credit for an aggregate of $12.0 million with Sterling National Bank as lender. The lines, which are secured
by our properties located in Paramus, New Jersey, and Westbury, New York, respectively, mature on February 22, 2018. We have an
option to extend the maturity date of each line for an additional 12 months, subject to certain conditions. The lines, which bear
interest at 100 basis points over prime with a floor of 3.75%, are prepayable at any time without penalty (see Note 5 –
Loans Payable and Secured Lines of Credit - to our condensed consolidated financial statements for further discussion)
.
As of June 30, 2017, we have not borrowed against these lines of credit. On August 4, 2017, we closed on the sale of the
Westbury, New York property generating $15.3 in net proceeds. The line of credit that was secured by this property, which was
undrawn, matured on that date. There is a $9.1 million line of credit remaining which is secured by the Paramus, New Jersey
property and which is undrawn at August 9, 2017.
Cash Flows
Cash Flows for the Six Months Ended
June 30, 2017 Compared to the Six Months Ended June 30, 2016
Net cash used in operating activities
was approximately $3.9 million for the six months ended June 30, 2017 as compared to approximately $12.0 million for the six
months ended June 30, 2016. The decrease of approximately $8.1 million was mainly due to a one-time $6.9 million payment to
the former majority shareholder made during the six months ended June 30, 2016 as well as $0.9 million less in net loss
available to common stockholders’ for the six months ended June 30, 2017 compared to the same period last year.
Net cash used in investing activities for
the six months ended June 30, 2017 was approximately $3.8 million as compared to approximately $8.1 million for the six months
ended June 30, 2016. The decrease of approximately $4.3 million mainly pertained to less pre-development work being performed
this year at the 77 Greenwich location compared to the same period last year, as well as no re-development work being performed
this year at our West Palm Beach, Florida location compared to the same period last year.
Net cash provided by financing
activities for the six months ended June 30, 2017 was approximately $37.6 million as compared to approximately $6.8 million
for the six months ended June 30, 2016. This increase mainly results from our private placement of common stock in February
2017 in which we raised net proceeds of approximately $26.6 million as well as our Rights Offering in April 2017 in which we
raised net proceeds of approximately $13.9 million, partially offset by an increase of net cash used in financing activities
of $0.7 million from the prior year related to the repurchase of common stock from certain employees in order to pay
withholding taxes on the common stock which vested during the period.
Net Operating Losses
We believe that our U.S. Federal NOLs as of
the emergence date of the Syms bankruptcy Plan were approximately $162.8 million and believe our U.S. Federal NOLs at June 30,
2017 were approximately $232.9 million. Based on management’s assessment, it is more likely than not that the entire deferred
tax assets will not be realized by future taxable income or tax planning strategy. Accordingly a valuation allowance of $96.2
million was recorded as of June 30, 2017.
We believe that the rights offering and the
redemption of the Syms shares owned by the former Majority Shareholder that occurred in connection with our emergence from bankruptcy
on September 14, 2012 resulted in us undergoing an “ownership change,” as that term is used in Section 382 of the
Code. However, while the analysis is complex and subject to subjective determinations and uncertainties, we believe that we should
qualify for treatment under Section 382(l)(5) of the Code. As a result, we currently believe that our NOLs are not subject to
an annual limitation under Code Section 382. However, if we were to undergo a subsequent ownership change in the future, our NOLs
could be subject to limitation under Code Section 382.
Notwithstanding the above, even if all of
our regular U.S. Federal income tax liability for a given year is reduced to zero by virtue of utilizing our NOLs, we may still
be subject to the U.S. Federal alternative minimum tax and to state, local or other non-federal income taxes.
Our certificate of incorporation includes
a provision intended to help preserve certain tax benefits primarily associated with our NOLs (the “Protective Amendment”).
The Protective Amendment generally prohibits transfers of stock that would result in a person or group of persons becoming a 4.75%
stockholder, or that would result in an increase or decrease in stock ownership by a person or group of persons that is an existing
4.75% stockholder.
Cautionary Note Regarding Forward-Looking
Statements
This Quarterly Report on Form 10-Q, including
information included or incorporated by reference in this Quarterly Report or any supplement to this Quarterly Report, may include
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and information
relating to us that are based on the beliefs of management as well as assumptions made by and information currently available
to management. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations
and intentions that are not historical facts, and other statements identified by words such as “may,” “will,”
“expects,” believes,” “plans,” “estimates,” “potential,” or “continue,”
or the negative thereof or other and similar expressions. In addition, in some cases, you can identify forward-looking statements
by words or phrases such as “trend,” “potential,” “opportunity,” “comfortable,”
“expect,” “anticipate,” “current,” “intention,” “estimate,” “position,”
“assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,”
“seek,” “achieve,” and similar expressions. Such statements reflect our current views with respect to
future events, the outcome of which is subject to certain risks, including among others:
|
·
|
our
ability to execute our business plan, including as it relates to the development of our
largest asset, a property located at 77 Greenwich Street in Lower Manhattan;
|
|
·
|
adverse
trends in the Manhattan condominium market;
|
|
·
|
our
ability to obtain additional financing and refinance existing loans and on favorable
terms;
|
|
·
|
our
limited operating history;
|
|
·
|
general
economic and business conditions, including with respect to real estate, and their effect
on the New York City real estate market in particular;
|
|
·
|
risks
associated with acquisitions and investments in owned and leased real estate generally;
|
|
·
|
our
ability to enter into new leases and renew existing leases;
|
|
·
|
our
ability to obtain required permits, site plan approvals and/or other governmental approvals
in connection with the development or redevelopment of our properties;
|
|
·
|
the
influence of certain significant stockholders;
|
|
·
|
potential
conflicts of interest as a result of certain of our directors having affiliations with
certain of our stockholders;
|
|
·
|
limitations
in our certificate of incorporation on acquisitions and dispositions of our common stock
designed to protect our ability to utilize our NOLs and certain other tax attributes,
which may not succeed in protecting our ability to utilize such tax attributes, and/or
may limit the liquidity of our common stock;
|
|
·
|
our
ability to utilize our NOLs to offset future taxable income and capital gains for U.S.
Federal and state income tax purposes;
|
|
·
|
the
failure of our wholly-owned subsidiaries to repay outstanding indebtedness;
|
|
·
|
stock
price volatility;
|
|
·
|
certain
provisions in our charter documents and Delaware law may have the effect of making more
difficult or otherwise discouraging, delaying or deterring a takeover or other change
of control of us;
|
|
·
|
risks associated
with partnerships or joint ventures; and
|
|
·
|
unanticipated
difficulties which may arise and other factors which may be outside our control or that
are not currently known to us or which we believe are not material.
|
In evaluating such statements, you should
specifically consider the risks identified under the section entitled “Risk Factors” in our 2016 Annual Report for
the year ended December 31, 2016, as filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2017,
any of which could cause actual results to differ materially from the anticipated results. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from
those contemplated by any forward looking statements. Subsequent written and oral forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere
described in the aforementioned 2016 Annual Report, this Form 10-Q and other reports filed with the SEC. All forward-looking statements
speak only as of the date of this Form 10-Q or, in the case of any documents incorporated by reference in this Form 10-Q, the
date of such document, in each case based on information available to us as of such date, and we assume no obligation to update
any forward-looking statements, except as required by law.