TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
|
|
Six Months Ended
June 30, 2016
|
|
|
Thirteen Weeks Ended
May 30, 2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(3,331
|
)
|
|
$
|
(2,015
|
)
|
Adjustments to reconcile net loss available to common stockholders to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
213
|
|
|
|
174
|
|
Amortization of deferred finance costs
|
|
|
22
|
|
|
|
-
|
|
Stock-based compensation expense
|
|
|
1,411
|
|
|
|
909
|
|
Deferred rents receivable
|
|
|
(257
|
)
|
|
|
-
|
|
Reduction of claims liability
|
|
|
(135
|
)
|
|
|
-
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
Restricted cash, net
|
|
|
(102
|
)
|
|
|
14,591
|
|
Receivables, net
|
|
|
9
|
|
|
|
(29
|
)
|
Prepaid expenses and other
assets, net
|
|
|
(325
|
)
|
|
|
245
|
|
Decrease in operating liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(2,208
|
)
|
|
|
(2,223
|
)
|
Pension liabilities
|
|
|
(406
|
)
|
|
|
(203
|
)
|
Obligation to former Majority Shareholder
|
|
|
(6,931
|
)
|
|
|
-
|
|
Other liabilities, primarily lease settlement liabilities
|
|
|
-
|
|
|
|
(13,295
|
)
|
Net cash used in operating activities
|
|
|
(12,040
|
)
|
|
|
(1,846
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additions to real estate
|
|
|
(7,907
|
)
|
|
|
(1,507
|
)
|
Restricted cash, net
|
|
|
(200
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(8,107
|
)
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from loan, net
|
|
|
8,653
|
|
|
|
-
|
|
Settlement of stock awards
|
|
|
(1,876
|
)
|
|
|
(1,064
|
)
|
Net cash provided by (used in) financing activities
|
|
|
6,777
|
|
|
|
(1,064
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(13,370
|
)
|
|
|
(4,417
|
)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
38,173
|
|
|
|
23,870
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
24,803
|
|
|
$
|
19,453
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
976
|
|
|
$
|
413
|
|
Taxes
|
|
$
|
38
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment of liability related to stock-based compensation
|
|
$
|
(5,140
|
)
|
|
$
|
5,492
|
|
Adjustment to retained earnings for capitalized stock-based compensation expense
|
|
$
|
(541
|
)
|
|
$
|
-
|
|
Accrued development costs included in accounts payable and accrued expenses
|
|
$
|
1,133
|
|
|
$
|
-
|
|
Capitalized amortization of deferred financing costs
|
|
$
|
171
|
|
|
$
|
-
|
|
Capitalized stock-based compensation expense
|
|
$
|
3,124
|
|
|
$
|
-
|
|
See Notes to Condensed Consolidated Financial
Statements
Trinity Place Holdings Inc.
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
June 30, 2016
|
Note 1 – BUSINESS
Overview
Trinity Place Holdings Inc. (referred to
in this Quarterly Report as “Trinity”, “we”, “our”, or “us”) is a real estate holding,
investment and asset management company. Our business is primarily to own, invest in, manage, develop and/or redevelop real estate
assets and/or real estate related securities. Currently, our principal asset is a property located at 77 Greenwich Street (“77
Greenwich”) in Lower Manhattan, formerly known as 28-42 Trinity Place. We also own a strip center located in West Palm Beach,
Florida and former retail properties in Westbury, New York and Paramus, New Jersey. We also control a variety of intellectual property
assets focused on the consumer sector, through which we launched our on-line marketplace at FilenesBasement.com during September
2015. We had approximately $222.8 million of Federal net operating losses (“NOLs”) at June 30, 2016.
As described in greater detail in our 2015
Transition Report, the predecessor to Trinity is Syms Corp. (“Syms”). Syms and its subsidiaries (the “Debtors”),
filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code (“Bankruptcy Code”
or “Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (the “Court”) on November
2, 2011 (the “Petition Date”). On August 30, 2012, the Court entered an order confirming the Modified Second Amended
Joint Chapter 11 Plan of Reorganization of Syms Corp. and its Subsidiaries (the “Plan”). On September 14, 2012, the
Plan became effective and the Debtors 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.
Change from Liquidation Accounting
to Going Concern Accounting
In response to the Chapter 11 filing, we
adopted the liquidation basis of accounting effective October 30, 2011. Under the liquidation basis of accounting, assets are stated
at their net realizable value, liabilities are stated at their net settlement amount and estimated costs over the period of liquidation
are accrued to the extent reasonably determinable. Effective February 9, 2015, the closing date of the 77 Greenwich Loan transaction
described in Note 5 - Loans Payable, we ceased reporting on the liquidation basis of accounting in light of our available cash
resources, the estimated range of outstanding payments on unresolved claims, and our ability to operate as a going concern. We
resumed reporting on the going concern basis of accounting on February 10, 2015. Because the bases of accounting are non-comparable
to each other and due to the change in our fiscal year (see Note 2 – Summary of Significant Accounting Policies – Accounting
Period below), we are not reporting information for periods prior to February 10, 2015.
On March 8, 2016, a General Unsecured Claim
Satisfaction (as defined in the Plan) occurred. On March 14, 2016, we made the Majority Shareholder payment (as defined in the
Plan) to the former Majority Shareholder (as defined in the Plan) in the amount of approximately $6.9 million. As of June 30, 2016,
the only claim remaining to be paid, excluding claims covered by insurance, is an aggregate of $3.0 million payable to the multi-employer
pension plan in quarterly installments of $0.2 million, which is included in pension liabilities in our condensed consolidated
balance sheets (see Note 7 – Pension and Profit Sharing Plans for further details). Upon the General Unsecured Claim Satisfaction
and payment to the former Majority Shareholder, we satisfied our payment and reserve obligations under the Plan and we have no
further liability to the former Majority Shareholder.
The descriptions of certain transactions,
payments and other matters contemplated by the Plan above and elsewhere in this Quarterly Report on Form 10-Q are summaries only
and do not purport to be complete and are qualified in all respects by the actual provisions of the Plan and related documents.
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 (“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 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, 2015 audited consolidated financial statements, as previously filed with the
SEC in our 2015 Transition Report, and other public information.
a.
Accounting Period -
Our fiscal year has historically been a 52-week or 53-week period
ending on the Saturday on or nearest to February 28. The fiscal year ended February 28, 2015 was comprised of 52 weeks. On November
12, 2015, our Board of Directors approved a change to our fiscal year end from the Saturday closest to the last day of February
to a December 31 calendar year end, effective with the year ending December 31, 2015. The transition period resulting from this
change was from March 1, 2015 to December 31, 2015. This reported second quarter presents the period from April 1, 2016 to June
30, 2016 compared to the thirteen weeks from March 1, 2015 to May 30, 2015, and the six month period from January 1, 2016 to June
30, 2016.
b.
Principles of Consolidation -
The financial statements include our accounts and the accounts
of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
c
.
Use of Estimates -
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those
estimates.
d
.
Reportable Segments -
For the periods ending June 30, 2016, December 31, 2015 and May 30, 2015,
we operated in one reportable segment, namely, 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 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 project. Additionally, we capitalize operating costs, real estate taxes, insurance,
interest, and salaries and related costs of personnel directly involved with the specific project related to real estate under
development, which totaled $2.4 million and $5.4 million for the three and six months ended June 30, 2016, respectively, and $3.6
million for the thirteen weeks ended May 30, 2015. 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 assets to the undiscounted expected future cash flows 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 at either June 30, 2016 or December 31, 2015.
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 Measurement -
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.
l.
Restricted Cash -
Restricted cash represents amounts required to be segregated under the
77 Greenwich Loan agreement and the West Palm Beach loan agreement (the “WPB Loan”) (see Note 5 - Loans Payable) and
tenant security deposits.
m
.
Revenue Recognition and Accounts Receivable -
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 uncollectability 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 below 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
(see Adoption of New Accounting Principle below).
o
.
Income Taxes -
We account for income taxes under the asset and liability method as required by
the provisions of ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are established
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, 2016 and December 31, 2015, we had determined that no liabilities were required in connection with unrecognized tax
positions. As of June 30, 2016, our tax returns for the prior three years are subject to review by the Internal Revenue Service.
We are subject to 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 common shares 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 financing which result in a closing of such financing. These
costs are being offset against loans payable on the condensed consolidated balance sheets. These costs are amortized over the
terms of the respective financing. 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 due to the adoption of Accounting Standards Update (“ASU”) 2016-09 and ASU
2015-03 as described below.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting
Standards Board (“FASB”) issued ASU 2016-09, Compensation—Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 changes how companies account for
certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory
tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for
annual periods beginning after December 15, 2016, including interim periods within those annual periods. If an entity
early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that
interim period and the entity must adopt all of the amendments from ASU 2016-09 in the same period. We elected to early
adopt ASU 2016-09 as of January 1, 2016 and the adoption has resulted in an adjustment of a reduction in real estate, net of $0.5
million, a reduction in liability related to stock-based compensation of $5.1 million, an increase in additional paid-in capital
of $4.4 million and an increase in retained earnings of $0.2 million (see Adoption of New Accounting Principle below).
In February 2016, FASB issued ASU No. 2016-02,
“Leases (Topic 842).” The new standard requires a lessor to classify leases as either sales-type, finance or operating.
A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to
the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor
does not convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required
for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. The new standard establishes
a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet
for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification
affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required
for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our
pending adoption of the new standard on our consolidated financial statements.
In September 2015, FASB issued ASU No.
2015-16, “Business Combination (Topic 805): Simplifying the Accounting for Measurement Period Adjustments.” ASU 2015-16
requires adjustments to provisional amounts that are identified during the measurement period to be recognized in the reporting
period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization,
or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed
at the acquisition date. ASU 2015-16 requires an entity to disclose the nature and amount of measurement-period adjustments recognized
in the current period, including separately the amounts in current-period income statement line items that would have been recorded
in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The
adoption of ASU 2015-16 did not impact our consolidated financial statements.
In August 2015, the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers: Deferral of Effective Date”. ASU 2015-14 defers the effective date of adoption
of ASU 2014-09, “Revenue from Contracts with Customers”, to annual reporting periods beginning after December 15, 2017,
including interim periods within that reporting period. ASU 2014-09 was issued in May 2014 and it supersedes nearly all existing
revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services
are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods
or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates
may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual
periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a
full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect
certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized
at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending
adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which the standard will
be adopted.
In April 2015, the FASB issued ASU No.
2015-04, “Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s
Defined Benefit Obligation and Plan Assets”. ASU 2015-04 provides a practical expedient that permits the entity to measure
defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply
that practical expedient consistently from year to year. ASU 2015-04 is effective for fiscal years beginning after December 15,
2016, and interim periods within fiscal years beginning after December 15, 2017. The adoption of ASU 2015-04 is not expected to
have a material impact on our consolidated financial statements.
In April 2015, the FASB issued ASU No.
2015-03, “Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 modifies
the treatment of debt issuance costs from a deferred charge to a deduction of the carrying value of the financial liability. We
adopted ASU 2015-03 effective January 1, 2016, resulting in the reclassification of $385,000 from prepaid expenses and other assets,
net, to loans payable, net, as of December 31, 2015. There was no effect on the results of operations for any period presented
(see Changes in Accounting Principles below).
In February 2015, the FASB issued ASU No.
2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.” ASU 2015-02 amends the consolidation
requirements in ASC 810, “Consolidation” and changes the required consolidation analysis. The amendments in ASU No.
2015-02 affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. The amendments
impact limited partnerships and legal entities, the evaluation of fees paid to a decision maker or service provider of a variable
interest, the effect of fee arrangements on the primary beneficiary determination, the effect of related parties on the primary
beneficiary determination, and certain investment funds. The adoption of ASU 2015-02 did not have any impact on our consolidated
financial statements.
Adoption of New Accounting Principle
As noted above, FASB issued
ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting.
The new
standard contains several amendments that will simplify the accounting for employee share-based payment transactions,
including the accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of awards as
either equity or liabilities, and classification on the statement of cash flows. The changes in the new standard eliminate
the accounting for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either
in the income tax provision or in additional paid-in capital. We elected adoption of ASU 2016-09 in the
first quarter of 2016 using the prospective approach. For the three months ended March 31, 2016, we recognized all excess tax
benefits and tax deficiencies as income tax expense or benefit as a discrete event. No income tax benefit or expense was
recognized in the quarterly period ended March 31, 2016 as a result of the adoption of ASU 2016-09. There will be no change
to retained earnings with respect to excess tax benefits, as this is not applicable to us as
any tax benefits
associated with stock compensation were historically not recorded with any windfalls or shortfalls that would give rise to
APIC pool adjustments and is not expected to be recognized in the foreseeable future
.
The treatment of forfeitures has not changed as we are electing to continue our current process of estimating the number
of forfeitures. As such, this has no cumulative effect on retained earnings. With the early adoption of ASU 2016-09
on
a prospective basis, the adoption had no impact on our prior period statement of operations, statement of cash flow, balance
sheet and statement of stockholders equity.
As
reported on Form 10-Q filed for the quarter ended March 31, 2016, we early adopted the provisions of ASU 2016-09 and restated our
December 31, 2015 condensed consolidated balance sheet. Subsequent to the filing, we determined that such adoption should
have been effected as of January 1, 2016 and as such we corrected our condensed consolidated balance sheet and condensed consolidated
statement of stockholders’ equity at December 31, 2015 for the Form 10-Q filed for the quarter ended June 30, 2016.
The correction had no impact on the consolidated financial statements as of and for the three months ended March 31, 2016.
Note 3 – Real Estate, Net
As of June 30, 2016 and December 31, 2015,
real estate, net, includes the following (in thousands):
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
Real estate under development
|
|
$
|
47,763
|
|
|
$
|
37,856
|
|
Buildings and building improvements
|
|
|
5,755
|
|
|
|
3,868
|
|
Tenant improvments
|
|
|
400
|
|
|
|
400
|
|
Land
|
|
|
2,452
|
|
|
|
2,452
|
|
|
|
|
56,370
|
|
|
|
44,576
|
|
Less: accumulated depreciation
|
|
|
2,026
|
|
|
|
1,938
|
|
|
|
$
|
54,344
|
|
|
$
|
42,638
|
|
Real estate under development consists
of the 77 Greenwich, Paramus, New Jersey and Westbury, New York properties. Buildings and building improvements, tenant improvements
and land consist of the West Palm Beach, Florida property.
Note 4 – Prepaid Expenses and
Other Assets, Net
Prepaid expenses and other assets, net,
include the following (in thousands):
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
Trademarks and customer lists
|
|
$
|
2,090
|
|
|
$
|
2,090
|
|
Prepaid expenses
|
|
|
758
|
|
|
|
564
|
|
Lease commissions
|
|
|
438
|
|
|
|
416
|
|
Other
|
|
|
375
|
|
|
|
266
|
|
|
|
|
3,661
|
|
|
|
3,336
|
|
Less: accumulated amortization
|
|
|
1,532
|
|
|
|
1,407
|
|
|
|
$
|
2,129
|
|
|
$
|
1,929
|
|
Note 5 – Loans Payable
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, 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 matures on February 8, 2017, subject to a six month extension to August
8, 2017 under certain circumstances.
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 4.50% through December 16, 2015, at which time it was increased to 4.75%. 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 Agent 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, 2016, 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
wholly-owned 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 is interest-only and
bears interest at the 30-day LIBOR plus 230 basis points. The effective rate at June 30, 2016 was 2.74%. 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 commonly known as The Shoppes at Forest
Hill. 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, 2016, 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,
2016 is recorded in prepaid expenses and other assets in our condensed consolidated balance sheet. 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 quarter
ended June 30, 2016, we recorded additional interest expense of approximately $1,000 related to this interest rate cap.
Consolidated interest income (expense), includes the following (in thousands):
|
|
Three Months Ended
June 30, 2016
|
|
|
Thirteen Weeks Ended
May 30, 2015
|
|
|
Six Months Ended
June 30, 2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(516
|
)
|
|
$
|
(460
|
)
|
|
$
|
(997
|
)
|
Interest capitalized
|
|
|
480
|
|
|
|
315
|
|
|
|
953
|
|
Interest income
|
|
|
58
|
|
|
|
25
|
|
|
|
139
|
|
Interest income (expense),
net
|
|
$
|
22
|
|
|
$
|
(120
|
)
|
|
$
|
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,
accounts receivable, 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 both loans are variable-rate instruments.
Note 7 – Pension and Profit
Sharing Plans
Pension Plan
- 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, 2016 and December 31, 2015, we had a recorded liability of $3.1 million
which is included in pension liabilities on the accompanying condensed consolidated balance sheets. We will maintain the Syms pension
plan and make all contributions required under applicable minimum funding rules; provided, however, that we may terminate the Syms
pension plan from and after January 1, 2017. 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. We had a recorded liability of $3.0 million and $3.4 million which is reflected in pension liabilities
on the accompanying condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively, and is included
as part of the remaining estimated allowed net claims. 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 $3.0 million to the Syms sponsored plan and approximately
$4.0 million to the multiemployer plans from September 17, 2012 through June 30, 2016 of which no amounts were funded during the
three and six months ended June 30, 2016 to the Syms sponsored plan and $0.2 million and $0.4 million were funded during the three
months and six months, respectively, ended June 30, 2016 to the multiemployer plan.
Note 8 – Commitments
|
a.
|
Leases
-
Our corporate office located at 717 Fifth Avenue, New York, New York has
a remaining lease liability of $0.4 million payable through September 2017. The rent expense paid for this operating lease for
the three months and six months ended June 30, 2016 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, 2016, we had Federal net operating
loss (“NOLs”) carry forwards of approximately $222.8 million. These NOLs will expire in years through fiscal 2034.
At June 30, 2016, we also had state NOL carry forwards of approximately $133.0 million, primarily in New York, New Jersey, Massachusetts,
Florida and Georgia, amongst others. These NOLs expire between 2029 and 2034. We also had New York State and New York City prior
net operating loss conversion (“PNOLC”) subtraction pools of approximately $34.5 million and $29.0 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,
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 $91.3 million was recorded as of December 31, 2015. The valuation allowance was adjusted by
approximately $0.8 million during the six months ended June 30, 2016 to $92.1 million.
Note 10 – Related Party Transactions
On March 8, 2016, a General Unsecured Claim
Satisfaction (as defined in the Plan) 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 former
Majority Shareholder payment (as defined in the Plan) to the former 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 and we have no further liability to the former Majority Shareholder.
Upon the occurrence of the General Unsecured
Claim Satisfaction, the share of Series A Preferred Stock was automatically redeemed and, pursuant to the terms of our Certificate
of Incorporation, the terms of the Series A Director, Alan Cohen, and Independent Director, Keith Pattiz, automatically terminated;
Messrs. Cohen and Pattiz ceased to be directors of Trinity and the size of the Board was automatically reduced to three. Subsequently,
the Board of Directors increased the size of the Board of Directors to six, and appointed each of Alan Cohen, Keith Pattiz and
Matthew Messinger as Class I Directors to fill the three vacancies resulting in the increase of the size of the Board from three
to six, for terms ending at the 2017 annual meeting of stockholders and to hold office until their successors are elected and qualified
or until their earlier resignation or removal. In addition, upon the payment to the former Majority Shareholder, the share of Series
B Preferred Stock was automatically redeemed.
Note 11 – Stock-Based Compensation
Restricted Stock Units
During the six months ended June 30,
2016, we granted 75,500 Restricted Stock Units (“RSUs”) to other employees. The RSU’s vest and settle over
two years, subject to each employee’s continued employment. The weighted average fair market value at grant date for
these shares were approximately $0.4 million, and we recorded approximately $33,000 and $68,000 of RSU expense for the three
and six months ended June 30, 2016, respectively, net of $40,000 and $80,000 of RSUs that was capitalized in real estate
under development for the three and six months ended June 30, 2016, respectively.
During the six months ended June 30, 2016,
we granted 1,184,167 RSUs to our President and Chief Executive Officer (the “CEO”),
pursuant to his employment agreement. The RSUs have vesting periods ranging over five years, subject to the CEO’s continued
employment, and settle in shares ranging over an eight-year period. Until shares are issued with respect to the RSU’s, the
CEO will not have any rights as a shareholder with respect to the RSU’s and will not receive dividends or be able to vote
the shares represented by the RSUs. We used the fair-market value of our common stock on the date the award was granted to value
the grant. The weighted average fair market value at grant date for these shares were approximately $7.1 million,
and we recorded approximately $0.6 million and $0.9 million of RSU expense for the three and six months ended June 30, 2016, respectively,
net of $1.5 million and $2.0 million of RSUs that was capitalized in real estate under development for the three and six months
ended June 30, 2016, respectively.
On April 27, 2015, we issued 238,095 shares
of common stock to the CEO to settle vested RSUs from previous RSU grants. In connection with that transaction, we repurchased/withheld
(from the 238,095 shares issued) 132,904 shares to provide for the CEO’s withholding tax liability. In accordance with ASC
Topic 718, Compensation-Stock Compensation, the repurchase or withholding of immature shares (i.e. shares held for less than six
months) by us upon the vesting of a restricted share would ordinarily result in liability accounting. ASC 718 provides an exception,
if the fair value of the shares repurchased or withheld is equal or less than the employer’s minimum statutory withholding
requirements. The aggregate fair value of the shares repurchased/withheld (valued at the then current fair value of $8.00 per share)
was in excess of the minimum statutory tax withholding requirements and as such we are required to account for the restricted stock
awards as a liability. At each reporting period in fiscal 2015, we re-measured the liability, until settled, with changes in the
fair value being recorded as stock compensation expense in the statement of operations. As of January 1, 2016, we have elected
to early adopt ASU 2016-09 (see Note 2 – Summary of Significant Accounting Policies - Recent Accounting Pronouncements) and
the adoption has resulted in a reduction in real estate, net, of $0.5 million, a reduction in liability related to stock-based compensation
of $5.1 million, an increase in additional paid-in capital of $4.4 million and an increase in retained earnings of $0.2 million.
Our RSU activity for the six months ended
June 30, 2016 was as follows:
|
|
Six Months Ended June 30, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Fair
Value at Grant Date
|
|
|
|
|
|
|
|
|
Non-vested at beginning of period
|
|
|
1,220,097
|
|
|
$
|
6.65
|
|
Granted
|
|
|
1,259,667
|
|
|
$
|
5.94
|
|
Vested
|
|
|
(608,624
|
)
|
|
$
|
6.33
|
|
Non-vested at end of period
|
|
|
1,871,140
|
|
|
$
|
6.28
|
|
As of June 30, 2016, there was approximately $6.5 million of total unrecognized compensation cost related
to RSUs which is expected to be recognized through December 2020.
During the six months ended June 30,
2016, we issued 504,130 shares of common stock to the CEO and to other employees to settle vested RSUs from previous RSU
grants. In connection with those transactions, we repurchased/withheld (from the 504,130 shares issued) 267,586 shares to
provide for the CEO’s and other employees withholding tax liability at the minimum statutory withholding rates.