TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(In thousands)
|
|
Three Months
Ended March 31,
2017
|
|
|
Three Months
Ended March 31,
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(681
|
)
|
|
$
|
(1,838
|
)
|
Adjustments to reconcile net loss available to common stockholders to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
124
|
|
|
|
104
|
|
Amortization of deferred finance costs
|
|
|
82
|
|
|
|
2
|
|
Stock-based compensation expense
|
|
|
309
|
|
|
|
965
|
|
Deferred rents receivable
|
|
|
(44
|
)
|
|
|
(151
|
)
|
Reduction of claims liability
|
|
|
-
|
|
|
|
(135
|
)
|
Equity in net loss from unconsolidated joint venture
|
|
|
271
|
|
|
|
-
|
|
Distribution of cumulative earnings from unconsolidated joint venture
|
|
|
62
|
|
|
|
-
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
Restricted cash, net
|
|
|
(700
|
)
|
|
|
-
|
|
Receivables, net
|
|
|
112
|
|
|
|
(94
|
)
|
Prepaid expenses and other assets, net
|
|
|
(186
|
)
|
|
|
101
|
|
Decrease in operating liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(1,258
|
)
|
|
|
(2,189
|
)
|
Pension liabilities
|
|
|
(203
|
)
|
|
|
(203
|
)
|
Obligation to former Majority Shareholder
|
|
|
-
|
|
|
|
(6,931
|
)
|
Net cash used in operating activities
|
|
|
(2,112
|
)
|
|
|
(10,369
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additions to real estate
|
|
|
(1,725
|
)
|
|
|
(2,243
|
)
|
Investment in unconsolidated joint venture
|
|
|
(70
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(1,795
|
)
|
|
|
(2,243
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Settlement of stock awards
|
|
|
(693
|
)
|
|
|
(276
|
)
|
Proceeds from sale of common stock, net
|
|
|
26,601
|
|
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
|
25,908
|
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
22,001
|
|
|
|
(12,888
|
)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
4,678
|
|
|
|
38,173
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
26,679
|
|
|
$
|
25,285
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
564
|
|
|
$
|
476
|
|
Taxes
|
|
$
|
-
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Adjustment of liability related to stock-based compensation
|
|
$
|
-
|
|
|
$
|
(5,140
|
)
|
Adjustment to retained earnings for capitalized stock-based compensation expense
|
|
$
|
-
|
|
|
$
|
(542
|
)
|
Accrued development costs included in accounts payable and accrued expenses
|
|
$
|
1,279
|
|
|
$
|
1,968
|
|
Capitalized amortization of deferred financing costs
|
|
$
|
14
|
|
|
$
|
85
|
|
Capitalized stock-based compensation expense
|
|
$
|
667
|
|
|
$
|
2,166
|
|
See Notes to Condensed Consolidated Financial
Statements
Trinity Place Holdings Inc.
|
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
March 31, 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 own, invest in, manage, develop or redevelop real estate assets and/or
real estate related securities. Currently, 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 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 also continue to evaluate new investment opportunities.
We also 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 $230.8 million of federal net operating loss carryforwards (“NOLs”)
at March 31, 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.
On January
23, 2017, we received approximately $1.0 million as part of a settlement concerning, among other things, funds that were being
held as collateral by our pre-petition insurance carrier. This settlement is included in reduction of claims liability on the accompanying
condensed consolidated statement of operations.
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 statement of operations (see Note 12 - Investment in Unconsolidated Joint
Venture). All significant intercompany balances and transactions have been eliminated.
|
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 March 31,
2017, we had no VIEs.
We assess the accounting treatment
for our joint venture. 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 all 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.
|
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 March 31, 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 three months ended March 31, 2017 or March 31, 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 March 31, 2017 and December 31, 2016, we had determined that no liabilities are required in connection with unrecognized tax
positions. As of March 31, 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 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 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 March 31, 2017 and December 31, 2016,
real estate, net, includes the following (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
Real estate under development
|
|
$
|
57,397
|
|
|
$
|
53,712
|
|
Buildings and building improvements
|
|
|
5,792
|
|
|
|
5,794
|
|
Tenant improvements
|
|
|
571
|
|
|
|
569
|
|
Land
|
|
|
2,452
|
|
|
|
2,452
|
|
|
|
|
66,212
|
|
|
|
62,527
|
|
Less: accumulated depreciation
|
|
|
2,203
|
|
|
|
2,143
|
|
|
|
$
|
64,009
|
|
|
$
|
60,384
|
|
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.
Depreciation expense amounted to $60,000 and
$41,000 for the three months ended March 31, 2017 and March 31, 2016, respectively.
Note 4 – Prepaid Expenses and Other
Assets, Net
As of March 31, 2017 and December 31, 2016,
prepaid expenses and other assets, net, include the following (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
(unaudited)
|
|
|
(audited)
|
|
|
|
|
|
|
|
|
Trademarks and customer lists
|
|
$
|
2,090
|
|
|
$
|
2,090
|
|
Prepaid expenses
|
|
|
756
|
|
|
|
867
|
|
Lease commissions
|
|
|
426
|
|
|
|
433
|
|
Other
|
|
|
715
|
|
|
|
417
|
|
|
|
|
3,987
|
|
|
|
3,807
|
|
Less: accumulated amortization
|
|
|
1,760
|
|
|
|
1,658
|
|
|
|
$
|
2,227
|
|
|
$
|
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 February
8, 2017, was extended to August 8, 2017. We are currently evaluating our options which include, among others, an extension of the
existing loan or refinancing 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 4.50% through December 16, 2015, when it was then increased to 4.75% through December 15, 2016 when it
was then increased to 5.00% through March 16, 2017 when it was then increased to 5.25% where it still remained at March 31, 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 March 31, 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% through December 31, 2016 when it was then increased to 3.07% where it still remained at March 31, 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 March 31, 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 March 31,
2017 and December 31, 2016 is recorded in prepaid expenses and other assets 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 three months ended March 31, 2017, we recognized the change in value of the interest rate cap of
approximately $1,000 in interest expense.
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 March 31, 2017, we have not borrowed under these lines of credit.
Interest
Consolidated interest expense (income) net, includes
the following (in thousands):
|
|
Three Months
Ended March 31,
2017
|
|
|
Three Months
Ended March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
575
|
|
|
$
|
480
|
|
Interest capitalized
|
|
|
(504
|
)
|
|
|
(472
|
)
|
Interest income
|
|
|
(3
|
)
|
|
|
(81
|
)
|
Interest expense (income), net
|
|
$
|
68
|
|
|
$
|
(73
|
)
|
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 March 31, 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 March 31, 2017 and December 31, 2016, we had a recorded liability of $2.3 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
$4.6 million to the multiemployer plans from September 17, 2012 through March 31, 2017. No amounts were funded during the three
months ended March 31, 2017 and March 31, 2016 to the Syms sponsored plan and $0.2 million was funded to the multiemployer plan
during each of the three months ended March 31, 2017 and March 31, 2016.
Note 8 – Commitments
|
a.
|
Leases
-
Our corporate office located at 717 Fifth Avenue, New York, New York has
a remaining lease obligation of $0.2 million payable through September 2017. The rent expense paid for this operating lease for
the three months ended March 31, 2017 was approximately $75,000.
|
|
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 March 31, 2017, we had federal NOLs of approximately
$230.8 million. These NOLs will expire in years through fiscal 2034. At March 31, 2017, we also had state NOLs of approximately
$100.7 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, 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 $95.5 million and $95.3 million was recorded as of March 31, 2017 and December 31, 2016, respectively.
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 March 31, 2017 and December 31, 2016, there were 34,444,293 shares and 30,679,566 shares of common stock
issued, respectively, and 29,343,441 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 $26,887,500. We anticipate using the proceeds from the private placement 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 months ended March 31, 2017, we issued 2,492 shares of our common
stock and received gross proceeds of $23,000 at a weighted average price of $9.32 per share. As of March 31,
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 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 (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 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
Restricted Stock Units
During the three months ended March
31, 2017, we granted 8,600 Restricted Stock Units (“RSUs”) to certain employees. The RSUs vest and settle
over various times in a two year period, subject to each employee’s continued employment. The weighted average fair
value at grant date for these shares was $9.13 per share, or approximately $79,000. Approximately $19,000 in RSU expense
related to these shares was amortized for the three months ended March 31, 2017, of which $8,000 was capitalized in real
estate under development for the three months ended March 31, 2017.
Our RSU activity for the three months ended
March 31, 2017 was as follows:
|
|
Three Months Ended March 31, 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
|
|
|
(659,117
|
)
|
|
$
|
6.44
|
|
Non-vested at end of period
|
|
|
970,718
|
|
|
$
|
6.36
|
|
As of March 31, 2017, there was approximately
$3.1 million of total unrecognized compensation cost related to RSUs which is expected to be recognized through December 2020.
During the three months ended March 31, 2017,
we issued 177,234 shares of common stock to our Chief Executive Officer (the “CEO”) and to other employees to settle
vested RSUs from previous RSU grants. In connection with those transactions, we repurchased 85,105 shares to provide for the CEO’s
and other employees’ withholding tax liability at the applicable statutory withholding rates.
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 (the
“Property Owner”) 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 indirectly 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. The Company 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
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 March 31, 2017 and December 31, 2016 is as follows (in thousands):
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
53,982
|
|
|
$
|
54,310
|
|
Cash and cash equivalents
|
|
|
309
|
|
|
|
77
|
|
Restricted cash
|
|
|
330
|
|
|
|
52
|
|
Tenant and other receivables, net
|
|
|
42
|
|
|
|
101
|
|
Prepaid expenses and other assets, net
|
|
|
103
|
|
|
|
169
|
|
Intangible assets, net
|
|
|
13,960
|
|
|
|
14,362
|
|
Total assets
|
|
$
|
68,726
|
|
|
$
|
69,071
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage payable, net
|
|
$
|
40,842
|
|
|
$
|
40,799
|
|
Accounts payable and accrued expenses
|
|
|
533
|
|
|
|
403
|
|
Total liabilities
|
|
|
41,375
|
|
|
|
41,202
|
|
|
|
|
|
|
|
|
|
|
MEMBERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members' equity
|
|
|
28,509
|
|
|
|
28,485
|
|
Accumulated deficit
|
|
|
(1,158
|
)
|
|
|
(616
|
)
|
Total members equity
|
|
|
27,351
|
|
|
|
27,869
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members' equity
|
|
$
|
68,726
|
|
|
$
|
69,071
|
|
|
|
|
|
|
|
|
|
|
Our investment in unconsolidated joint venture
|
|
$
|
13,676
|
|
|
$
|
13,939
|
|
The statement of operations
for the unconsolidated joint venture for the three months ended March 31, 2017 is as follows (in thousands):
|
|
Three Months
Ended March
31, 2017
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
Rental revenues
|
|
$
|
795
|
|
Other income
|
|
|
1
|
|
|
|
|
|
|
Total revenues
|
|
|
796
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
Property operating expenses
|
|
|
197
|
|
Real estate taxes
|
|
|
12
|
|
General and administrative
|
|
|
3
|
|
Interest expense, net
|
|
|
349
|
|
Transaction related costs
|
|
|
5
|
|
Amortization
|
|
|
445
|
|
Depreciation
|
|
|
327
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,338
|
|
|
|
|
|
|
Net loss
|
|
$
|
(542
|
)
|
|
|
|
|
|
Our equity in net loss from unconsolidated joint venture
|
|
$
|
(271
|
)
|
Note 13 – Subsequent Events
On April 5, 2017, we consummated our
previously announced common stock rights offering (the “Rights Offering”) at a subscription price of $7.50 per
share. The consummation of the Rights Offering resulted in the issuance of 1,884,564 shares of our common stock and we
received gross proceeds of $14.1 million.
On April 10, 2017, we entered into a
purchase and sale agreement, effective as of April 7, 2017, pursuant to which we will sell our property located at 695
Merrick Avenue, Westbury, New York for a total purchase price of $16.0 million. The purchaser has funded a hard deposit of
$1.6 million. The sale is expected to close during the third quarter of 2017, subject to customary closing conditions.
This property was formerly a Syms retail store.