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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/06/20 Trinity Place Holdings Inc. 10-Q 9/30/20 61:7.1M Toppan Merrill Bridge/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.13M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
12: R1 Document and Entity Information HTML 70K
13: R2 Condensed Consolidated Balance Sheets HTML 102K
14: R3 Condensed Consolidated Balance Sheets HTML 46K
(Parenthetical)
15: R4 Condensed Consolidated Statements of Operations HTML 91K
and Comprehensive Income (Loss)
16: R5 Condensed Consolidated Statements of Stockholders' HTML 77K
Equity
17: R6 Condensed Consolidated Statements of Cash Flows HTML 115K
18: R7 Business HTML 29K
19: R8 Summary of Significant Accounting Policies HTML 53K
20: R9 Real Estate, Net HTML 49K
21: R10 Prepaid Expenses and Other Assets, Net HTML 40K
22: R11 Loans Payable and Secured Line of Credit HTML 63K
23: R12 Fair Value Measurements HTML 22K
24: R13 Pension Plans HTML 23K
25: R14 Commitments HTML 23K
26: R15 Income Taxes HTML 23K
27: R16 Stockholders' Equity HTML 76K
28: R17 Stock-Based Compensation HTML 86K
29: R18 Investments in Unconsolidated Joint Ventures HTML 163K
30: R19 Subsequent Events HTML 20K
31: R20 Summary of Significant Accounting Policies HTML 103K
(Policies)
32: R21 Summary of Significant Accounting Policies HTML 24K
(Tables)
33: R22 Real Estate, Net (Tables) HTML 38K
34: R23 Prepaid Expenses and Other Assets, Net (Tables) HTML 39K
35: R24 Loans Payable and Secured Line of Credit (Tables) HTML 46K
36: R25 Stockholders' Equity (Tables) HTML 68K
37: R26 Stock-Based Compensation (Tables) HTML 82K
38: R27 Investments in Unconsolidated Joint Ventures HTML 160K
(Tables)
39: R28 Business (Details) HTML 25K
40: R29 Summary of Significant Accounting Policies - HTML 32K
Depreciation (Details)
41: R30 Summary of Significant Accounting Policies - HTML 50K
Additional Information (Details)
42: R31 Real Estate, Net (Details) HTML 31K
43: R32 Real Estate, Net - Additional Information HTML 67K
(Details)
44: R33 Prepaid Expenses and Other Assets, Net (Details) HTML 33K
45: R34 Loans Payable and Secured Line of Credit - HTML 146K
Additional Information (Details)
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Interest (Details)
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48: R37 Commitments (Details) HTML 28K
49: R38 Income Taxes (Details) HTML 49K
50: R39 Stockholders' Equity (Details) HTML 26K
51: R40 Stockholders' Equity - Additional information HTML 90K
(Details)
52: R41 Stock-Based Compensation - Stock Incentive Plan HTML 41K
(Details)
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54: R43 Stock-Based Compensation - Additional Information HTML 87K
(Details)
55: R44 Investments in Unconsolidated Joint Ventures - HTML 60K
Balance sheet (Details)
56: R45 Investments in Unconsolidated Joint Ventures - HTML 53K
Statement of operations (Details)
57: R46 Investments in Unconsolidated Joint Ventures - HTML 65K
Additional information (Details)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
(Mark One)
i ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i September 30, 2020
OR
i ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_____________ to _____________
Commission File Number i 001-08546
i TRINITY PLACE HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
i Delaware | i 22-2465228 |
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) |
Incorporation or Organization) |
|
|
|
i 340 Madison Avenue, i New York, i New York | i 10173 |
(Address of Principal Executive Offices) | (Zip Code) |
( i 212) i 235-2190
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of each exchange on which registered |
i Common Stock $0.01 Par Value Per Share |
| i TPHS |
| i NYSE American |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | |
Large Accelerated Filer ◻ | i Accelerated Filer ⌧ | Non-Accelerated Filer ◻ |
Smaller Reporting Company i ☒ | | Emerging Growth Company i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐
No ⌧
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ⌧ No ◻
As of November 6, 2020, there were i 32,172,107 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
INDEX
|
| PAGE NO. |
3 | ||
| | |
3 | ||
| | |
| 3 | |
| | |
| 4 | |
| | |
| 5 | |
| | |
| 6 | |
| | |
| Notes to Condensed Consolidated Financial Statements (unaudited) | 7 |
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | |
| | |
39 | ||
| | |
40 | ||
| | |
41 | ||
| | |
41 | ||
| | |
41 | ||
| | |
41 | ||
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42 | ||
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42 | ||
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42 | ||
| | |
43 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share amounts)
| | | | | | |
| | September 30, | | |||
|
| 2020 |
| 2019 | ||
| | (unaudited) | | (audited) | ||
ASSETS |
| |
|
| |
|
| | | | | | |
Real estate, net | | $ | i 263,883 | | $ | i 293,226 |
Cash and cash equivalents | |
| i 5,192 | |
| i 9,196 |
Restricted cash | |
| i 12,972 | |
| i 9,474 |
Prepaid expenses and other assets, net | |
| i 2,639 | |
| i 9,097 |
Investments in unconsolidated joint ventures | |
| i 19,893 | |
| i 10,673 |
Receivables | |
| i 1,017 | |
| i 1,836 |
Deferred rents receivable | | | i 67 | | | i 6 |
Right-of-use asset | |
| i 1,651 | |
| i 1,904 |
Intangible assets, net | |
| i 9,357 | |
| i 9,912 |
Total assets | | $ | i 316,671 | | $ | i 345,324 |
| | | | | | |
LIABILITIES | |
|
| |
|
|
| | | | | | |
Loans payable, net | | $ | i 185,951 | | $ | i 169,735 |
Corporate credit facility, net | | | i 29,880 | | | i — |
Secured line of credit, net | |
| i 7,144 | |
| i 5,236 |
Note payable | | | i 5,863 | | | i 670 |
Deferred real estate deposits | |
| i — | |
| i 82,856 |
Accounts payable and accrued expenses | |
| i 12,707 | |
| i 22,243 |
Pension liabilities | |
| i 524 | |
| i 1,033 |
Lease liability | | | i 1,805 | | | i 2,065 |
Warrant liability | | | i 465 | | | i 1,795 |
Total liabilities | |
| i 244,339 | |
| i 285,633 |
| | | | | | |
Commitments and Contingencies | |
|
| |
|
|
| | | | | | |
STOCKHOLDERS’ EQUITY | |
|
| |
|
|
| | | | | | |
Preferred stock, $ i i 0.01 / par value; i i 40,000,000 / shares authorized; i i no / shares issued and outstanding | |
| i — | |
| i — |
Preferred stock, $ i i 0.01 / par value; i i 2 / shares authorized; i i no / shares issued and outstanding at September 30, 2020 and December 31, 2019 | |
| i — | |
| i — |
Special stock, $ i i 0.01 / par value; i i 1 / share authorized, issued and outstanding at September 30, 2020 and December 31, 2019 | |
| i — | |
| i — |
Common stock, $ i i 0.01 / par value; i i 79,999,997 / shares authorized; i 38,326,367 and i 37,612,465 shares issued at September 30, 2020 and December 31, 2019, respectively; i 32,152,934 and i 31,881,961 shares outstanding at September 30, 2020 and December 31, 2019, respectively | |
| i 383 | |
| i 376 |
Additional paid-in capital | |
| i 135,684 | |
| i 134,217 |
Treasury stock ( i 6,173,433 and i 5,730,504 shares at September 30, 2020 and December 31, 2019, respectively) | |
| ( i 56,791) | |
| ( i 55,731) |
Accumulated other comprehensive loss | |
| ( i 2,837) | |
| ( i 3,174) |
Retained earnings (accumulated deficit) | |
| ( i 4,107) | |
| ( i 15,997) |
| | | | | | |
Total stockholders’ equity | |
| i 72,332 | |
| i 59,691 |
| | | | | | |
Total liabilities and stockholders’ equity | | $ | i 316,671 | | $ | i 345,324 |
See Notes to Condensed Consolidated Financial Statements
3
TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
| | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended | | ||||
| | September 30, | | September 30, | | September 30, | | | |||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||||
| | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | ||||
Revenues | | |
| | |
|
| |
| | |
|
|
Rental revenues | | $ | i 196 | | $ | i 946 | | $ | i 774 | | $ | i 3,520 | |
Other income | | | i 80 | | | — | | | i 231 | | | — | |
Total revenues | |
| i 276 | |
| i 946 | |
| i 1,005 | |
| i 3,520 | |
| | | | | | | | | | | | | |
Operating Expenses | |
|
| |
|
| |
|
| |
|
| |
Property operating expenses | |
| i 2,709 | |
| i 1,191 | |
| i 5,464 | |
| i 2,687 | |
Real estate taxes | |
| i 19 | |
| i 90 | |
| i 59 | |
| i 264 | |
General and administrative | |
| i 1,188 | |
| i 1,286 | |
| i 3,953 | |
| i 3,971 | |
Pension related costs | | | i 165 | | | i 183 | | | i 495 | | | i 549 | |
Transaction related costs | |
| i 27 | |
| i 29 | |
| i 131 | |
| i 166 | |
Depreciation and amortization | |
| i 690 | |
| i 600 | |
| i 2,076 | |
| i 2,377 | |
| | | | | | | | | | | | | |
Total operating expenses | |
| i 4,798 | |
| i 3,379 | |
| i 12,178 | |
| i 10,014 | |
| | | | | | | | | | | | | |
Operating loss | | | ( i 4,522) | | | ( i 2,433) | | | ( i 11,173) | | | ( i 6,494) | |
| | | | | | | | | | | | | |
Gain on sale of school condominium | | | — | | | — | | | i 24,196 | | | — | |
Equity in net loss from unconsolidated joint ventures | |
| ( i 176) | |
| ( i 218) | |
| ( i 1,302) | |
| ( i 626) | |
Unrealized (loss) gain on warrants | | | ( i 58) | | | — | | | i 1,330 | | | — | |
Interest (expense) income, net | |
| ( i 545) | |
| i 14 | |
| ( i 795) | |
| i 53 | |
Interest expense - amortization of deferred finance costs | |
| ( i 40) | |
| — | |
| ( i 148) | |
| — | |
| | | | | | | | | | | | | |
(Loss) income before taxes | |
| ( i 5,341) | |
| ( i 2,637) | |
| i 12,108 | |
| ( i 7,067) | |
| | | | | | | | | | | | | |
Tax expense | |
| ( i 51) | |
| ( i 8) | |
| ( i 218) | |
| ( i 199) | |
| | | | | | | | | | | | | |
Net (loss) income attributable to common stockholders | | $ | ( i 5,392) | | $ | ( i 2,645) | | $ | i 11,890 | | $ | ( i 7,266) | |
| | | | | | | | | | | | | |
Other comprehensive gain (loss): | |
| | |
|
| |
| | |
|
| |
Unrealized gain (loss) on pension liability | |
| i 112 | |
| i 116 | |
| i 337 | |
| ( i 1,302) | |
Comprehensive (loss) income attributable to common stockholders | | $ | ( i 5,280) | | $ | ( i 2,529) | | $ | i 12,227 | | $ | ( i 8,568) | |
| | | | | | | | | | | | | |
(Loss) income per share - basic | | $ | ( i 0.17) | | $ | ( i 0.08) | | $ | i 0.37 | | $ | ( i 0.23) | |
(Loss) income per share - diluted | | $ | ( i 0.17) | | $ | ( i 0.08) | | $ | i 0.36 | | $ | ( i 0.23) | |
| | | | | | | | | | | | | |
Weighted average number of common shares - basic | |
| i 32,297 | |
| i 31,953 | |
| i 32,290 | |
| i 31,896 | |
Weighted average number of common shares - diluted | |
| i 32,297 | |
| i 31,953 | |
| i 32,731 | |
| i 31,896 | |
See Notes to Condensed Consolidated Financial Statements
4
TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, JUNE 30, AND SEPTEMBER 30, 2020 AND 2019
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | (Accumulated | | Accumulated | | | | ||
| | | | | | | Additional | | | | | | | Deficit) / | | Other | | | | |||
| | Common Stock | | Paid-In | | Treasury Stock | | Retained | | Comprehensive | | | | |||||||||
|
| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Earnings |
| Loss |
| Total | ||||||
Balance as of December 31, 2018 (audited) |
| i 37,161 | | $ | i 372 | | $ | i 132,831 |
| ( i 5,514) | | $ | ( i 54,758) | | $ | ( i 15,466) | | $ | ( i 3,518) | | $ | i 59,461 |
Net loss attributable to common stockholders |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| ( i 2,213) | |
| i — | |
| ( i 2,213) |
Settlement of stock awards |
| i 329 | |
| i 3 | |
| i — |
| ( i 134) | |
| ( i 566) | |
| i — | |
| i — | |
| ( i 563) |
Unrealized gain (loss) on pension liability |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| i 1,649 | |
| ( i 1,533) | |
| i 116 |
Stock-based compensation expense | | i — | | | i — | | | i 332 | | i — | | | i — | | | i — | | | i — | | | i 332 |
Balance as of March 31, 2019 (unaudited) |
| i 37,490 | | $ | i 375 | | $ | i 133,163 |
| ( i 5,648) | | $ | ( i 55,324) | | $ | ( i 16,030) | | $ | ( i 5,051) | | $ | i 57,133 |
Net loss attributable to common stockholders |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| ( i 2,408) | |
| i — | |
| ( i 2,408) |
Settlement of stock awards |
| i 109 | |
| i 1 | |
| i — |
| ( i 51) | |
| ( i 203) | |
| i — | |
| i — | |
| ( i 202) |
Unrealized gain on pension liability |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| i — | |
| i 115 | |
| i 115 |
Stock-based compensation expense |
| i — | |
| i — | |
| i 351 |
| i — | |
| i — | |
| i — | |
| i — | |
| i 351 |
Balance as of June 30, 2019 (unaudited) |
| i 37,599 | | $ | i 376 | | $ | i 133,514 |
| ( i 5,699) | | $ | ( i 55,527) | | $ | ( i 18,438) | | $ | ( i 4,936) | | $ | i 54,989 |
Net loss attributable to common stockholders |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| ( i 2,645) | |
| i — | |
| ( i 2,645) |
Settlement of stock awards |
| i 4 | |
| i — | |
| i — |
| i — | |
| i — | |
| i — | |
| i — | |
| i — |
Unrealized gain on pension liability |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| i — | |
| i 116 | |
| i 116 |
Stock-based compensation expense |
| i — | |
| i — | |
| i 353 |
| i — | |
| i — | |
| i — | |
| i — | |
| i 353 |
Balance as of September 30, 2019 (unaudited) |
| i 37,603 | | $ | i 376 | | $ | i 133,867 |
| ( i 5,699) | | $ | ( i 55,527) | | $ | ( i 21,083) | | $ | ( i 4,820) | | $ | i 52,813 |
| | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2019 (audited) |
| i 37,612 | | $ | i 376 | | $ | i 134,217 |
| ( i 5,731) | | $ | ( i 55,731) | | $ | ( i 15,997) | | $ | ( i 3,174) | | $ | i 59,691 |
Net loss attributable to common stockholders |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| ( i 3,253) | |
| i — | |
| ( i 3,253) |
Settlement of stock awards |
| i 438 | |
| i 4 | |
| i — |
| ( i 197) | |
| ( i 648) | |
| i — | |
| i — | |
| ( i 644) |
Unrealized gain on pension liability |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| i — | |
| i 112 | |
| i 112 |
Stock-based compensation expense | | i — | | | i — | | | i 280 | | i — | | | i — | | | i — | | | i — | | | i 280 |
Stock-based consulting fees | | i 190 | | | i 2 | | | i 598 | | i — | | | i — | | | i — | | | i — | | | i 600 |
Stock buy-back |
| i — | |
| i — | |
| i — |
| ( i 74) | |
| ( i 134) | |
| i — | |
| i — | |
| ( i 134) |
Balance as of March 31, 2020 (unaudited) |
| i 38,240 | | $ | i 382 | | $ | i 135,095 |
| ( i 6,002) | | $ | ( i 56,513) | | $ | ( i 19,250) | | $ | ( i 3,062) | | $ | i 56,652 |
Net income attributable to common stockholders |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| i 20,535 | |
| i — | |
| i 20,535 |
Settlement of stock awards |
| i 66 | |
| i 1 | |
| i — |
| ( i 26) | |
| ( i 52) | |
| i — | |
| i — | |
| ( i 51) |
Unrealized gain on pension liability |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| i — | |
| i 113 | |
| i 113 |
Stock-based compensation expense | | i — | | | i — | | | i 294 | | i — | | | i — | | | i — | | | i — | | | i 294 |
Stock buy-back |
| i — | |
| i — | |
| i — |
| ( i 136) | |
| ( i 213) | |
| i — | |
| i — | |
| ( i 213) |
Balance as of June 30, 2020 (unaudited) |
| i 38,306 | | $ | i 383 | | $ | i 135,389 |
| ( i 6,164) | | $ | ( i 56,778) | | $ | i 1,285 | | $ | ( i 2,949) | | $ | i 77,330 |
Net loss available to common stockholders |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| ( i 5,392) | |
| i — | |
| ( i 5,392) |
Settlement of stock awards |
| i 20 | |
| i — | |
| i — |
| i — | |
| i — | |
| i — | |
| i — | |
| i — |
Unrealized gain on pension liability |
| i — | |
| i — | |
| i — |
| i — | |
| i — | |
| i — | |
| i 112 | |
| i 112 |
Stock-based compensation expense |
| i — | |
| i — | |
| i 295 |
| i — | |
| i — | |
| i — | |
| i — | |
| i 295 |
Stock buy-back |
| i — | |
| i — | |
| i — |
| ( i 9) | |
| ( i 13) | |
| i — | |
| i — | |
| ( i 13) |
Balance as of September 30, 2020 (unaudited) |
| i 38,326 | | $ | i 383 | | $ | i 135,684 |
| ( i 6,173) | | $ | ( i 56,791) | | $ | ( i 4,107) | | $ | ( i 2,837) | | $ | i 72,332 |
See Notes to Condensed Consolidated Financial Statements
5
TRINITY PLACE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | |
| | Nine Months Ended | | Nine Months Ended | ||
| | September 30, | | |||
|
| 2020 |
| 2019 | ||
| | (unaudited) | | (unaudited) | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
| |
|
| |
|
Net income (loss) attributable to common stockholders | | $ | i 11,890 | | $ | ( i 7,266) |
Adjustments to reconcile net income (loss) attributable to common stockholders to net cash used in operating activities: | |
|
| |
|
|
Depreciation and amortization and amortization of deferred finance costs | |
| i 2,224 | |
| i 2,377 |
Stock-based compensation expense | |
| i 602 | |
| i 675 |
Gain on sale of school condominium | |
| ( i 24,196) | |
| i — |
Deferred rents receivable | |
| ( i 61) | |
| ( i 33) |
Other non-cash adjustments - pension expense | |
| i 337 | |
| i 346 |
Unrealized gain on warrants | | | ( i 1,330) | | | i — |
Equity in net loss from unconsolidated joint ventures | |
| i 1,302 | |
| i 626 |
Distribution from unconsolidated joint ventures | | | i 865 | | | i 33 |
Decrease (increase) in operating assets: | |
| | |
| |
Receivables | |
| i 2,319 | |
| ( i 73) |
Prepaid expenses and other assets, net | |
| i 355 | |
| i 476 |
(Decrease) increase in operating liabilities: | |
| | |
| |
Accounts payable and accrued expenses | |
| ( i 807) | |
| i 1,088 |
Pension liabilities | |
| ( i 509) | |
| ( i 1,010) |
Net cash used in operating activities | |
| ( i 7,009) | |
| ( i 2,761) |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
|
Additions to real estate | |
| ( i 39,772) | |
| ( i 71,484) |
Deferred real estate deposits of condominiums | |
| i 1,971 | |
| i 30,664 |
Investments in unconsolidated joint ventures | | | ( i 10,575) | | | i — |
Net cash used in investing activities | |
| ( i 48,376) | |
| ( i 40,820) |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
|
| |
|
|
Proceeds from loans and corporate facility | | | i 69,740 | | | i 42,448 |
Proceeds from secured line of credit | |
| i 4,400 | |
| i 5,037 |
Payment of finance costs | | | ( i 339) | | | ( i 148) |
Repayment of loans and secured line of credit | | | ( i 17,868) | | | i — |
Settlement of stock awards | |
| ( i 695) | |
| ( i 765) |
Stock buy-back | |
| ( i 359) | |
| i — |
Net cash provided by financing activities | |
| i 54,879 | |
| i 46,572 |
| | | | | | |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | |
| ( i 506) | |
| i 2,991 |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | |
| i 18,670 | |
| i 14,025 |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | | $ | i 18,164 | | $ | i 17,016 |
| | | | | | |
CASH AND CASH EQUIVALENTS, BEGINNING PERIOD | | $ | i 9,196 | | $ | i 11,496 |
RESTRICTED CASH, BEGINNING OF PERIOD | |
| i 9,474 | |
| i 2,529 |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | | $ | i 18,670 | | $ | i 14,025 |
| | | | | | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | i 5,192 | | $ | i 5,705 |
RESTRICTED CASH, END OF PERIOD | |
| i 12,972 | |
| i 11,311 |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | | $ | i 18,164 | | $ | i 17,016 |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | |
|
|
Cash paid during the period for: Interest | | $ | i 11,466 | | $ | i 9,072 |
Cash paid during the period for: Taxes | | $ | i 196 | | $ | i 312 |
| | | | | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | |
| |
Accrued development costs included in accounts payable and accrued expenses | | $ | i 7,246 | | $ | i 10,864 |
Capitalized amortization of deferred financing costs and warrants | | $ | i 2,107 | | $ | i 2,105 |
Capitalized stock-based compensation expense | | $ | i 267 | | $ | i 362 |
Right-of-use asset | | $ | i — | | $ | i 1,986 |
Lease liabilities | | $ | i — | | $ | ( i 2,149) |
See Notes to Condensed Consolidated Financial Statements
6
Trinity Place Holdings Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
September 30, 2020
Note 1 – Business
Overview
Trinity Place Holdings Inc. (“Trinity,” “we,” “our,” or “us”) is a real estate holding, investment, development and asset management company. Our largest asset is currently a property located at 77 Greenwich Street in Lower Manhattan (“77 Greenwich”). 77 Greenwich was a vacant building that was demolished and is under development as a mixed-use project consisting of a 90-unit residential condominium tower, retail space and a New York City elementary school. We also own a newly built 105-unit, 12-story multi-family property located at 237 11th Street in Brooklyn, New York (“237 11th”), acquired in May 2018, and, through joint ventures, a i i 50 / % interest in a newly built 95-unit multi-family property known as The Berkley, located at 223 North 8th Street, Brooklyn (“The Berkley”) and a i 10% interest in a newly built 234-unit multi-family property located one block from The Berkley at 250 North 10th Street (“250 North 10th”) acquired in January 2020, also in Brooklyn, New York. In addition, we own a property occupied by retail tenants in Paramus, New Jersey.
We also control a variety of intellectual property assets focused on the consumer sector, a legacy of our predecessor, Syms Corp. (“Syms”), 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. In addition, we had approximately $ i 227.6 million of federal net operating loss carryforwards (“NOLs”) at September 30, 2020, which can be used to reduce our future taxable income and capital gains.
Trinity is the successor to 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. We completed our final payment and reserve obligations under the Plan in March 2016.
On January 18, 2018, Syms and certain of its subsidiaries (the “Reorganized Debtors”) filed with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) a motion for entry of a final decree (the “Final Decree”) (i) closing the chapter 11 cases of the Reorganized Debtors; and (ii) retaining the Bankruptcy Court’s jurisdiction as provided for in the Plan, including to enforce or interpret its own orders pertaining to the chapter 11 cases including, but not limited to, the Plan and Final Decree, among other matters. On February 6, 2018, the Bankruptcy Court entered the Final Decree closing the chapter 11 cases of the Reorganized Debtors.
COVID-19 Pandemic
As a result of the COVID-19 pandemic, numerous federal, state, local and foreign governmental authorities issued a range of “stay-at-home orders”, proclamations and directives aimed at minimizing the spread of COVID-19, among other restrictions on businesses and individuals. Additional proclamations and directives have been issued in response to further outbreaks, and may be issued in the future. The outbreak and restrictions have adversely affected our business operations including, among other things, a temporary suspension of construction work at our most significant asset, 77 Greenwich, which resumed in mid-April, initially on a modified basis as certain work was deemed “essential” construction, and the temporary closing of the sales center for the 77 Greenwich residential condominium units as well as the temporary suspension of the remediation work being performed on 237 11th, which resumed in early June.
The ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, recurring outbreaks, new information which may emerge concerning the pandemic and any additional preventative and protective actions that governments, lending institutions and other businesses, including us, may direct or institute. These and other developments have resulted in and are expected to result in an extended period of continued business disruption and reduced operations for us as well as for lending and other businesses and governmental entities with which we do business. The ultimate financial impacts cannot be reasonably estimated at this time but the outbreak, restrictions and
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future developments are anticipated to continue to have an adverse impact on our business, financial condition and results of operations, which has been and may continue to be material.
The recent economic downturn and volatility in financial markets appear to have been primarily driven by uncertainties associated with the pandemic. As it relates to our business, these uncertainties include, but are not limited to, the adverse effect of the pandemic on the New York City and broader economy, residential and potential residential sentiment in New York City, particularly Manhattan, lending institutions, construction and material supply partners, travel and transportation services, our employees, residents and tenants, and traffic to and within geographic areas containing our real estate assets. The pandemic has adversely affected our near-term, and may adversely affect our long-term, liquidity, cash flows and revenues and has required and may continue to require significant actions in response, including, but not limited to, reducing or discounting prices for our residential condominium units more than originally budgeted, seeking loan extensions and covenant modifications, modifying, eliminating or deferring rent payments in the short term for tenants in an effort to mitigate financial hardships and seeking access to federal, state and/or local financing and other programs. In addition, we continue to be subject to a New York State mandate disallowing tenant evictions for non-payment of rent due to COVID-19 related hardships.
The measures taken to date, together with any additional measures and developments including those noted above, impacted and will continue to impact the Company’s business for the third and fourth fiscal quarters of 2020 and beyond, although the extent of the significance of the impact of the COVID-19 outbreak on our business and the duration for which it may have an impact cannot be determined at this time.
Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. The impact of the COVID-19 pandemic may affect our ability to extend or refinance our secured line of credit and the 237 11th Loan (as defined in Note 5 - Loans Payable and Secured Line of Credit) as they mature in March 2021 and June 2021, respectively. The impact of the pandemic has impeded the sale of residential condominium units necessary to meet existing minimum sales covenants in the 77 Greenwich Construction Facility (as defined in Note 5 - Loans Payable and Secured Line of Credit) applicable at December 31, 2020. Given the impacts of COVID-19, it is possible that we may be unable to extend or refinance the maturing debt and we expect that we will be unable to meet the December 31, 2020 sales covenant creating substantial doubt about our ability to operate as a going concern. The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to our ability to continue as a going concern. We are in active discussion with the 77 Greenwich Lender to amend certain terms of the 77 Greenwich Construction Facility (each as defined in Note 5 - Loans Payable and Secured Line of Credit) including with respect to the December 31, 2020 sales pace covenant.
iNote 2 – Summary of Significant Accounting Policies
iBasis of Presentation
The accompanying unaudited 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 also conform with 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. 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, 2019 audited consolidated financial statements, as previously filed with the SEC in our 2019 Annual Report on Form 10-K (the “2019 Annual Report”).
ia. | 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 |
8
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 or losses of our unconsolidated joint ventures, The Berkley and 250 North 10th, are included in our condensed consolidated statements of operations and comprehensive income (loss) (see Note 12 – Investments in Unconsolidated Joint Ventures for further information). 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 September 30, 2020, 250 North 10th was determined to be a VIE. Due to our lack of control and no equity at risk, we determined that we are not the primary beneficiary and we account for this investment under the equity method.
We assess the accounting treatment for joint venture investments, which includes a review of the joint venture or limited liability company agreement to determine which party has what rights and whether those rights are protective or participating. For potential VIEs, we review such agreements in order to determine which party has the power to direct the activities that most significantly impact the entity’s economic performance. In situations where we and our partner equally share authority, 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.
ib. | Investments in Unconsolidated Joint Ventures - We account for our investments in unconsolidated joint ventures, namely, The Berkley and 250 North 10th, under the equity method of accounting (see Note 12 - Investments in Unconsolidated Joint Ventures for further information). We also assess our investments in our unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of an investment is other than temporary, we write down the investment to its fair value. We evaluate each equity investment for impairment based on each joint ventures' projected cash flows. We do not believe that the value of either of our equity investments was impaired at either September 30, 2020 or December 31, 2019. |
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 i 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. |
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 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 as described in the table below: |
| | |
Category |
| Terms |
Buildings and improvements |
| i 10 - i 39 years |
Tenant improvements |
| i Shorter of remaining term of the lease or useful life |
Furniture and fixtures |
| i 5 - i 8 years |
ig. | 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 |
9
compensation and related costs of personnel directly involved with the specific project related to real estate under development. Capitalization of these costs begin 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 i 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.
ih. | 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, if any, 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 undiscounted 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. We considered various indicators of impairment, including COVID-19 related impacts, for the nine months ended September 30, 2020, however, i i no / provision for impairment was recorded during either of the nine months ended September 30, 2020 or 2019, respectively. |
i. | Fair Value Measurements - We determine fair value in accordance with Accounting Standards Codification (“ASC”) 820, “Fair Value Measurement,” 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 the 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.
ij. | Cash and Cash Equivalents - Cash and cash equivalents include securities with original maturities of three months or less when purchased. |
k. | Restricted Cash - Restricted cash represents amounts required to be restricted under our loan agreements, letters of credit (see Note 5 - Loans Payable and Secured Line of Credit for further information), deposits on condominium sales at 77 Greenwich and tenant related security deposits. |
l. | 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 lease, 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, retail leases typically provide for the reimbursement of real |
10
estate taxes, insurance and other property operating expenses. As lessor, we have elected to combine the lease and non-lease component in accordance with ASC Topic 842 when reporting revenue. Lease revenues and reimbursement of real estate taxes, insurance and other property operating expenses are presented in the condensed consolidated statements of operations and comprehensive income (loss) as “rental revenues.” Also, these reimbursements of expenses are recognized within revenue in the period the expenses are incurred. We assess the collectability of our accounts receivable related to tenant revenues. With the adoption of ASC Topic 842, we will apply the guidance under ASC 842 in assessing its lease payments: if collection of rents under specific operating leases is not probable, then we recognize the lesser of that lease’s rental income on a straight-line basis or cash received, plus variable rents as earned. Once this assessment is completed, we apply a general reserve, as provided under ASC 450-20, if applicable.
im. | 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, “Compensation-Stock Compensation,” which establishes accounting for stock-based awards exchanged for employee services and ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting,” which provides additional guidance related to share-based payment transactions for acquiring goods or services from nonemployees. 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 related vesting periods. |
n. | 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 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 increased other disclosures. As of both September 30, 2020 and December 31, 2019, we had determined that i i no / liabilities are required in connection with unrecognized tax positions. As of September 30, 2020, 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 local income and franchise taxes.
/ io. | 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) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower per share amount. Shares issuable comprising i 441,166 restricted stock units that have vested but not yet settled and i 7,179,000 warrants exercisable at $ i 6.50 per share were excluded from the computation of diluted income (loss) per share because the awards and warrants would have been antidilutive for the three months ended September 30, 2020 and 2019 and the nine months ended September 30, 2019. |
p. | Deferred Finance Costs – Capitalized and deferred finance costs represent commitment fees, legal, title and other third party costs associated with obtaining commitments for financings which result in a closing of such financing. These costs are being offset against loans payable and secured line of credit in the condensed consolidated balance sheets for mortgage financings and had a balance of $ i 6.0 million and $ i 3.0 million at September 30, 2020 and December 31, 2019, respectively. Costs for our $ i 70 million corporate credit facility of $ i 5.0 million were included in prepaid expenses and other assets, net at December 31, 2019. Deferred finance costs are amortized over the |
11
terms of the related financing arrangements. Unamortized deferred finance 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.
iq. | Deferred Lease Costs – Deferred lease costs consist of fees and direct costs incurred to initiate and renew retail operating leases and are amortized to depreciation and amortization on a straight-line basis over the related non-cancelable lease term. Lease costs incurred under our residential leases are expensed as incurred. |
r. | 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 in stockholders’ equity. |
Accounting Standards Updates
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This amendment removed, modified and added the disclosure requirements under Topic 820. The adoption of this guidance, effective January 1, 2020, did not have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases.” ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard discussed above. We have no sales-type leases. As lessee, we are party to an office lease which had a present value of future payment obligations of $ i 2.4 million as of January 1, 2019 (see Note 8 - Commitments), and as such we recorded right-of-use assets and corresponding lease liabilities in this amount upon the adoption of ASU 2016-02 on January 1, 2019. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) – Targeted Improvements,” which provides an optional transition method of applying the new leases standard at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We elected this optional transition method, although it resulted in no cumulative-effect adjustment. As lessor, for reporting revenue, we elected to combine the lease and non-lease components of our operating lease agreements and account for the components as a i single lease component in accordance with ASC 842. Also, we elected the ‘ i package or practical expedients’ approach which allows us not to reassess our previous conclusions about lease identification, lease classification and initial direct costs.
/
iNote 3 – Real Estate, Net
iAs of September 30, 2020 and December 31, 2019, real estate, net, includes the following (in thousands):
| | | | | | |
| | September 30, | | |||
|
| 2020 |
| 2019 | ||
| | (unaudited) | | (audited) | ||
Real estate under development | | $ | i 197,525 | | $ | i 225,673 |
Building and building improvements | |
| i 41,358 | |
| i 41,358 |
Tenant improvements | |
| i 127 | |
| i 125 |
Furniture and fixtures | |
| i 720 | |
| i 708 |
Land and land improvements | |
| i 27,939 | |
| i 27,939 |
| |
| i 267,669 | |
| i 295,803 |
Less: accumulated depreciation | |
| i 3,786 | |
| i 2,577 |
| | $ | i 263,883 | | $ | i 293,226 |
/Real estate under development as of September 30, 2020 and December 31, 2019 included 77 Greenwich and the Paramus, New Jersey property. The decrease in real estate under development mainly relates to the sale of the school condominium to the New York City School Construction Authority (the “SCA”) in April, 2020 (see 77 Greenwich and the New York City School Construction Authority below). Building and building improvements, tenant improvements, furniture and fixtures and land and land improvements included the 237 11th property as of September 30, 2020 and December 31, 2019.
/12
Depreciation expense amounted to approximately $ i 403,000 and $ i 402,000 for the three months ended September 30, 2020 and 2019, respectively, and $ i 1.2 million and $ i 1.3 million for the nine months ended September 30, 2020 and 2019, respectively.
Real Estate
In May 2018, we closed on the acquisition of 237 11th, a newly built 105-unit, 12-story multi-family apartment building located at 237 11th Street, Brooklyn, New York for a purchase price of $ i 81.2 million, excluding transaction costs of approximately $ i 0.7 million. The acquisition was funded through acquisition financing and cash on hand. Due to certain construction defects that resulted in water penetration into the building and damage to certain apartment units and other property, we submitted a property and casualty claim in September 2019 for business interruption (lost revenue), property damage and the related remediation costs. We also filed legal claims against the seller, its parent company, and the general contractor to recover damages arising from the defective construction. In addition, the general contractor has impleaded into that litigation several subcontractors who performed work on the property. Management expects to recover some portion of the cost to repair the property through the litigation, potential litigation, and/or settlement negotiations with the seller, its parent company, the general contractor, the subcontractors, and the claims submitted to the insurance carrier, although the amount of damages that may be recoverable in litigation and/or potential settlement negotiations, as well as the amounts payable by our insurance carrier, are uncertain at this time, as is the timing of receipt of any such payments, which has been impacted by the COVID-19 pandemic, including the temporary closure of the court system. With the court system starting to reopen, we have been in discussions with defendants and third-party defendants about engaging in mediation to potentially settle the case. There is no assurance that such mediation will occur or the timing of such mediation. Until the litigation and potential litigation and/or settlement negotiations are resolved, there will be significant cash outflows for costs associated with these repairs and remediation, which commenced in September 2019. The decrease in occupancy, which currently stands at i 20.0%, was due to the clearing of certain lower level floors to prepare for and carry out the remediation work. Remediation and restoration work was delayed for two months due to the temporary shutdown of non-essential construction projects in New York from April to June, which resulted in a delay in commencement of our leasing up of the property. Prior to the COVID-19 related shutdown of all non-essential construction by New York State, we expected the building to be approximately i 75% remediated by the summer 2020 and to re-introduce the building into the leasing market on or around the same time. As of September 30, 2020, work on floors 7-12 are completed. We recently completed the restoration of 34 units, many of which are occupied. We also began leasing efforts for the available but vacant units, although the pace of re-leasing in the current environment remains uncertain. Additional units will be introduced back into the market as they become available.
We allocate the purchase price of real estate to land and land improvements and building and building improvements (inclusive of tenant improvements) and, intangibles, such as the value of above-market and below-market leases, real estate tax abatements and origination costs associated with the in-place leases. We depreciate the amount allocated to building and building improvements over their estimated useful lives, which generally range from i one year to i 27.5 years. We amortize the amount allocated to values associated with real estate tax abatement over the estimated period of benefit which is i 15 years for 237 11th. We amortize the amount allocated to the above-market and below-market leases over the remaining term of the associated lease, which generally range from one to i two years, and record it as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental revenue. We amortize the amount allocated to the values associated with in-place leases over the expected term of the associated lease, which generally range from one to i two years. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the shorter of their useful life or the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.
As of September 30, 2020 and December 31, 2019, intangible assets, net consisted of real estate tax abatement at its original valuation of $ i i 11.1 / million, respectively, partially offset by it related accumulated amortization of approximately $ i 1.7 million and $ i 1.2 million, respectively. For each of the three months ended September 30, 2020 and 2019, amortization expense amounted to $ i i 185,000 / , respectively, and for each of the nine months ended September 30, 2020 and 2019, amortization expense amounted to $ i i 555,000 / , respectively.
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77 Greenwich and the New York City School Construction Authority
Through a wholly-owned subsidiary, we entered into an agreement with the SCA, whereby we agreed to construct a school to be sold to the SCA as part of our condominium development at 77 Greenwich. Pursuant to the agreement, the SCA agreed to pay us $ i 41.5 million for the purchase of their condominium unit and reimburse us for the costs associated with constructing the school, including a construction supervision fee of approximately $ i 5.0 million. Payments for construction are made by the SCA to the general contractor in installments as construction on their school condominium unit progresses. Payments to us for the land and construction supervision fee commenced in January 2018 and continued through October 2019 for the land and will continue through 2020 for the construction supervision fee, with an aggregate of $ i 45.9 million having been paid to us as of September 30, 2020 from the SCA. We have also received an aggregate of $ i 47.6 million in reimbursable construction costs from the SCA through September 30, 2020. Payments and reimbursements from the SCA received prior to April 2020 were recorded as deferred real estate deposits on our condensed consolidated balance sheets until sales criteria were satisfied in April 2020. Upon Substantial Completion, as defined in our agreement with the SCA, which occurred in April 2020, the SCA closed on the purchase of the school condominium unit with us, at which point title transferred to the SCA. Following the conveyance of the school condominium unit to the SCA, the SCA is proceeding to complete the buildout of the interior space, which is planned to become an approximately 476 seat public elementary school. Upon conveyance, we recognized a gain on the sale of approximately $ i 20.0 million and an additional gain of $ i 4.2 million related to the recognition of our construction supervision fee, and our liquidity requirement on the 77 Greenwich Construction Facility was decreased from $ i 15.0 million to $ i 10.0 million. We have also guaranteed certain obligations with respect to the construction of the school.
iNote 4 – Prepaid Expenses and Other Assets, Net
iAs of September 30, 2020 and December 31, 2019, prepaid expenses and other assets, net, include the following (in thousands):
| | | | | | |
| | September 30, | | |||
|
| 2020 |
| 2019 | ||
| | (unaudited) | | (audited) | ||
Trademarks and customer lists | | $ | — | | $ | i 2,090 |
Prepaid expenses | |
| i 637 | |
| i 797 |
Lease commissions | |
| — | |
| i 1,565 |
Deferred finance costs | | | i 1,795 | | | i 6,798 |
Other | |
| i 606 | |
| i 2,641 |
| |
| i 3,038 | |
| i 13,891 |
Less: accumulated amortization | |
| i 399 | |
| i 4,794 |
| | $ | i 2,639 | | $ | i 9,097 |
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iNote 5 – Loans Payable and Secured Line of Credit
Corporate Credit Facility
In December 2019, we entered into a credit agreement (the “Corporate Credit Facility”) with an affiliate of a global institutional investment management firm as initial lender (the “Lender”), and Trimont Real Estate Advisors, LLC, as administrative agent, pursuant to which the Lender agreed to extend us credit in multiple draws aggregating $ i 70.0 million, which may be increased by $ i 25.0 million subject to satisfaction of certain conditions and the consent of the Lender (the “Loan”). Draws under the Corporate Credit Facility may be made during the i 32-month period following the closing date of the Corporate Credit Facility (the “Closing Date”). The Corporate Credit Facility matures on December 19, 2024, subject to extensions until December 19, 2025 and June 19, 2026, respectively, under certain circumstances. The proceeds of the Corporate Credit Facility may be used for investments in certain multi-family apartment buildings in the greater New York City area and certain non-residential real estate investments approved by the Lender in its reasonable discretion, as well as in connection with certain property recapitalizations and in specified amounts for general corporate purposes and working capital. The Corporate Credit Facility was undrawn at December 31, 2019 and had an outstanding balance of $ i 34.0 million at September 30, 2020. Accrued interest totaled approximately $ i 1.1 million at September 30, 2020.
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The Corporate Credit Facility bears interest at i a rate per annum equal to the sum of (i) i 5.25% (the “PIK Interest Rate”) and (ii) a scheduled interest rate (the “Cash Pay Interest Rate”) based on six-month periods from the Closing Date, which Cash Pay Interest Rate, from the Closing Date until the six-month anniversary of the Closing Date, equals i 4.0%, subject to increase during the extension periods. / The effective interest rate at September 30, 2020 was i 9.375%. A $ i 2.45 million commitment fee is payable i 50% on the initial draw and i 50% as amounts under the Corporate Credit Facility are drawn, with any remaining balance due on the last date of the draw period, and a i 1.0% exit fee is payable in respect of Corporate Credit Facility repayments. As of September 30, 2020, we had paid $ i 1.8 million of the commitment fee. The Corporate Credit Facility may be prepaid at any time subject to a prepayment premium on the portion of the Corporate Credit Facility being repaid. The Corporate Credit Facility is subject to certain mandatory prepayment provisions, including that, subject to the terms of the mortgage loan documents applicable to the Company’s 77 Greenwich property, i 90% or i 100% of the net cash proceeds of residential condominium sales, depending on the circumstances, and i 70% of the net cash proceeds of retail condominium sales at the Company’s 77 Greenwich property shall be used to repay the Corporate Credit Facility. Upon final repayment of the Corporate Credit Facility, a multiple on invested capital, or MOIC, amount equal to i 130% of the initial Corporate Credit Facility amount plus drawn incremental amounts less the sum of all interest payments, commitment fee and exit fee payments and prepayment premiums, if any, shall be due, if such amounts together with the aggregate amount of principal repaid are less than the MOIC amount. The collateral for the Corporate Credit Facility consists of (i) i 100% of the equity interests in our direct subsidiaries, to the extent such a pledge is permitted by the organizational documents of such subsidiary and any financing agreements to which such subsidiary is a party, (ii) our cash and cash equivalents, excluding restricted cash and cash applied toward certain liquidity requirements under existing financing arrangements, and (iii) other non-real estate assets of ours, including intellectual property.
The Corporate Credit Facility provides that we and our subsidiaries, as defined in the Corporate Credit Facility, must comply with various affirmative and negative covenants including restrictions on debt, liens, business activities, equity repurchases, distributions and dividends, disposition of assets and transactions with affiliates, as well as financial covenants regarding corporate loan to value, net worth and liquidity. Under the Corporate Credit Facility, we are permitted to repurchase up to $ i 2.0 million of our common stock pursuant to board approved programs with Loan proceeds, $ i 1.5 million with other sources of cash and otherwise subject to the consent of the required lenders. The Corporate Credit Facility also provides for certain events of default, including cross-defaults to our other loans, and for a guaranty of the Loan obligations by our loan party subsidiaries.
Pursuant to the terms of the Corporate Credit Facility, so long as the Loan is outstanding and the Lender is owed or holds greater than i 50% of the sum of (x) the aggregate principal amount of the Loan outstanding and (y) the aggregate unused commitments, the Lender will have the right to appoint i one member of our and each subsidiary’s board of directors or equivalent governing body (the “Designee”). At the election of the Lender, a board observer may be selected in lieu of a board member. The Designee may also sit on up to i three committees of the board of directors or equivalent governing body of ours and each subsidiary of the Designee’s choosing from time to time. The Designee will be entitled to receive customary reimbursement of expenses incurred in connection with his or her service as a member of the board and/or any committee thereof but will not, except in the case of an independent director, receive compensation for such service.
Loans Payable
237 11th Loans
In May 2018, in connection with the acquisition of 237 11th, wholly owned subsidiaries of ours entered into two-year interest-only financings with an aggregate principal amount of $ i 67.8 million, comprised of a $ i 52.4 million mortgage loan (the “237 11th Loan”) with Canadian Imperial Bank of Commerce (“CIBC”) and a $ i 15.4 million mezzanine loan with RCG LV Debt VI REIT, LLC, i bearing interest at a blended average rate of 3.72% over the 30-day LIBOR, each with a one year extension option upon satisfaction of certain conditions. The mezzanine loan was repaid in full in February 2020. In June 2020, the maturity of the 237 11th Loan was extended to June 2021 and the 237 11th Loan was amended to include a delayed draw facility of $ i 4.25 million, which will be drawn once the $ i 3.6 million of remediation reserves we funded in connection with the amendment have been used. None of the delayed draw funds had been drawn as of September 30, 2020. We also funded an interest reserve account of $ i 0.8 million which we are required to replenish over time. In conjunction with the amendment, a LIBOR floor of i 50 basis points was put in place, the spread was increased by i 25 basis points to i 2.25% and the exit fee was increased by i 50 basis points to i 1.0%. At September 30, 2020, the 237 11th Loan had a balance of $ i 52.4 million and an effective interest rate of i 2.75%. The blended effective interest rate at December 31, 2019 for both the 237 11th Loan and the mezzanine loan was approximately i 5.48%. The 237 11th Loan is non-recourse to us except for environmental indemnity agreements, certain non-recourse carve-out and carry guaranties covering among other
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things interest and operating expenses, and in the case of the mortgage loan, i a guaranty of 25% of the principal amount, decreasing to 10% of the principal balance upon the debt yield ratio becoming equal to or greater than 7.0%. The 237 11th Loan is prepayable at any time in whole, and under certain circumstances in part, upon payment of a i 0.50% deferred commitment fee (unless the loan is refinanced with the mortgage lender in which case no such fee is payable).
The collateral for the 237 11th Loan is the fee interest of our subsidiary in 237 11th. The 237 11th Loan requires us to comply with various customary affirmative and negative covenants and provides for certain events of default, the occurrence of which would permit the lender to declare the 237 11th Loan due and payable, among other remedies. As of September 30, 2020, we were in compliance with all covenants of the 237 11th Loan.
77 Greenwich Construction Facility
In December 2017, a wholly-owned subsidiary of ours closed on a $ i 189.5 million construction facility for 77 Greenwich (the “77 Greenwich Construction Facility”) with Massachusetts Mutual Life Insurance Company as lender and administrative agent (the “77 Greenwich Lender”). We draw down proceeds as costs related to the construction of the new mixed-use building are incurred. The plans call for the development of i 90 luxury residential condominium apartments, i 7,500 square feet of street level retail space, a 476-seat elementary school serving New York City District 2, including the adaptive reuse of the landmarked Robert and Anne Dickey House, and construction of a new handicapped accessible subway entrance on Trinity Place. There was an outstanding balance of approximately $ i 135.2 million and $ i 104.9 million on the 77 Greenwich Construction Facility at September 30, 2020 and December 31, 2019, respectively, of which at September 30, 2020, $ i 3.5 million is collateralizing letters of credit securing our obligation with the New York City MTA to upgrade the subway entrance.
The 77 Greenwich Construction Facility has a i four-year term ending January 2022 with an extension option for an additional year under certain circumstances. The collateral for the 77 Greenwich Construction Facility is the borrower’s fee interest in 77 Greenwich, which is the subject of a mortgage in favor of the 77 Greenwich Lender, as well as related collateral and pledge of equity in the borrower. The 77 Greenwich Construction Facility bears interest on amounts drawn at a rate per annum equal to the greater of (i) i LIBOR plus 8.25% and (ii) 9.25%. The effective interest rate at September 30, 2020 and December 31, 2019 was i 9.25% and i 10.01%, respectively. The 77 Greenwich Construction Facility provides for certain loan proceeds to be advanced as an interest holdback and to the extent that the cash flow from 77 Greenwich is insufficient to pay the interest payments then due and payable, funds in the interest holdback will be applied by the 77 Greenwich Lender as a disbursement to the borrower to make the monthly interest payments on the 77 Greenwich Construction Facility, subject to certain conditions. The 77 Greenwich Construction Facility may be prepaid in part in certain circumstances such as in the event of the sale of residential and retail condominium units. Pursuant to the 77 Greenwich Construction Facility, we are required to achieve completion of the construction work and the improvements for the project on or before June 19, 2021, subject to certain exceptions.
In connection with the 77 Greenwich Construction Facility, we executed certain guaranties and environmental indemnities, including a recourse guaranty under which we are required to satisfy certain net worth and liquidity requirements including the Company maintaining initial liquidity of at least $ i 15.0 million, consisting of unrestricted cash and, for up to i 50% of the requirement, qualified lines of credit, and additional customary affirmative and negative covenants for loans of this type and our agreements with the SCA. The liquidity requirement decreased to $ i 10.0 million upon conveyance of the school condominium to the SCA in April 2020. We also entered into certain completion and other guarantees with the 77 Greenwich Lender and the SCA in connection with the 77 Greenwich Construction Facility. As of September 30, 2020, we were in compliance with all covenants of the 77 Greenwich Construction Facility. In early April 2020, New York State required all non-essential construction projects be shut down due to the impact of the COVID-19 pandemic. As a result, the construction of 77 Greenwich was temporarily suspended. Construction recommenced mid-April, initially on a modified basis, as certain work was deemed "essential" construction. Since June 2020, a full crew has been on site and operating in accordance with applicable guidelines in response to the COVID-19 outbreak. Future delays in construction may result in a delay in our ability to complete the construction project on its original timeline and our ability to sell condominium units. Our ability to meet certain sales requirements applicable as of the end of 2020 and thereafter has been materially adversely affected and we expect we will be unable to meet the December 31, 2020 sales pace covenant. We are in active discussion with the 77 Greenwich Lender to amend certain terms of the 77 Greenwich Construction Facility, including with respect to the December 31, 2020 sales pace covenant. Despite the construction delays, we currently expect that the construction project will be completed within budget. We currently anticipate receiving our temporary certificates in stages from December 2020 through the first half of 2021.
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In December 2017, we entered into an interest rate cap agreement as required under the 77 Greenwich Construction Facility. 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 approximately $ i 393,000 for the i 2.5% interest rate cap on the 30-day LIBOR rate on a notional amount of $ i 189.5 million. The fair value of the interest rate cap as of both September 30, 2020 and December 31, 2019 was approximately i i zero / . 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 nine months ended September 30, 2020, there was i no change in value of this instrument.
Secured Line of Credit
Our $ i 12.75 million line of credit with Sterling National Bank is secured by the Paramus, New Jersey property and matures in March 2021. The line of credit bears interest at a rate of i 200 basis points over the 30-day LIBOR, and is pre-payable at any time without penalty. A portion of the line of credit is subject to an unused fee. This secured line of credit had an outstanding balance of $ i 7.15 million at September 30, 2020 and $ i 5.25 million December 31, 2019 and an effective interest rate of i 2.15% as of September 30, 2020 and i 3.76% as of December 31, 2019.
Interest
iConsolidated interest expense (income), net includes the following (in thousands):
| | | | | | | | | | | | | |
|
| Three Months Ended |
| Three Months Ended |
| Nine Months Ended |
| Nine Months Ended |
| ||||
| | September 30, | | September 30, | | September 30, | | | |||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||||
Interest expense | | $ | i 4,418 | | $ | i 3,525 | | $ | i 12,554 | | $ | i 9,905 | |
Interest capitalized | |
| ( i 3,820) | |
| ( i 3,525) | |
| ( i 11,702) | |
| ( i 9,905) | |
Interest income | |
| ( i 53) | |
| ( i 14) | |
| ( i 57) | |
| ( i 53) | |
Interest expense (income), net | | $ | i 545 | | $ | ( i 14) | | $ | i 795 | | $ | ( i 53) | |
i
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 prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices 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, accounts payable and accrued expenses, and other liabilities approximated their carrying value because of their short-term nature. The fair value of the consolidated loans payable, corporate credit facility, the secured line of credit and the warrant liability approximated their carrying values as they are variable-rate instruments.
iNote 7 – Pension Plans
Defined Benefit Pension Plan
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 September 30, 2020 and December 31, 2019, we had a recorded liability of $ i 524,000 and $ i 924,000, respectively, which is included in pension liabilities on the accompanying condensed consolidated balance sheets. This liability represents the estimated cost to us of terminating the plan in a standard termination, which would require us to make additional contributions to the plan so that the assets of the plan are sufficient to satisfy all benefit liabilities.
We currently plan to continue to maintain the Syms pension plan and make all contributions required under applicable minimum funding rules; however, we may terminate it at any time. In the event we terminate the plan, we intend that any
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such termination would be a standard termination. Although we have accrued the liability associated with a standard termination, we have not taken any steps to commence such a termination and currently have no intention of terminating the pension plan. In accordance with minimum funding requirements and court ordered allowed claims distributions, we paid approximately $ i 5.3 million to the Syms sponsored plan from September 17, 2012 through September 30, 2020. Historically, we have funded this plan in the third quarter of the calendar year.
Multiemployer Pension Plans
Certain Syms employees were covered by collective bargaining agreements and participated in various 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. As a result of the complete withdrawal, we were obligated to pay a withdrawal liability to one of these pension plans through the first quarter of 2020. We were required to make quarterly payments in the amount of approximately $ i 203,000 until this liability was completely paid, which occurred with the final payment of $ i 109,000 in January 2020. We had i no liability and a liability of $ i 109,000 as of September 30, 2020 and December 31, 2019, respectively, related to this plan which is included in pension liabilities on the accompanying condensed consolidated balance sheets.
See Note 8 - Commitments - Legal Proceedings - for further information regarding a claim related to the multiemployer pension plan.
iNote 8 – Commitments
a. | Leases – The lease for our corporate office located at 340 Madison Avenue, New York, New York expires on March 31, 2025. Rent expense paid for this operating lease was approximately $ i i 110,000 / and $ i i 329,000 / for both the three and nine months ended September 30, 2020 and 2019, respectively. The lease for our sales office for 77 Greenwich located at 17 State Street, New York, New York expires on May 31, 2021. Rent expense paid for this operating lease was approximately $ i 65,000 and $ i 239,000 for the three months and nine months ended September 30, 2020, respectively and $ i 92,000 and $ i 275,000 for the three and nine months ended September 30, 2019, respectively. The remaining lease obligation, excluding any extension options, for our corporate office and the sales office is approximately $ i 2.3 million. |
Legal Proceedings – The trustees for the multiemployer pension plan (the "Trustees") to which the January 2020 payment was made claimed in February 2020 that the multiemployer pension plan was due additional sums in excess of the amount set forth in the Plan. We advised the Trustees that if an action was taken to pursue a further claim against the Company, they will be in violation of the permanent injunction under the Plan and confirmation order. On May 1, 2020, the Trustees filed a complaint in the United States District Court for the Southern District of New York seeking a judgment against the Company in the amount of approximately $ i 2.6 million, plus unliquidated amounts on account of the multiemployer pension plan. Following the filing of the complaint, the Company moved to have the Bankruptcy Court reopen the bankruptcy case to enforce the permanent injunction, Plan, and confirmation order against the Trustees. On June 10, 2020, the Bankruptcy Court granted the Company's motion to reopen the bankruptcy case. On July 22, 2020, the Bankruptcy Court heard arguments on whether to enforce the permanent injunction, Plan, and confirmation order against the Trustees. On October 26, 2020, the Bankruptcy Court entered a memorandum order granting the Company’s motion to enforce the confirmation order and Plan, finding that under the unambiguous terms of the Plan, the Company has paid the full amount owed to the Trustees under the Plan and that no further payments are due. The Bankruptcy Court’s memorandum order will become a final non-appealable order if the Trustees do not file a notice of appeal within 14 days of the entry of the order.
In addition to this matter, in the normal course of business, we are also party to routine legal proceedings. Based on advice of counsel and available information, including current status or stage of proceeding, and taking into account accruals where they have been established, management currently believes that any liabilities ultimately resulting from litigation we are currently involved in will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or liquidity.
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Note 9 – Income Taxes
Effects of the Tax Cuts and Jobs Act
Pursuant to the U.S Tax Cuts and Jobs Act (the "TCJA") of 2017, alternative minimum tax (“AMT”) credit carryforwards will be eligible for a i 50% refund in tax years 2018 through 2020. Beginning in tax year 2021, any remaining AMT credit carryforwards would be i 100% refundable. As a result of these new rules, as of December 31, 2017 we had released the valuation allowance of $ i 3.1 million formerly reserved against our AMT credit carryforwards and we had recorded a tax benefit and refund receivable of $ i 3.1 million in connection with this valuation allowance release. We received approximately $ i 1.6 million of the refund receivable in October 2019 and the balance of approximately $ i 1.5 million in July 2020.
Other
At September 30, 2020, we had federal NOLs of approximately $ i 227.6 million. NOLs generated prior to tax-year 2018 will expire in years through fiscal 2037 while NOLs generated in 2018 and forward carry-over indefinitely. In connection with the conveyance of the school condominium to the SCA, we applied approximately $ i 11.6 million of federal NOLs against taxable capital gains of approximately $ i 18.5 million. Since 2009 through September 30, 2020, we have utilized approximately $ i 28.4 million of the federal NOLs. At September 30, 2020, we also had state NOLs of approximately $ i 119.9 million. These state NOLs have various expiration dates through 2039, if applicable. We also had New York State and New York City prior NOL conversion (“PNOLC”) subtraction pools of approximately $ i 19.5 million and $ i 13.9 million, respectively. The conversion to the PNOLC under the New York State and New York City corporate tax reforms does not have any material tax impact.
Based on management’s assessment, we believe it is more likely than not that the entire deferred tax assets will not be realized by future taxable income or tax planning strategy. In recognition of this risk, we have provided a valuation allowance of $ i 59.7 million and $ i 63.7 million as of September 30, 2020 and December 31, 2019, respectively. If our assumptions change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets would be recognized as a reduction of income tax expense and an increase in stockholders equity.
On March 27, 2020, President Trump signed into law the "Coronavirus Aid, Relief, and Economic Security (CARES) Act." The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The CARES Act did not have a material impact on our financial position, results of operations or cash flows.
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iNote 10 – Stockholders’ Equity
Capital Stock
Our authorized capital stock consists of i 120,000,000 shares consisting of i i 79,999,997 / shares of common stock, $ i i 0.01 / par value per share, two (2) shares of preferred stock, $ i i 0.01 / par value per share (which have been redeemed in accordance with their terms and may not be reissued), i i one / (1) share of special stock, $ i i 0.01 / par value per share, and i i 40,000,000 / shares of a new class of blank-check preferred stock, $ i i 0.01 / par value per share. As of September 30, 2020 and December 31, 2019, there were i 38,326,367 shares and i 37,612,465 shares of common stock issued, respectively, and i 32,152,934 shares and i 31,881,961 shares of common stock outstanding, respectively, with the difference being held in treasury stock.
Warrants
In December 2019, we entered into a Warrant Agreement (the “Warrant Agreement”) with the lender under our Corporate Credit Facility (see Note 5 – Loans Payable and Secured Line of Credit – Corporate Credit Facility) (the “Warrant Holder”) pursuant to which we issued i ten-year warrants (the “Warrants”) to the Warrant Holder to purchase up to i 7,179,000 shares of our common stock. The Warrants are exercisable immediately and have an exercise price of $ i 6.50 per share (the
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“Exercise Price”), payable in cash or pursuant to a cashless exercise. The Warrant Agreement provides that we will not issue shares of common stock upon exercise of the Warrants if either (1) the Warrant Holder, together with its affiliates, would beneficially hold i 5% or more of the shares of common stock outstanding immediately after giving effect to such exercise, or (2) such exercise would result in the issuance of more than i 19.9% of the shares of issued and outstanding common stock as of the date of the Warrant Agreement, prior to giving effect to the issuance of the Warrants, and such issuance would require shareholder approval under the NYSE American LLC listing requirements.
The Warrant Agreement provides for certain adjustments to the Exercise Price and/or the number of shares of common stock issuable upon exercise pursuant to customary anti-dilution provisions. Upon a change of control of the Company, the Warrants will be automatically converted into the right to receive the difference between the consideration the Warrant Holder would have received if it exercised the Warrants immediately prior to the change of control and the aggregate Exercise Price, payable at the election of the Warrant Holder in the consideration payable in the change of control or, if such consideration is other than cash, in cash. The Warrants, which were initially valued at approximately $ i 1.8 million at December 31, 2019, are accounted for under the liability method. These Warrants were valued at approximately $ i 465,000 at September 30, 2020. The $ i 1.3 million change in fair value of the Warrants was recorded as an unrealized gain in the condensed consolidated statement of operations and comprehensive income (loss) during the nine months ended September 30, 2020.
In connection with the issuance of the Warrants, we also entered into a registration rights agreement with the Warrant Holder, pursuant to which we agreed to register for resale the shares of common stock issuable upon exercise of the Warrants (the “Registration Rights Agreement”), and a letter agreement with the Warrant Holder (the “Letter Agreement”) pursuant to which we agreed to provide (i) certain information rights, (ii) the right to appoint i one member of the board of directors of the Company, or in lieu thereof a board observer, and (iii) certain preemptive rights for a period of i five years following the exercise of any of the Warrants so long as the Warrant Holder continues to hold shares of common stock. With respect to the board appointment right, the Letter Agreement includes a similar right as the Corporate Credit Facility described in Note 5 - Loans Payable and Secured Line of Credit, so long as the Warrant Holder together with its affiliates beneficially holds at least i 5% of the outstanding common stock of the Company, assuming the exercise of all outstanding Warrants; provided that the Warrant Holder does not have such appointment right at any time a Designee or observer may be appointed pursuant to the terms of the Corporate Credit Facility.
At-The-Market Equity Offering Program
In December 2016, we entered into a sales agreement with a broker with respect to an "at-the-market" equity offering program for the sale of up to an aggregate of $ i 12.0 million of our common stock. We have not issued any shares through this program since January 2017 and the sales agreement with our broker expired in June 2019 in accordance with its terms.
Share Repurchase Program
The following table shows the stock repurchase activity by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Exchange Act, by month for the three months ended September 30, 2020:
i
| | | | | | | | | | | |
| | | | | | | Total number | | Approximate | | |
| | | | | | | of Shares | | Dollar Value of | | |
| | | | | | | Purchased As | | Shares that |
| |
| | | | | | | Part of | | May Yet Be |
| |
| | Total | | Weighted | | Publicly | | Purchased |
| ||
| | Number of | | Average | | Announced | | Under the |
| ||
| | Shares | | Price Paid | | Plans or | | Plans or |
| ||
Period |
| Purchased |
| per Share |
| Programs |
| Programs |
| ||
7/1/20 - 7/31/20 | | i 14,699 | | $ | i 1.34 | | i 9,199 | | $ | i 4,516,733 | |
| | | | | | | | | | | |
8/1/20 - 8/31/20 | | i 72 | | $ | i 1.30 | | i 72 | | $ | i 4,516,639 | |
| | | | | | | | | | | |
9/1/20 - 9/30/20 | | — | | $ | — | | — | | $ | i 4,516,639 | |
| | | | | | | | | | | |
Quarter ending September 30, 2020 (1) | | i 14,771 | (2) | $ | i 1.34 | | i 9,271 | | $ | i 4,516,639 | (3) |
/20
(1) In December 2019, our Board of Directors approved a share repurchase program under which we can purchase up to $ i 5.0 million of shares of our common stock. Repurchases under the share repurchase program may be made through open market or privately negotiated transactions at times and on such terms and in such amounts as management deems appropriate, subject to market conditions, regulatory requirements and other factors. The share repurchase program is subject to the terms of our Corporate Credit Facility and does not obligate the Company to repurchase any particular amount of common stock, and may be suspended or discontinued at any time without notice.
(2) Includes an aggregate of (i) i 5,500 shares purchased by affiliated purchasers of the Company and (ii) i 9,271 shares purchased by the Company in the open market under its share repurchase program.
(3) Since inception of the share repurchase program through September 30, 2020, the Company has repurchased i 250,197 shares of common stock for approximately $ i 483,361, or an average price per share of $ i 1.93. As of September 30, 2020, approximately $ i 4.5 million of shares remained available for purchase under the share repurchase program, subject to the terms of our Corporate Credit Facility.
Preferred Stock
We are authorized to issue i i two / shares of preferred stock ( i one share each of Series A and Series B preferred stock, each of which was automatically redeemed in 2016 and may not be reissued), i one share of special stock and i 40,000,000 shares of blank-check preferred stock. 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.
iNote 11 – Stock-Based Compensation
Stock Incentive Plan
We adopted the Trinity Place Holdings Inc. 2015 Stock Incentive Plan (the “SIP”), effective September 9, 2015. Prior to the adoption of the SIP, we granted restricted stock units (“RSUs”) to our executive officers and employees pursuant to individual agreements. The SIP, which has a ten-year term, authorizes (i) stock options that do not qualify as incentive stock options under Section 422 of the Code, or NQSOs, (ii) stock appreciation rights, (iii) shares of restricted and unrestricted common stock, and (iv) RSUs. The exercise price of stock options will be determined by the compensation committee, but may not be less than i 100% of the fair market value of the shares of common stock on the date of grant. To date, i no stock options have been granted under the SIP. The SIP initially authorized the issuance of up to i 800,000 shares of common stock. In June 2019, our stockholders approved an amendment and restatement of the SIP, including an increase to the number of shares of common stock available for awards under the SIP by i 1,000,000 shares. Our SIP activity as of September 30, 2020 and December 31, 2019 follows:
i
| | | | | | | | | | | |
| | Nine Months Ended | | Year Ended | | ||||||
| | | | ||||||||
| | | | Weighted | | | | Weighted | | ||
| | | | Average Fair | | | | Average Fair | | ||
| | Number of | | Value at | | Number of | | Value at | | ||
|
| Shares |
| Grant Date |
| Shares |
| Grant Date |
| ||
Balance available, beginning of period | | i 1,017,535 | | | i — | | i 340,760 | | | i — | |
Additional shares approved by stockholders | | i — | | | i — | | i 1,000,000 | | | i — | |
Granted to employees |
| ( i 295,500) | | $ | i 3.01 |
| ( i 267,000) | | $ | i 4.15 |
|
Granted to non-employee directors |
| ( i 40,487) | | $ | i 1.76 |
| ( i 13,050) | | $ | i 3.98 |
|
Deferred under non-employee director's deferral program |
| ( i 80,230) | | $ | i 1.90 |
| ( i 43,175) | | $ | i 3.98 |
|
Balance available, end of period |
| i 601,318 | |
| i — |
| i 1,017,535 | |
| i — |
|
Restricted Stock Units
We grant RSUs to certain executive officers and employees as part of compensation. These grants generally have vesting dates ranging from immediate vest at grant date to i three years, with a distribution of shares at various dates ranging from the time of vesting up to i seven years after vesting.
/21
During the nine months ended September 30, 2020, we granted i 295,500 RSUs to certain employees. These RSUs vest and settle at various times over a two or i three year period, subject to each employee’s continued employment. Approximately $ i 146,000 and $ i 438,000 in compensation expense related to these shares was amortized during the three and nine months ended September 30, 2020, respectively, of which approximately $ i 51,000 and $ i 152,000 was capitalized into real estate under development, respectively.
Total stock-based compensation expense recognized in the condensed consolidated statements of operations and comprehensive income (loss) during the three months ended September 30, 2020 and 2019 totaled $ i 177,000 and $ i 215,000, respectively, which is net of $ i 91,000 and $ i 120,000 capitalized as part of real estate under development, respectively. Total stock-based compensation expense recognized in the condensed consolidated statements of operations and comprehensive income (loss) during the nine months ended September 30, 2020 and 2019 totaled $ i 531,000 and $ i 644,000, respectively, which is net of $ i 272,000 and $ i 362,000 capitalized as part of real estate under development, respectively.
Our RSU activity was as follows:
i
| | | | | | | | | | | |
| | Nine Months Ended | | Year Ended | | ||||||
| | | | ||||||||
| | | | Weighted | | | | Weighted | | ||
| | | | Average Fair | | | | Average Fair | | ||
| | Number of | | Value at Grant | | Number of | | Value at Grant | | ||
|
| Shares |
| Date |
| Shares |
| Date |
| ||
Non-vested at beginning of period |
| i 453,334 | | $ | i 5.00 |
| i 381,167 | | $ | i 6.39 |
|
Granted RSUs |
| i 295,500 | | $ | i 3.01 |
| i 267,000 | | $ | i 4.15 |
|
Vested |
| ( i 166,500) | | $ | i 5.46 |
| ( i 194,833) | | $ | i 5.98 |
|
Non-vested at end of period |
| i 582,334 | | $ | i 3.86 |
| i 453,334 | | $ | i 5.00 |
|
As of September 30, 2020, there was approximately $ i 694,000 of total unrecognized compensation expense related to unvested RSUs, which is expected to be recognized through December 2022.
During the nine months ended September 30, 2020, we issued i 482,939 shares of common stock to employees and executive officers to settle vested RSUs from previous RSU grants. In connection with those transactions, we repurchased i 222,575 shares to provide for the employees’ withholding tax liabilities.
During the three and nine months ended September 30, 2020, we issued i 19,879 and i 40,487 shares of common stock, respectively, to board members as part of their annual compensation.
In January 2020, we issued i 190,476 shares of common stock to consultants pursuant to their agreement related to the closing of the Corporate Credit Facility.
Director Deferral Program
Our Non-Employee Director’s Deferral Program (the “Deferral Program”), as amended in December 2018, allows our non-employee directors to elect to receive the cash portion of their annual compensation in shares of the Company’s common stock, as well as to defer receipt of the portion of their annual board compensation that is paid in equity. Any deferred amounts are paid under the SIP (as is non-employee directors’ annual equity compensation that is not deferred). Compensation deferred under the Deferral Program is reflected by the grant of stock units equal to the number of shares that would have been received absent a deferral election. The stock units, which are fully vested at grant, generally will be settled under the SIP for an equal number of shares of common stock within 10 days after the participant ceases to be a director. In the event that we distribute dividends, each participant shall receive a number of additional stock units (including fractional stock units) equal to the quotient of (i) the aggregate amount of the dividend that the participant would have received had all outstanding stock units been shares of common stock divided by (ii) the closing price of a share of common stock on the date the dividend was issued.
As of September 30, 2020, a total of i 143,384 stock units have been deferred under the Deferral Program.
22
Note 12 – Investments in Unconsolidated Joint Ventures
Through a wholly-owned subsidiary, we own a i 50% interest in a joint venture (the “Berkley Joint Venture”) formed to acquire and operate The Berkley, a newly built 95-unit multi-family property. In December 2016, the joint venture closed on the acquisition of The Berkley through a wholly-owned special purpose entity for a purchase price of $ i 68.885 million, of which $ i 42.5 million was financed through a i 10-year loan (the “Berkley Loan”) secured by The Berkley, and the balance was paid in cash, half of which was funded by us. The non-recourse Berkley Loan bore interest at the 30-day LIBOR rate plus i 216 basis points, was interest only for i five years, was pre-payable after i two years with a i 1% prepayment premium, had covenants and defaults customary for a Freddie Mac financing and had an effective interest rate of i 3.92% at December 31, 2019. On February 28, 2020, in connection with a refinancing, the Berkley Joint Venture repaid the Berkley Loan in full and replaced it with a new i 7-year, $ i 33.0 million loan (the “New Berkley Loan”) which bears interest at a fixed rate of i 2.717% and is interest only during the initial i five years. It is pre-payable at any time and can be upsized by up to $ i 6.0 million under certain circumstances. We and our joint venture partner are joint and several recourse carve-out guarantors under the New Berkley Loan.
Through a wholly-owned subsidiary, we own a i 10% interest in a joint venture with TF Cornerstone (the “250 North 10th JV”) formed to acquire and operate 250 North 10th, a newly built 234-unit apartment building in Williamsburg, Brooklyn, New York. On January 15, 2020, the 250 North 10th JV closed on the acquisition of the property through a wholly-owned special purpose entity for a purchase price of $ i 137.75 million, of which $ i 82.75 million was financed through a i 15-year mortgage loan (the “250 North 10th Loan”) secured by 250 North 10th and the balance was paid in cash. Our share of the equity totaling approximately $ i 5.9 million was funded through a loan (the “Partner Loan”) from our joint venture partner. The Partner Loan bears interest at i 7.0% and is prepayable any time within its i four year term. Our partner has the option of having the Partner Loan repaid in our common stock if the price of our common stock exceeds $ i 6.50 per share at the time of conversion. The non-recourse 250 North 10th Loan bears interest at i 3.39% for the duration of the loan term and has covenants, defaults, and a non-recourse carve out guaranty executed by us. We earned an acquisition fee at closing and are entitled to ongoing asset management fees and a promote upon the achievement of certain performance hurdles.
As of September 30, 2020, we have i i one / unconsolidated VIE, namely 250 North 10th. We do not consolidate this entity because we are not the primary beneficiary and the nature of our involvement in the activities of this entity does not give us power over decisions that significantly affect this entity’s economic performance. We account for our investment in this entity under the equity method (see Note 2 – Summary of Significant Accounting Policies – Basis of Presentation – Principles of Consolidation). As of September 30, 2020, the net carrying amount of our investment in this entity was $ i 5.7 million and our maximum exposure to loss in this entity is limited to the carrying amount of our investment.
/23
As we do not control these joint ventures, we account for them under the equity method of accounting. i The combined balance sheets for our unconsolidated joint ventures at September 30, 2020 and December 31, 2019 are as follows (in thousands):
| | | | | | |
| | September 30, | | |||
| | 2020 |
| 2019 | ||
| | | (unaudited) | | | (audited) |
ASSETS | | |
|
| |
|
| | | | | | |
Real estate, net | | $ | i 168,801 | | $ | i 50,508 |
Cash and cash equivalents | |
| i 1,688 | |
| i 344 |
Restricted cash | |
| i 763 | |
| i 435 |
Tenant and other receivables, net | |
| i 293 | |
| i 42 |
Prepaid expenses and other assets, net | |
| i 173 | |
| i 66 |
Intangible assets, net | |
| i 25,481 | |
| i 11,757 |
Total assets | | $ | i 197,199 | | $ | i 63,152 |
| | | | | | |
LIABILITIES | |
|
| |
|
|
| | | | | | |
Mortgages payable, net | | $ | i 114,481 | | $ | i 41,207 |
Accounts payable and accrued expenses | |
| i 1,678 | |
| i 598 |
Total liabilities | |
| i 116,159 | |
| i 41,805 |
| | | | | | |
MEMBERS’ EQUITY | |
|
| |
|
|
| | | | | | |
Members’ equity | |
| i 93,411 | |
| i 27,169 |
Accumulated deficit | |
| ( i 10,310) | |
| ( i 5,822) |
Accumulated other comprehensive loss | | | ( i 2,061) | | | — |
Total members’ equity | |
| i 81,040 | |
| i 21,347 |
| | | | | | |
Total liabilities and members’ equity | | $ | i 197,199 | | $ | i 63,152 |
| | | | | | |
Our investments in unconsolidated joint ventures | | $ | i 19,893 | | $ | i 10,673 |
24
The statements of operations for our unconsolidated joint ventures for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):
| | | | | | | | | | | | | |
| | For the Three | | For the Three | | For the Nine | | For the Nine | | ||||
| | Months Ended | | Months Ended | | Months Ended | | Months Ended | | ||||
| | September 30, | | September 30, | | September 30, | | | |||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
| | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) | | ||||
Revenues |
| |
|
| |
|
| |
|
| |
|
|
Rental revenues | | $ | i 3,303 | | $ | i 834 | | $ | i 9,708 | | $ | i 2,499 | |
| | | | | | | | | | | | | |
Total revenues | |
| i 3,303 | |
| i 834 | |
| i 9,708 | |
| i 2,499 | |
| | | | | | | | | | | | | |
Operating Expenses | |
|
| |
|
| |
|
| |
|
| |
Property operating expenses | |
| i 925 | |
| i 270 | |
| i 2,430 | |
| i 715 | |
Real estate taxes | |
| i 25 | |
| i 12 | |
| i 60 | |
| i 34 | |
General and administrative | |
| i 3 | |
| i 2 | |
| i 8 | |
| i 7 | |
Amortization | |
| i 1,475 | |
| i 134 | |
| i 4,201 | |
| i 402 | |
Depreciation | |
| i 985 | |
| i 331 | |
| i 2,848 | |
| i 992 | |
| | | | | | | | | | | | | |
Total operating expenses | |
| i 3,413 | |
| i 749 | |
| i 9,547 | |
| i 2,150 | |
| | | | | | | | | | | | | |
Operating (loss) income | |
| ( i 110) | |
| i 85 | |
| i 161 | |
| i 349 | |
| | | | | | | | | | | | | |
Interest expense, net | |
| ( i 946) | |
| ( i 478) | |
| ( i 2,840) | |
| ( i 1,471) | |
Interest expense -amortization of deferred finance costs | |
| ( i 69) | |
| ( i 43) | |
| ( i 1,809) | |
| ( i 129) | |
| | | | | | | | | | | | | |
Net loss | | $ | ( i 1,125) | | $ | ( i 436) | | $ | ( i 4,488) | | $ | ( i 1,251) | |
| | | | | | | | | | | | | |
Our equity in net loss from unconsolidated joint ventures | | $ | ( i 176) | | $ | ( i 218) | | $ | ( i 1,302) | | $ | ( i 626) | |
iNote 13 – Subsequent Events
We have performed subsequent event procedures through the date the condensed consolidated financial statements were available to be issued, and there were no subsequent events requiring adjustment to, or disclosure in, the condensed consolidated financial statements.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Trinity Place Holdings Inc. (“Trinity,” “we,” “our,” or “us”) is a real estate holding, investment, development and asset management company. Our largest asset is currently a property located at 77 Greenwich Street in Lower Manhattan (“77 Greenwich”). 77 Greenwich was a vacant building that was demolished and is under development as a mixed-use project consisting of a 90-unit residential condominium tower, retail space and a New York City elementary school. We also own a newly built 105-unit, 12-story multi-family property located at 237 11th Street in Brooklyn, New York (“237 11th”), acquired in May 2018, and, through joint ventures, a 50% interest in a newly built 95-unit multi-family property known as The Berkley, located at 223 North 8th Street, Brooklyn (“The Berkley”) and a 10% interest in a newly built 234-unit multi-family property located one block from The Berkley at 250 North 10th Street (“250 North 10th”) acquired in January 2020, also in Brooklyn, New York. In addition we own a property occupied by retail tenants in Paramus, New Jersey. See Properties below for a more detailed description of our properties. In addition to our real estate portfolio, we also control a variety of intellectual property assets focused on the consumer sector, a legacy of our predecessor, Syms Corp. (“Syms”). We also had approximately $227.6 million of federal net operating loss carry forwards (“NOLs”) at September 30, 2020, which can be used to reduce our future taxable income and capital gains.
We continue to evaluate new investment opportunities. Recently, we have focused on newly constructed multi-family properties in New York City. We consider investment opportunities involving other types of properties and real estate related assets, as well as repurchases of our common stock, taking into account our cash position, liquidity requirements, and our ability to raise capital to finance our growth. In addition, we may selectively consider potential acquisition, development and disposition opportunities as well as fee based opportunities. Vacancy rates for multifamily properties across all boroughs have increased with the largest increases in Manhattan. This has driven a slight drop in rental rates and an increase in concessions. Rent collections for multifamily properties have been in line with pre-pandemic collection rates. Sales transaction volumes have decreased and signs of distress in the investment market has been almost non-existent over the past six month.
Impact of COVID-19
The impact of the recent outbreak of COVID-19 on our results and operations has been and will continue to be significant. The extent of the impact going forward will largely depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the outbreak, in New York City in particular, the success of actions taken to contain or treat COVID-19, actions taken by governmental entities, companies and individuals in response to the pandemic and reactions to such actions, the impact on local and broader economic activity and capital markets from the COVID-19 pandemic and new information that emerges with respect to the foregoing and other aspects of COVID-19. The extent to which the COVID-19 pandemic will impact the Company’s business, operations and financial results in the future will depend on numerous evolving factors that the Company is not able to predict at this time, including, but not limited to, the impact on the timeline for construction of our most significant asset, 77 Greenwich, as well as the sales of its residential condominium units, which is material, and completion of the remediation and restoration processes at 237 11th; our ability to obtain maturity extensions and covenant modifications on acceptable terms, including with respect to the December 31, 2020 sales pace covenant in the 77 Greenwich Construction Facility, as defined in the Liquidity and Capital Resouces section; increased operating costs related to cleaning and disinfecting our properties; and the effect of the COVID-19 pandemic on the Company’s tenants and their ability to make rental payments. These developments and events have and will continue to adversely impact the Company’s business, financial condition, results of operations and stock price, which has been and is anticipated to continue to be material. See Note 1 – Business to our condensed consolidated financial statements and Part II. Item 1A. "Risk Factors," of this Quarterly Report on Form 10-Q for further information.
26
Properties
Below is certain information regarding our real estate properties as of September 30, 2020:
| | | | | | | | | |
|
| |
| Building Size |
| |
| |
|
| | | | (estimated | | | | Leased at |
|
| | | | rentable | | Number of | | September 30, |
|
Property Location | | Type of Property | | square feet) | | Units | | 2020 |
|
Owned Locations | | | | | | | | | |
| | | | | | | | | |
77 Greenwich, New York, New York (1) |
| Property under development |
| - |
| — |
| N/A | |
| | | | | | | | | |
Paramus, New Jersey (2) |
| Property under development |
| 77,000 |
| — |
| 100.0 | % |
| | | | | | | | | |
237 11th Street, Brooklyn, New York (3) |
| Multi-family |
| 80,000 |
| 105 |
| 20.0 | % |
| | | | | | | | | |
Total |
|
|
| 157,000 |
| 105 |
|
| |
| | | | | | | | | |
Joint Ventures |
|
|
|
|
|
|
|
| |
| | | | | | | | | |
223 North 8th Street, Brooklyn, New York - 50% (4) |
| Multi-family |
| 65,000 |
| 95 |
| 96.8 | % |
250 North 10th Street, Brooklyn, New York - 10% (5) | | Multi-family | | 158,000 | | 234 | | 85.0 | % |
| | | | | | | | | |
Total | | | | 223,000 | | 329 | | | |
| | | | | | | | | |
Grand Total | | |
| 380,000 |
| 434 |
|
| |
Through a wholly-owned subsidiary, we entered into an agreement with the SCA, whereby we agreed to construct a school to be sold to the SCA as part of our condominium development at 77 Greenwich. Pursuant to the agreement, the SCA agreed to pay us $41.5 million for the purchase of their condominium unit and reimburse us for the costs associated with constructing the school, including a construction supervision fee of approximately $5.0 million. Payments for construction are made by the SCA to the general contractor in installments as construction on their condominium unit progresses. Payments to us for the land and construction supervision fee commenced in January 2018 and continued through October
27
2019 for the land and will continue through 2020 for the construction supervision fee, with an aggregate of $45.9 million having been paid to us as of September 30, 2020 from the SCA. We have also received an aggregate of $47.6 million in reimbursable construction costs from the SCA through September 30, 2020. Upon Substantial Completion, as defined in our agreement with the SCA, which occurred in April 2020, the SCA closed on the purchase of the school condominium unit with us, at which point title transferred to the SCA. Following the conveyance of the condominium unit to the SCA, the SCA is proceeding to complete the buildout of the interior space, which is planned to become an approximately 476 seat public elementary school. Upon conveyance, we recognized a gain on the sale of approximately $20.0 million and an additional gain of $4.2 million related to the recognition of our construction supervision fee, and our liquidity requirement on the 77 Greenwich Construction Facility was decreased from $15.0 million to $10.0 million.
Prior to the COVID-19 related shutdown of all non-essential construction by New York State in early April 2020, the residential condominium units were scheduled to be completed by the end of 2020. The New York State shut down resulted in the construction of 77 Greenwich being temporarily suspended for several weeks in April 2020, and subsequently impacted the construction project due to a temporarily reduced work-force, social distancing requirements and other actions taken in response to the COVID-19 outbreak. Future delays in construction may result in a delay in our ability to complete the construction project on its original timeline and our ability to sell condominium units. Our ability to meet certain sales requirements applicable as of the end of 2020 and thereafter has been materially adversely affected and we expect we will be unable to meet the December 31, 2020 sales pace covenant. We are in active discussion with the 77 Greenwich Lender to amend certain terms of the 77 Greenwich Construction Facility (each as defined below), including with respect to the December 31, 2020 sales pace covenant. Despite the construction delays, we currently expect that the construction project will be completed within budget. We currently anticipate receiving our temporary certificates in stages from December 2020 through the first half of 2021.
We are currently exploring options with respect to the Paramus property, including development or sale, among others.
Due to certain construction defects that resulted in water penetration into the building and damage to certain apartment units and other property, we submitted a property and casualty claim in September 2019 for business interruption (lost revenue), property damage and the related remediation costs. We also filed legal claims against the seller, its parent company, and the general contractor to recover damages arising from the defective construction. In addition, the general contractor impleaded into that litigation several subcontractors who performed work on the property. Management expects to recover some portion of the cost to repair the property through the litigation, potential litigation, and/or settlement negotiations with the seller, its parent company, the general contractor, the subcontractors, and the claims submitted to the insurance carrier, although the amount of damages that may be recoverable in litigation and/or potential settlement negotiations, as well as the amounts payable by our insurance carrier, are uncertain at this time, as is the timing of receipt of any such payments, which has been impacted by the COVID-19 pandemic, including the temporary closure of the court system. With the court system starting to reopen, we have been in discussions with defendants and third-party defendants about engaging in mediation to potentially settle the case. There is no assurance that such mediation will occur or the
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timing of such mediation. Until the litigation and potential litigation and/or settlement negotiations are resolved, there will be significant cash outflows for costs associated with repairs and remediation, which commenced in September 2019. The decrease in occupancy, which currently stands at 20.0%, was due to the clearing of certain lower level floors to prepare for and carry out the remediation work. Remediation and restoration work was delayed for two months due to the temporary shutdown of non-essential construction projects in New York from April to June, which resulted in a delay in commencement of our leasing up of the property. Prior to the COVID-19 related shutdown of all non-essential construction by New York State, we expected the building to be approximately 75% remediated by the summer 2020 and to re-introduce the building into the leasing market on or around the same time. As of September 30, 2020, work on floors 7-12 are completed. We recently completed the restoration of 34 units, many of which are occupied. We also began leasing efforts for the available but vacant units, although the pace of re-leasing in the current environment remains uncertain. Additional units will be introduced back into the market as they become available. During the third quarter ended September 30, 2020, we collected approximately 98.3% of rent due.
Lease Expirations
As of September 30, 2020, we have one retail lease at our Paramus property with 4,000 square feet of leased space with annualized rent of $140,000 per year that expires in 2022 and a retail license agreement with 73,000 square feet of space with annualized rent of $480,000 per year that expires in 2021. As of September 30, 2020, we have two retail leases at the 237 11th property with a total of 3,080 square feet of leased space. One lease has an annualized rent of $130,000 per year that expires in 2027 and the second lease has an annualized rent of $114,000 per year that expires in 2036. All our other leases are residential leases which expire within twelve or twenty-four months of the commencement date.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our condensed consolidated financial statements. Actual results could differ from these estimates. A summary of our significant accounting policies that management believes are critical to the preparation of the condensed consolidated financial statements are included in this report (see Note 2 - Summary of Significant Accounting Policies - Basis of Presentation to our condensed consolidated financial statements for further information). Certain of the accounting policies used in the preparation of these condensed consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical condensed consolidated financial statements included in this report and require the application of significant judgment by management and, as a result, are subject to a degree of uncertainty. We believe there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7,
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“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2019 Annual Report on Form 10-K (the “2019 Annual Report”) for the year ended December 31, 2019.
The following discussion and analysis is intended to assist readers in understanding our financial condition and results of operations during the three and nine months ended September 30, 2020 and 2019 and should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and our 2019 Annual Report.
Results of Operations for the Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019
Rental revenues in total decreased by approximately $750,000 to $196,000 for the three months ended September 30, 2020 from $946,000 for the three months ended September 30, 2019. This consisted of a decrease in rent revenues by approximately $567,000 to $312,000 for the three months ended September 30, 2020 from $879,000 for the three months ended September 30, 2019, as well as a decrease in tenant reimbursements of $183,000 which was an expense of $116,000 for the three months ended September 30, 2020 as compared to revenue of $67,000 for the three months ended September 30, 2019. The decrease in total revenues and its related components was partially due to the sale of the West Palm Beach, Florida property (approximately $375,000) in November 2019 as well as lower occupancy and increased concessions at 237 11th due to certain construction related defects that are being repaired.
Other income of $80,000 consisted of the SCA construction supervision fees we recognized since the closing on the sale of the school condominium to the SCA in April 2020.
Property operating expenses increased by approximately $1.5 million to $2.7 million for the three months ended September 30, 2020 from $1.2 million for the three months ended September 30, 2019. The increase was principally due to expenses associated with 237 11th, including approximately $2.5 million in costs incurred during the three months ended September 30, 2020 to repair the construction related defects. The increase was partially offset by a reduction in expenses from the West Palm Beach, Florida property which was sold in November 2019. These amounts consisted primarily of expenses incurred for utilities, payroll and general operating expenses as well as repairs and maintenance at 237 11th.
Real estate tax expense decreased by $71,000 to $19,000 for the three months ended September 30, 2020 from $90,000 for the three months ended September 30, 2019, due primarily to the sale of the West Palm Beach, Florida property in November 2019.
General and administrative expenses decreased by $98,000 to $1.2 million for the three months ended September 30, 2020 from $1.3 million for the three months ended September 30, 2019. For the three months ended September 30, 2020, approximately $177,000 related to stock-based compensation, $687,000 related to payroll and payroll related expenses, $241,000 related to other corporate expenses, including board fees, corporate office rent and insurance, and $83,000 related to legal, accounting and other professional fees. For the three months ended September 30, 2019, approximately $215,000 related to stock-based compensation, $647,000 related to payroll and payroll related expenses, $169,000 related to other corporate expenses, including board fees, corporate office rent and insurance and $255,000 related to legal, accounting and other professional fees.
Pension related costs decreased by $18,000 to $165,000 for the three months ended September 30, 2020 from $183,000 for the three months ended September 30, 2019. These costs represent professional fees and other periodic pension costs incurred in connection with the legacy Syms Pension Plan (see Note 7 – Pension Plans to our condensed consolidated financial statements for further information).
Transaction related costs decreased by $2,000 to $27,000 for the three months ended September 30, 2020 from $29,000 for the three months ended September 30, 2019. These costs represent professional fees and other costs incurred in connection with formation activities and the underwriting and evaluation of potential acquisitions and investments for transactions that were not consummated, as well as costs for potential leases at our retail properties that were not consummated.
Depreciation and amortization expense increased by approximately $90,000 to $690,000 for the three months ended September 30, 2020 from approximately $600,000 for the three months ended September 30, 2019. For the three months ended September 30, 2020, depreciation and amortization expense consisted of depreciation for 237 11th of approximately
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$407,000 and the amortization of lease commissions, acquired in-place leases and warrants of approximately $283,000. For the three months ended September 30, 2019, depreciation and amortization expense consisted of depreciation in respect of 237 11th and the West Palm Beach, Florida property of approximately $406,000 and the amortization of trademarks and lease commissions and acquired in-place leases of approximately $194,000. The increase in depreciation and amortization expense for the three months ended September 30, 2020 compared to September 30, 2019 was primarily due to the amortization of warrants and the sale of the West Palm Beach, Florida property in November 2019.
Equity in net loss from unconsolidated joint ventures decreased by approximately $42,000 to $176,000 for the three months ended September 30, 2020 from approximately $218,000 for the three months ended September 30, 2019. Equity in net loss from unconsolidated joint ventures represents our 50% share in The Berkley that we acquired in 2016 and our 10% share in 250 North 10th that we acquired in January 2020. For the three months ended September 30, 2020, our share of the loss is primarily comprised of operating income before depreciation of $457,000 offset by depreciation and amortization of $447,000 and interest expense of $186,000. For the three months ended September 30, 2019, our share of the loss, which consisted only of The Berkley, is primarily comprised of operating income before depreciation of $275,000 million offset by depreciation and amortization of $254,000 and interest expense of $239,000.
Unrealized loss on warrants of $58,000 represents the change in the mark-to-market of the valuation of the warrants during the three months ended September 30, 2020.
Interest expense, net increased by $559,000 to $545,000 for the three months ended September 30, 2020 from approximately $14,000 in interest income, net for the three months ended September 30, 2019. For the three months ended September 30, 2020, there was approximately $4.4 million of gross interest expense incurred, $3.8 million of which was capitalized, and interest income of $53,000. For the three months ended September 30, 2019, there was approximately $3.5 million of gross interest expense incurred, all of which was capitalized, and $14,000 of interest income. The increase in gross interest expense and capitalized interest is due to the larger and growing borrowings outstanding on the 77 Greenwich Construction Facility during the period, as well as new borrowings under the Corporate Credit Facility as described in more detail in the Liquidity and Capital Resources section below.
Interest expense - amortization of deferred finance costs of $40,000 for the three months ended September 30, 2020 represents the amount of amortization of finance costs for our loans and line of credit that were not capitalized as part of real estate under development.
We recorded $51,000 in tax expense for the three months ended September 30, 2020 compared to $8,000 tax in expense for the three months ended September 30, 2019.
Net loss attributable to common stockholders increased by approximately $2.8 million to $5.4 million for the three months ended September 30, 2020 from $2.6 million for the three months ended September 30, 2019 as a result of the changes discussed above.
Results of Operations for the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Rental revenues in total decreased by approximately $2.7 million to $774,000 for the nine months ended September 30, 2020 from $3.5 million for the nine months ended September 30, 2019. This consisted of a decrease in rent revenues by approximately $2.0 million to $1.1 million for the nine months ended September 30, 2020 from $3.1 million for the nine months ended September 30, 2019, as well as a decrease in tenant reimbursements of $674,000 which was an expense of $285,000 for the nine months ended September 30, 2020 as compared to revenue of $389,000 for the nine months ended September 30, 2019. The decrease in total revenues and its related components was partially due to the sale of the West Palm Beach, Florida property (approximately $1.2 million) in November 2019 as well as lower occupancy and increased concessions at 237 11th due to certain construction related defects that are being repaired.
Other income of $231,000 consisted mainly of the SCA construction supervision fees we recognized since the closing on the sale of the school condominium to the SCA in April 2020.
Property operating expenses increased by approximately $2.8 million to $5.5 million for the nine months ended September 30, 2020 from $2.7 million for the nine months ended September 30, 2019. The increase was principally due to expenses associated with 237 11th, including approximately $4.7 million in costs incurred during the nine months ended September
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30, 2020 to repair the construction related defects. The increase was partially offset by a reduction expenses from the West Palm Beach, Florida property which was sold in November 2019. These amounts consisted primarily of expenses incurred for utilities, payroll and general operating expenses as well as repairs and maintenance at 237 11th.
Real estate tax expense decreased by $205,000 to $59,000 for the nine months ended September 30, 2020 from $264,000 for the nine months ended September 30, 2019, due primarily to the sale of the West Palm Beach, Florida property in November 2019.
General and administrative expenses remained flat at $4.0 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. For the nine months ended September 30, 2020, approximately $531,000 related to stock-based compensation, $2.1 million related to payroll and payroll related expenses, $738,000 related to other corporate expenses, including board fees, corporate office rent and insurance, and $583,000 related to legal, accounting and other professional fees. For the nine months ended September 30, 2019, approximately $644,000 related to stock-based compensation, $2.0 million related to payroll and payroll related expenses, $783,000 related to other corporate expenses, including board fees, corporate office rent and insurance and $592,000 related to legal, accounting and other professional fees.
Pension related costs decreased by $54,000 to $495,000 for the nine months ended September 30, 2020 from $549,000 for the nine months ended September 30, 2019. These costs represent professional fees and other periodic pension costs incurred in connection with the legacy Syms Pension Plan (see Note 7 – Pension Plans to our condensed consolidated financial statements for further information).
Transaction related costs decreased by $35,000 to $131,000 for the nine months ended September 30, 2020 from $166,000 for the nine months ended September 30, 2019. These costs represent professional fees and other costs incurred in connection with formation activities and the underwriting and evaluation of potential acquisitions and investments for transactions that were not consummated, as well as costs for potential leases at our retail properties that were not consummated.
Depreciation and amortization expense decreased by approximately $301,000 to $2.1 million for the nine months ended September 30, 2020 from approximately $2.4 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, depreciation and amortization expense consisted of depreciation for 237 11th of approximately $1.2 million and the amortization of lease commissions, acquired in-place leases and warrants of approximately $848,000. For the nine months ended September 30, 2019, depreciation and amortization expense consisted of depreciation for 237 11th and the West Palm Beach, Florida property of approximately $1.4 million and the amortization of trademarks and lease commissions and acquired in-place leases of approximately $1.0 million. The decrease in depreciation and amortization expense for the nine months ended September 30, 2020 compared to September 30, 2019 was primarily due to the in-place residential leases of 237 11th being fully amortized by September 30, 2019 and the sale of the West Palm Beach, Florida property in November 2019.
Gain on sale of condominium of $24.2 million for the nine months ended September 30, 2020 consists of the gain on sale of the school condominium to the SCA of $20.0 million and an additional gain of $4.2 million related to the recognition of our construction supervision fee which had been deferred. This gain was recorded upon the conveyance of the school condominium to the SCA in April 2020.
Equity in net loss from unconsolidated joint ventures increased by approximately $676,000 to $1.3 million for the nine months ended September 30, 2020 from approximately $626,000 for the nine months ended September 30, 2019 primarily due to higher depreciation and amortization expenses, approximately $800,000 of which was our portion of the write-off of deferred finance costs related to the refinancing of the Berkley Loan during the second quarter ending June 30, 2020. This was partially offset by higher rental revenue from the acquisition of 250 North 10th. Equity in net loss from unconsolidated joint ventures represents our 50% share in The Berkley that we acquired in 2016 and our 10% share in 250 North 10th that we acquired in January 2020. For the nine months ended September 30, 2020, our share of the loss is primarily comprised of operating income before depreciation of $1.4 million offset by depreciation and amortization of $2.1 million and interest expense of $609,000. For the nine months ended September 30, 2019, our share of the loss, which consisted only of The Berkley, is primarily comprised of operating income before depreciation of $872,000 million offset by depreciation and amortization of $762,000 and interest expense of $736,000.
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Unrealized gain on warrants of $1.3 million represents the change in the mark-to-market of the valuation of the warrants during the nine months ended September 30, 2020.
Interest expense, net increased by $848,000 to $795,000 for the nine months ended September 30, 2020 from approximately $53,000 of interest income, net for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, there was approximately $12.6 million of gross interest expense incurred, $11.7 million of which was capitalized, and $57,000 of interest income. For the nine months ended September 30, 2019, there was approximately $9.9 million of gross interest expense incurred, all of which was capitalized, and $53,000 of interest income. The increase in gross interest expense and capitalized interest is due to the larger and growing borrowings outstanding on the 77 Greenwich Construction Facility during the period, as well as new borrowings under the Corporate Credit Facility as described in more detail in the Liquidity and Capital Resources section below.
Interest expense - amortization of deferred finance costs of $148,000 for the nine months ended September 30, 2020 represents the amount of amortization of finance costs for our loans and line of credit that were not capitalized as part of real estate under development.
We recorded $218,000 in tax expense for the nine months ended September 30, 2020 compared to $199,000 in tax in expense for the nine months ended September 30, 2019.
Net income attributable to common stockholders increased by approximately $19.2 million to $11.9 million for the nine months ended September 30, 2020 from a loss of $7.3 million for the nine months ended September 30, 2019 as a result of the changes discussed above, principally the gain on sale of the school condominium to the SCA.
Liquidity and Capital Resources
We currently expect that our principal sources of funds to meet our short-term and long-term liquidity requirements for working capital and funds for acquisition and development or redevelopment of properties, tenant improvements, leasing costs, and repayments of outstanding indebtedness will include some or all of the following:
| (1) | cash on hand; |
| (2) | proceeds from new debt financings, increases to existing debt financings and/or other forms of secured or unsecured debt financing, including governmental programs instituted in response to the impact of COVID-19; |
| (3) | proceeds from equity or equity-linked offerings, including rights offerings or convertible debt or equity or equity-linked securities issued in connection with debt financings; |
| (4) | cash flow from operations; and |
| (5) | net proceeds from divestitures of properties or interests in properties. |
Cash flow from operations is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent, operating escalations and recoveries from our tenants and the level of operating and other costs.
As of September 30, 2020, we had total cash and restricted cash of $18.2 million, of which approximately $5.2 million was cash and cash equivalents and approximately $13.0 million was restricted cash. As of December 31, 2019, we had total cash and restricted cash of $18.7 million, of which approximately $9.2 million was cash and cash equivalents and approximately $9.5 million was restricted cash. Restricted cash represents amounts required to be restricted under our loan agreements, letters of credit (see Note 5 – Loans Payable and Secured Line of Credit to our condensed consolidated financial statements for further information), deposits on condominium sales at 77 Greenwich and tenant related security deposits. The increase in restricted cash is primarily due to increased cash held in reserves related to the 77 Greenwich Construction Facility and deposits on condominiums under contract at 77 Greenwich as well as increased remediation and interest reserves required with the amended 237 11th Loan in June 2020. In early 2019, we borrowed $7.0 million under the 77 Greenwich Construction Facility and utilized $2.0 million in Company cash to obtain $9.0 million of letters of credit to secure our obligation with the New York City MTA to upgrade to a new handicapped accessible subway entrance at 77 Greenwich. In February 2020, we repaid $3.4 million of the $7.0 million owed to the 77 Greenwich Lender with proceeds from the Corporate Credit Facility (defined below). The loan funds were placed in a lender controlled account and will be released in connection with future 77 Greenwich construction draws used to upgrade the subway entrance. In addition, cash and cash equivalents includes cash which, together with availability under our line of credit, is required to be maintained to meet certain liquidity requirements under the 77 Greenwich Construction Facility, described below. This
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liquidity requirement, inclusive of cash and line of credit availability, decreased to $10.0 million when we closed on the conveyance of the school condominium to the SCA in April 2020.
In December 2019, we entered into a credit agreement (the “Corporate Credit Facility”) with an affiliate of a global institutional investment management firm as initial lender (the “Lender”) and Trimont Real Estate Advisors, LLC, as administrative agent, pursuant to which the Lender agreed to extend us credit in multiple draws aggregating $70.0 million, which may be increased by $25.0 million subject to satisfaction of certain conditions and the consent of the Lender (the “Loan”). Draws under the Corporate Credit Facility may be made during the 32-month period following the closing date of the Corporate Credit Facility (the “Closing Date”). The Corporate Credit Facility matures on December 19, 2024, subject to extensions until December 19, 2025 and June 19, 2026, respectively, under certain circumstances. The proceeds of the Corporate Credit Facility may be used for investments in certain multi-family apartment buildings in the greater New York City area and certain non-residential real estate investments approved by the Lender in its reasonable discretion, as well as in connection with certain property recapitalizations and in specified amounts for general corporate purposes and working capital. The Corporate Credit Facility bears interest at a rate per annum equal to the sum of (i) 5.25% (the “PIK Interest Rate”) and (ii) a scheduled interest rate (the “Cash Pay Interest Rate”) based on six-month periods from the closing date, which Cash Pay Interest Rate, from the Closing Date until the six-month anniversary of the Closing Date, equals 4.0%, subject to increase during the extension periods. A $2.45 million commitment fee is payable 50% on the initial draw and 50% as amounts under the Corporate Credit Facility are drawn, with any remaining balance due on the last date of the draw period, and a 1.0% exit fee is payable in respect of Corporate Credit Facility repayments. As of September 30, 2020, we had paid $1.8 million of the commitment fee. The Corporate Credit Facility may be prepaid at any time subject to a prepayment premium on the portion of the Corporate Credit Facility being repaid. At September 30, 2020, the Corporate Credit Facility had an outstanding balance of $34.0 million and an effective interest rate of 9.375%. Accrued interest totaled approximately $1.1 million at September 30, 2020. The Corporate Credit Facility was undrawn at December 31, 2019. (See Note 5 – Notes Payable and Secured Line of Credit to our condensed consolidated financial statements for further discussion). We also entered into a Warrant Agreement with the Lender pursuant to which we issued ten-year warrants (the “Warrants”) to purchase up to 7,179,000 shares of our common stock, with an exercise price of $6.50 per share, payable in cash or pursuant to a cashless exercise (see Note 10 – Stockholders Equity – Warrants to our condensed consolidated financial statements for further discussion regarding the warrants).
In May 2018, in connection with the acquisition of 237 11th, wholly owned subsidiaries of ours entered into two-year interest-only financings with an aggregate principal amount of $67.8 million, comprised of a $52.4 million mortgage loan (the “237 11th Loan”) with Canadian Imperial Bank of Commerce (“CIBC”) and a $15.4 million mezzanine loan with RCG LV Debt VI REIT, LLC bearing interest at a blended average rate of 3.72% over the 30-day LIBOR, each with a one-year extension option upon satisfaction of certain conditions. The mezzanine loan was repaid in full in February 2020. In June 2020, the maturity of the 237 11th Loan was extended to June 2021, and the 237 11th Loan was amended to include a delayed draw facility of $4.25 million, which will be drawn once the $3.6 million of remediation reserves we funded in connection with the amendment have been used. None of the delayed draw funds had been drawn as of September 30, 2020. We also funded an interest reserve account of $0.8 million which we are required to replenish over time. In conjunction with the amendment, a LIBOR floor of 50 basis points was put in place, the spread was increased by 25 basis points to 2.25% and the exit fee was increased by 50 basis points to 1.0%. At September 30, 2020, the 237 11th Loan had a balance of $52.4 million and an effective interest rate of 2.75%. The blended effective interest rate at December 31, 2019 for both the 237 11th Loan and the mezzanine loan was approximately 5.48%. The 237 11th Loan is non-recourse to us except for our environmental indemnity agreements, certain non-recourse carve-out and carry guaranties covering among other things interest and operating expenses, and in the case of the mortgage loan, a guaranty of 25% of the principal amount, decreasing to 10% of the principal balance upon the debt yield ratio becoming equal to or greater than 7.0%. The 237 11th Loan is prepayable at any time in whole, and under certain circumstances in part, upon payment of a 0.50% deferred commitment fee (unless the loan is refinanced with the mortgage lender in which case no such fee is payable).
From time to time, properties that we own, acquire or develop may experience defects or damage due to natural causes, defective workmanship or other reasons. In these situations, we pursue our rights and remedies as appropriate with insurers, contractors, sellers and others. Currently, due to certain construction defects that resulted in water penetration into the building and damage to certain apartment units and other property, we submitted a property and casualty claim in September 2019 for business interruption (lost revenue), property damage and the related remediation costs. We also filed legal claims against the seller, its parent company, and the general contractor to recover damages arising from the defective construction. In addition, the general contractor has impleaded into that litigation several subcontractors who performed work on the property. Management expects to recover some portion of the cost to repair the property through the litigation, potential litigation, and/or settlement negotiations with the seller, its parent company, the general contractor, the
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subcontractors, and the claims submitted to the insurance carrier, although the amount of damages that may be recoverable in litigation and/or potential settlement negotiations, as well as the amounts payable by our insurance carrier, are uncertain at this time, as is the timing of receipt of any such payments, which has been impacted by the COVID-19 pandemic, including the temporary closure of the court system. With the court system starting to reopen, we have been in discussions with defendants and third-party defendants about engaging in mediation to potentially settle the case. There is no assurance that such mediation will occur or the timing of such mediation. Until the litigation and potential litigation and/or settlement negotiations are resolved, there will be significant cash outflows for costs associated with repairs and remediation, which commenced in September 2019. The decrease in occupancy, which currently stands at 20.0%, was due to the clearing of certain lower level floors to prepare for and carry out the remediation work. Remediation and restoration work was delayed for two months due to the temporary shutdown of non-essential construction projects in New York from April to June, which resulted in a delay in commencement of our leasing up of the property. Future delays would have a similar impact. Prior to the COVID-19 related shutdown of all non-essential construction by New York State, we expected the building to be approximately 75% remediated by the summer 2020 and to re-introduce the building into the leasing market on or around the same time. As of September 30, 2020, work on floors 7-12 are completed. We recently completed the restoration of 34 units, many of which are occupied. We also began leasing efforts for the available but vacant units, although the pace of re-leasing in the current environment remains uncertain. Additional units will be introduced back into the market as they become available. During the third quarter ended September 30, 2020, we collected approximately 98.3% of rent due.
In December 2017, a wholly-owned subsidiary of ours closed on a $189.5 million construction facility for 77 Greenwich (the “77 Greenwich Construction Facility”) with Massachusetts Mutual Life Insurance Company as lender and administrative agent (the “77 Greenwich Lender”). We draw down proceeds as costs related to the construction of the new mixed-use building are incurred. In connection with the closing of the 77 Greenwich Construction Facility on December 22, 2017, a portion of the proceeds was used to pay in full the outstanding balance, including accrued interest, of our loan with Sterling National Bank, in an aggregate amount of $40.1 million. The balance of the 77 Greenwich Construction Facility was $135.2 million at September 30, 2020. The 77 Greenwich Construction Facility has a four-year term ending January 2022 with an extension option for an additional year under certain circumstances. The collateral for the 77 Greenwich Construction Facility is the borrower’s fee interest in 77 Greenwich, which is the subject of a mortgage in favor of the 77 Greenwich Lender, as well as related collateral and a pledge of equity in the borrower. The 77 Greenwich Construction Facility bears interest on amounts drawn at a rate per annum equal to the greater of (i) LIBOR plus 8.25% and (ii) 9.25% (see Note 5 – Loans Payable and Secured Line of Credit to our condensed consolidated financial statements for further discussion). The effective interest rate at September 30, 2020 and December 31, 2019 was 9.25% and 10.01%, respectively. Although there can be no assurances, we currently anticipate that the proceeds available under the 77 Greenwich Construction Facility, together with equity funded by us to date and future contributions by the SCA, will be sufficient to finance the construction and development of 77 Greenwich without us making any further equity contributions. In connection with the 77 Greenwich Construction Facility, we executed certain guaranties and environmental indemnities, including a recourse guaranty under which we are required to satisfy certain net worth and liquidity requirements. In early April 2020, New York State required all non-essential construction projects be shut down due to the impact of the COVID-19 pandemic. As a result, the construction of 77 Greenwich was temporarily suspended. Construction recommenced mid-April, initially on a modified basis, as certain work was deemed “essential” construction. Since June 2020, a full crew has been on site and operating in accordance with applicable guidelines in response to the COVID-19 outbreak. Future delays in construction may result in a delay in our ability to complete the construction project on its original timeline and our ability to sell condominium units. Our ability to meet certain sales requirements applicable as of the end of 2020 and thereafter has been materially adversely affected and we expect we will be unable to meet the December 31, 2020 sales pace covenant. We are in active discussion with the 77 Greenwich Lender to amend certain terms of the 77 Greenwich Construction Facility, including with respect to the December 31, 2020 sales pace covenant. Despite the construction delays, we currently expect that the construction project will be completed within budget. We currently anticipate receiving our temporary certificates in stages from December 2020 through the first half of 2021.
Our $12.75 million line of credit with Sterling National Bank is secured by the Paramus, New Jersey property and matures in March 2021. The line of credit bears interest at 200 basis points over the 30-day LIBOR, and is pre-payable at any time without penalty. A portion of the line of credit is subject to an unused fee. As of September 30, 2020 the line of credit had an outstanding balance of $7.15 million and an effective interest rate of 2.15%.
Through a wholly-owned subsidiary, we own a 50% interest in a joint venture formed to acquire and operate The Berkley. In December 2016, the joint venture closed on the acquisition of The Berkley through a wholly-owned special purpose entity for a purchase price of $68.885 million, of which $42.5 million was financed through a 10-year loan (the “Berkeley
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Loan”) secured by The Berkley, and the balance was paid in cash, half of which was funded by us. On February 28, 2020, in connection with a refinancing, the Berkley Loan was repaid in full and it was replaced with a new 7-year, $33.0 million loan (the “New Berkley Loan”) which bears interest at a fixed rate of 2.717% and is interest only during the initial five years. It is pre-payable at any time and can be upsized by up to $6.0 million under certain circumstances. We and our joint venture partner are joint and several recourse carve-out guarantors under the New Berkley Loan.
Through a wholly-owned subsidiary, we own a 10% interest in a joint venture with TF Cornerstone (the “250 North 10th JV”) formed to acquire and operate 250 North 10th, a newly built 234-unit apartment building in Williamsburg, Brooklyn, New York. On January 15, 2020, the 250 North 10th JV closed on the acquisition of the property through a wholly-owned special purpose entity for a purchase price of $137.75 million, of which $82.75 million was financed through a 15-year mortgage loan (the “250 North 10th Loan”) secured by 250 North 10th and the balance was paid in cash. Our share of the equity totaling approximately $5.9 million was funded through a loan (the “Partner Loan”) from our joint venture partner. The Partner Loan bears interest at 7.0% and is prepayable any time within its four year term. Our partner has the option of having the Partner Loan repaid in our common stock if the price of our common stock exceeds $6.50 per share at the time of conversion. The non-recourse 250 North 10th Loan bears interest at 3.39% for the duration of the loan term and has covenants, defaults, and a non-recourse carve out guaranty executed by us. We earned an acquisition fee at closing and are entitled to ongoing asset management fees and a promote upon the achievement of certain performance hurdles.
At this time, we believe our existing balances of cash and cash equivalents, together with proceeds that may be raised from debt issuances, equity issuances, dispositions of properties, sales of partial interests in properties and/or draws on our Corporate Credit Facility and secured line of credit will be sufficient to satisfy our working capital needs and projected capital and other expenditures associated with our operations over the next 12 months. We believe we have good relationships with our lenders and we have historically negotiated extensions, amendments and waivers with our lenders, when warranted. Although we believe that we will be able to enter into extensions, amendments and waivers with our lenders, including with respect to the December 31, 2020 sales pace covenant in our 77 Greenwich Credit Facility, and raise additional capital, refinance indebtedness or enter into other financing arrangements or engage in asset sales sufficient to fund any cash needs that we are not able to satisfy with our cash, cash equivalents and draws on our Corporate Credit Facility or secured line of credit, given the current environment there can be no assurance that we will be able to do so on terms satisfactory to us, if at all. See Note 1 – Business - COVID-19 Pandemic to our condensed consolidated financial statements for further discussion.
Cash Flows
Cash Flows for the Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019
Net cash used in operating activities increased by approximately $4.2 million to $7.0 million for the nine months ended September 30, 2020 from $2.8 million for the nine months ended September 30, 2019. The increase in cash used was primarily from a $2.4 million increase in receivables and a $1.8 million decrease in accounts payable and accrued expenses.
Net cash used in investing activities increased by approximately $7.6 million to $48.4 million for the nine months ended September 30, 2020 from $40.8 million for the nine months ended September 30, 2019. The increase in investing activities was primarily due to our investments in our joint ventures for 250 North 10th in connection with the closing of the acquisition ($5.3 million) and The Berkley in connection with the pay-down of debt ($5.2 million) during the nine months ended September 30, 2020, respectively, partially offset by $3.0 million more in net additions to real estate and deferred real estate deposits on the condominiums.
Net cash provided by financing activities increased by approximately $8.3 million to $54.9 million for the nine months ended September 30, 2020 from $46.6 million for the nine months ended September 30, 2019. The increase in financing activities primarily relates to the $34.0 million, $30.3 million, $5.2 million and $243,000 in proceeds from the Corporate Credit Facility, 77 Greenwich Construction Facility, the Partner Loan and the Paycheck Protection Program loan, respectively, during the nine months ended September 30, 2020, as compared to $30.8 million and $5.0 million in borrowings from the 77 Greenwich Construction Facility and the Line of Credit, respectively, during the nine months ended September 30, 2019. We also repaid the $15.4 million 237 11th mezzanine loan and $2.5 million on the Line of Credit during the nine months ended September 30, 2020.
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Net Operating Losses
We believe that our U.S. Federal NOLs as of the emergence date of the Syms bankruptcy were approximately $162.8 million and believe our U.S. Federal NOLs at September 30, 2020 were approximately $227.6 million. In connection with the conveyance of the school condominium to the SCA, we applied approximately $11.6 million of federal NOLs against taxable capital gains of approximately $18.5 million. Since 2009 through September 30, 2020, we have utilized approximately $28.4 million of the federal NOLs. Pursuant to the TCJA, alternative minimum tax (“AMT”) credit carryforwards will be eligible for a 50% refund in tax years 2018 through 2020. Beginning in tax year 2021, any remaining AMT credit carryforwards would be 100% refundable. As a result of these new rules, we had released our valuation allowance of $3.1 million in 2017 which was formerly reserved against our AMT credit carryforwards. We had recorded a tax benefit and refund receivable of $3.1 million in 2017 in connection with this valuation allowance release. We received approximately $1.6 million of the refund receivable in October 2019, and the balance of approximately $1.5 million in July 2020.
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. Management is monitoring the impact that the CARES Act may have on the Company. The CARES Act did not have a material impact on our financial position, results of operations, or cash flow for fiscal year 2020.
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 strategies. Accordingly a valuation allowance of $59.7 million was recorded as of September 30, 2020.
We believe that the rights offering and the redemption of the Syms shares owned by the former majority shareholder of Syms that occurred in connection with our emergence from bankruptcy on September 14, 2012 resulted in us undergoing an “ownership change,” as that term is used in Section 382 of the Code. However, while the analysis is complex and subject to subjective determinations and uncertainties, we believe that we should qualify for treatment under Section 382(l)(5) of the Code. As a result, we believe that our NOLs are not subject to an annual limitation under Code Section 382. However, if we were to undergo a subsequent ownership change in the future, our ability to utilize our NOLs could be subject to limitation under Code Section 382. In addition, the TCJA limits the deductibility of NOLs arising in tax years beginning after December 31, 2017 to 80 percent of taxable income (computed without regard to the net operating loss deduction) for the taxable year.
Even if all of our regular U.S. Federal income tax liability for a given year is reduced to zero by virtue of utilizing our NOLs, we may still be subject to state, local or other non-federal income taxes.
Our certificate of incorporation includes a provision intended to help preserve certain tax benefits primarily associated with our NOLs. This provision generally prohibits transfers of stock that would result in a person or group of persons becoming a 4.75% stockholder, or that would result in an increase or decrease in stock ownership by a person or group of persons that is an existing 4.75% stockholder.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including information included or incorporated by reference in this Quarterly Report or any supplement to this Quarterly Report, may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and information relating to us that are based on the beliefs of management as well as assumptions made by and information currently available to management. These forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions that are not historical facts, and other statements identified by words such as “may,” “will,” “expects,” “believes,” “plans,” “estimates,” “potential,” or “continues,” or the negative thereof or other and similar expressions. In addition, in some cases, you can identify forward-looking statements by words or phrases such as “trend,” “potential,” “opportunity,” “believe,” “comfortable,” “expect,” “anticipate,”
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“current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions. Such statements reflect our current views with respect to future events, the outcome of which is subject to certain risks, including among others:
| ● | the impact of COVID-19; |
| ● | our limited operating history; |
| ● | our limited revenues from operations, limited cash resources and our reliance on external sources of financing to fund operations in the future; |
| ● | our ability to execute our business plan, including as it relates to the development of our largest asset, 77 Greenwich; |
| ● | adverse trends in the New York City residential condominium market; |
| ● | general economic and business conditions, including with respect to real estate, and their effect on the New York City real estate market in particular; |
| ● | our investment in property development may be more costly than anticipated and investment returns from our properties planned to be developed may be less than anticipated; |
| ● | competition for new acquisitions and investments; |
| ● | risks associated with acquisitions and investments in owned and leased real estate; |
| ● | we may acquire properties subject to unknown or known liabilities, with limited or no recourse to the seller; |
| ● | our ability to enter into new leases and renew existing leases with tenants at our commercial and residential properties; |
| ● | risks associated with joint ventures; |
| ● | risks associated with our debt, including the risk of default on our obligations and debt service requirements; |
| ● | risks associated with covenant restrictions in our loan documents that could limit our flexibility to execute our business plan; |
| ● | our ability to maintain certain state tax benefits with respect to certain of our properties; |
| ● | risks associated with the effect that rent stabilization regulations may have on our ability to raise and collect rents; |
| ● | our ability to obtain required permits, site plan approvals and/or other governmental approvals in connection with the development or redevelopment of our properties; |
| ● | costs associated with complying with environmental laws and environmental contamination, as well as the Americans with Disabilities Act or other safety regulations and requirements; |
| ● | loss of key personnel; |
| ● | our ability to obtain additional financing and refinance existing loans and on favorable terms; |
| ● | the effects of new tax laws; |
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| ● | our ability to utilize our NOLs to offset future taxable income and capital gains for U.S. Federal, state and local income tax purposes; |
| ● | risks associated with current political and economic uncertainty, and developments related to the outbreak of contagious diseases; |
| ● | risks associated with breaches of information technology systems; |
| ● | stock price volatility and other risks associated with a lightly traded stock; |
| ● | stockholders may be diluted by the issuance of additional shares of common stock or securities convertible into common stock in the future; |
| ● | a declining stock price may make it more difficult to raise capital in the future; |
| ● | the influence of certain significant stockholders; |
| ● | limitations in our charter on transactions in our common stock by substantial stockholders, designed to protect our ability to utilize our NOLs and certain other tax attributes, may not succeed and/or may limit the liquidity of our common stock; |
| ● | certain provisions in our charter documents and Delaware law may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us; |
| ● | certain provisions in our charter documents may have the effect of limiting our stockholders’ ability to obtain a favorable judicial forum for certain disputes; and |
| ● | unanticipated difficulties which may arise and other factors which may be outside our control or that are not currently known to us or which we believe are not material. |
In evaluating such statements, you should specifically consider the risks identified under the section entitled “Risk Factors” in our 2019 Annual Report for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2020, and under the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q, any of which could cause actual results to differ materially from the anticipated results. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those contemplated by any forward looking statements. Subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere described in our 2019 Annual Report, this Form 10-Q and other reports filed with the SEC. All forward-looking statements speak only as of the date of this Form 10-Q or, in the case of any documents incorporated by reference in this Form 10-Q, the date of such document, in each case based on information available to us as of such date, and we assume no obligation to update any forward-looking statements, except as required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks that arise from changes in interest rates, foreign currency exchange rates and other market changes affect market sensitive instruments. In pursuing our business strategies, the primary market risk which we are exposed to is interest rate risk.
Low to moderate levels of inflation during the past several years have favorably impacted our operations by stabilizing operating expenses. At the same time, low inflation has had the indirect effect of reducing our ability to increase tenant rents. However, our commercial leases include expense reimbursements and other provisions to minimize the effect of inflation.
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Of our long-term debt, which consists of secured financings, the $70.0 million
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Corporate Credit Facility bears interest at a rate per annum equal to the sum of (i) 5.25% and (ii) a scheduled interest of 4.0% until the six-month anniversary of the Closing Date and then increases 0.125% every six months thereafter, the 77 Greenwich Construction Facility bears interest on drawn amounts at a rate per annum equal to the greater of (i) LIBOR plus 8.25% and (ii) 9.25%, the 237 11th Loan bears interest at 2.25% over the 30-day LIBOR with a floor of 0.5% and the line of credit bears interest at 200 basis points over the 30-day LIBOR. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. From time to time, we may enter into interest rate hedge contracts such as swaps, caps, collars, and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
As of September 30, 2020, our debt consisted of the variable-rate 237 11th Loan, the 77 Greenwich Construction Facility, our Corporate Credit Facility and a promissory note with aggregate carrying values of $227.5 million and a variable-rate secured line of credit with a balance of $7.15 million. Due to the short term maturities and floating rate nature of our debt obligations, their book values approximated their fair values at September 30, 2020. Changes in market interest rates on our variable-rate debt impacts the fair value of the loans and interest incurred or cash flow. For instance, if interest rates increase 100 basis points and our variable-rate debt balance remains constant, we expect the fair value of our obligation to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our variable–rate debt assumes an immediate 100 basis point move in interest rates from their September 30, 2020 levels, with all other variables held constant and would result in a change in our interest expense from approximately $480,000 lower to $1.8 million higher. These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and assuming no other changes in our capital structure.
As the information presented above includes only those exposures that existed as of September 30, 2020, it does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
Item 4. Controls and Procedures
a)Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) of the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the CEO and CFO concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to give reasonable assurance to the timely collection, evaluation and disclosure of information relating to the Company what would potentially be subject to disclosure under the Exchange Act and the rules and regulations promulgated thereunder.
b)Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended September 30, 2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 – Legal Proceedings – to our condensed consolidated financial statements for further information regarding a claim related to the multiemployer pension plan. In addition to this matter, in the normal course of business, we are also party to routine legal proceedings. Based on advice of counsel and available information, including current status or stage of proceeding, and taking into account accruals where they have been established, management currently believes that any liabilities ultimately resulting from litigation we are currently involved in will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position.
Item 1A. Risk Factors
With the exception of the following, there have been no material changes in our risk factors disclosed in Part I, Item 1A, of our 2019 Annual Report:
The Company’s business, financial condition, results of operations and stock price has been and will continue to be materially adversely impacted by the outbreak of COVID-19 and such impact could continue to be material.
The impact of the recent outbreak of COVID-19 on our results and operations has been and will continue to be significant. The extent of the impact going forward will largely depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the outbreak, in New York City in particular, the success of actions taken to contain or treat COVID-19, actions taken by governmental entities, companies and individuals in response to the pandemic and reactions to such actions, the impact on local and broader economic activity and capital markets from the COVID-19 pandemic and new information that emerges with respect to the foregoing and other aspects of COVID-19. The extent to which the COVID-19 pandemic will impact the Company’s business, operations and financial results in the future will depend on numerous evolving factors that the Company is not able to predict at this time, including, but not limited to, the impact on the timeline for construction of our most significant asset, 77 Greenwich, as well as the impact on sales of its residential condominium units, which is material, and completion of the remediation and restoration processes at 237 11th; our ability to obtain maturity extensions and covenant modifications on acceptable terms, including in respect to the December 31, 2020 sales pace covenant in the 77 Greenwich Construction Facility; increased operating costs related to cleaning and disinfecting our properties; and the effect of the COVID-19 pandemic on the Company’s tenants and their ability to make rental payments as well as the effect of the eviction moratorium imposed by New York State and the impact of the NYC Rent Guidelines Board on our ability to raise rents. While we believe we have good relationships with our lenders and are in active discussions with the 77 Greenwich Lender regarding certain amendments to the 77 Greenwich Construction Facility, including in respect to the December 2020 sales pace covenant, there can be no assurance that we will be able to enter into any such amendments on terms satisfactory to us or at all, and any defaults may result in cross-defaults under our Corporate Credit Facility. These developments and events have and will continue to adversely impact the Company’s business, financial condition, results of operations or stock price, which has been and is anticipated to continue to be material.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
None.
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Issuer Purchases of Equity Securities
The following table shows the stock repurchase activity by the Company or any “affiliated purchaser” of the Company, as defined in Rule 10b-18(a)(3) under the Exchange Act, by month for the three months ended September 30, 2020:
| | | | | | | | | | | |
| | | | | | | Total | | Approximate |
| |
| | | | | Weighted | | number of | | Dollar Value of |
| |
| | | | Average | | Shares Purchased | | Shares that May |
| ||
| | Total | | Price | | As Part of Publicly | | Yet Be Purchased |
| ||
| | Number of | | Paid | | Announced | | Under the |
| ||
Period |
| Shares Purchased |
| per Share |
| Plans or Programs |
| Plans or Programs |
| ||
7/1/20 - 7/31/20 | | 14,699 | | $ | 1.34 | | 9,199 | | $ | 4,516,733 | |
8/1/20 - 8/31/20 | | 72 | | $ | 1.30 | | 72 | | $ | 4,516,639 | |
9/1/20 - 9/30/20 | | — | | $ | — | | — | | $ | 4,516,639 | |
| | | | | | | | | | | |
Quarter ending September 30, 2020 (1) | | 14,771 | (2) | $ | 1.34 | | 9,271 | | $ | 4,516,639 | (3) |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
3.1 | ||
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3.2 | ||
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31.1* | ||
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31.2* | ||
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32.1** | ||
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32.2** | ||
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101* | The following materials from our Quarterly Report on Form 10-Q for the period ended September 30, 2020 formatted as inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 (audited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 (unaudited) and September 30, 2019 (unaudited), (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020, June 30, 2020 and September 30, 2020 (unaudited) and the three months ended March 31, 2019, June 30, 2019 and September 30, 2019 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 (unaudited) and nine months ended September 30, 2019 (unaudited), (v) Notes to Condensed Consolidated Financial Statements (unaudited) and (vi) Cover Page Interactive Data File. | |
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104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* |
** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TRINITY PLACE HOLDINGS INC. | |
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Date: November 6, 2020 | By | |
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| PRESIDENT and CHIEF EXECUTIVE OFFICER |
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| (Principal Executive Officer) |
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Date: November 6, 2020 | By | /s/ Steven Kahn |
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| CHIEF FINANCIAL OFFICER |
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| (Principal Financial Officer) |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 6/19/26 | ||||
| 12/19/25 | ||||
| 3/31/25 | ||||
| 12/19/24 | ||||
| 3/31/22 | ||||
| 6/19/21 | ||||
| 5/31/21 | ||||
| 3/31/21 | 10-K, 10-Q | |||
| 12/31/20 | 10-K | |||
| Filed on: | 11/6/20 | |||
| 10/26/20 | ||||
| For Period end: | 9/30/20 | |||
| 7/22/20 | ||||
| 6/30/20 | 10-Q, 8-K | |||
| 6/10/20 | ||||
| 5/1/20 | ||||
| 3/31/20 | 10-Q | |||
| 3/27/20 | ||||
| 3/13/20 | 10-K | |||
| 2/28/20 | CORRESP | |||
| 1/15/20 | ||||
| 1/1/20 | ||||
| 12/31/19 | 10-K, 4 | |||
| 9/30/19 | 10-Q | |||
| 6/30/19 | 10-Q | |||
| 3/31/19 | 10-Q | |||
| 1/1/19 | ||||
| 12/31/18 | 10-K, 4 | |||
| 2/6/18 | 4 | |||
| 1/18/18 | ||||
| 12/31/17 | 10-K | |||
| 12/22/17 | 8-K | |||
| 6/1/16 | ||||
| 9/9/15 | 8-K | |||
| 9/17/12 | ||||
| 9/14/12 | 3, 3/A, 8-K12G3 | |||
| 12/31/06 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/13/15 Trinity Place Holdings Inc. 8-K:1,2,3,5 2/09/15 5:1M Toppan Merrill/FA 9/19/12 Trinity Place Holdings Inc. 8-K12G3:1,3 9/14/12 4:241K Toppan Merrill/FA |