NYRT - New York REIT

[pau_]

NYRT down on news that they sold half of One Worldwide Plaza. Conference call at 11 eastern. "live call by dialing 866-338-0145, passcode 28063538#."

 

[edit: forgot the link: https://finance.yahoo.com/news/york-reit-host-conference-call-141900728.html ]

No position but it starts to look like there's a margin of safety here.

[Gregmal]

No position but this is getting interesting. That said, this has to be one of the most mismanaged companies out there. Incompetence can not be discounted enough.

[CorpRaider]

What did they say? I thought they were selling the whole thing and liquidating.

[pau_]

I didn't take any notes and I'm a RE newb, but here's roughly what was said.

 

They are still liquidating. Wendy Silverstein basically said there were no attractive offers for an assumed-loan deal for the whole building, which there perhaps could have been years ago when foreign buyers were in the market.

 

They sold shy of half of 1WWP to SL Green and RXR (JV partners) at valuation around what is modeled for liquidation (a bit more). Helps them refinance the loan on the building (they got a 10year IO at < 4% via recourse to JV partner). JV partners are taking over leasing/management. NYRT can sell their remaining stake with a "Right of First Offer" to JV partners (IIRC; not a ROF Refusal).

 

Wendy Silverstein stressed that this deal valuation + costs itself does not reduce the $9.21 liquidation value. But my impression was timing may get stretched. After the deal closes, they're going to pay a distribution to shareholders, after reserving ~90million for "value creation" in building (presumably improvements/incentives on leases?). JV partners putting up a similar amount. Silverstein spoke highly of the new JV partners and said they are aligned on creating value and among best in NYC. They can sell remainder at any time and Silverstein stressed she is answering all calls.

 

Asked about stock price, Silverstein expressed frustration that she's an insider intimately involved in process and therefore can't buy and that the price makes no sense to her, fwiw.

 

Expected outcome: near-term distribution of proceeds; periodic distribution of lease cashflow. Eventually remaining properties get sold off and 51% of 1WWP becomes the last thing in the entity. At that point if not sold by some time in 2019 it may delist into a "liquidation trust" until eventually it is sold and a final distribution is made. Expects to give plenty of notice on this for holders who can't hold or don't want to hold unlisted securities.

 

 

[Scunny Bunny]

Having listened to the webcast, think your last comment may be the key: you potentially get stuck in an unlisted security. Not sure the discount to liquidation value (still holding out at $9.21) at the current prices of 25% may be enough.  The good news is they will repatriate proceeds of $346m "on closing" which means you will get pre-tax $2.07 a share fairly quickly. The fact that there is limited competition for deals in a lousy NYC market makes me keep looking at the strong players - VNO and SLG - whose shares have obviously underperformed on NYC trends and interest rate fears + some company specifics. "Straw hats in winter" - perhaps. Wouldn't want to be a lender....

[Gregmal]

What a complete shit show. These guys are world class scumbags.

[thepupil]

I think this is finally interesting, but admittedly have not done detailed work and have been following from a distance.

 

$6.90

-$2.07 dividend

$4.83 for non OWW and 1/2 of OWW.

 

Management (after significant revisions down and sales coming in) says the non OWW is worth $3.84.

 

$4.83 - $3.84 = $1.06 for 1/2 of OWW.

 

Cheap?

 

 

 

 

 

 

[Gregmal]

I think this is finally interesting, but admittedly have not done detailed work and have been following from a distance.

 

$6.90

-$2.07 dividend

$4.83 for non OWW and 1/2 of OWW.

 

Management (after significant revisions down and sales coming in) says the non OWW is worth $3.84.

 

$4.83 - $3.84 = $1.06 for 1/2 of OWW.

 

Cheap?

 

I don't own this but have been following it closely of late thinking the same thing, especially after today. That said, the revised figure has got to be pretty accurate if they felt compelled to again change it. These guys already looks hugely incompetent so I'm sure they would have preferred not guiding down AGAIN. So idk, on an absolute basis, yea its cheap. But is the 20-30%% discount enough at this point to push me to trust these clowns with my money? Probably not. These things can drag out forever. They're now saying 4 years for Worldwide Plaza? Why did they even agree to purchase the other half of this anyway if that was the case? They are idiots.

[johnny]

Is there any reason to think their current rents on WW are above market?

 

I'm thinking $6.85/sh - $2.07 dividend - $3.14 in contracted sales = $1.64

 

That $1.64 gets you properties on the market (with bidders, allegedly) that they estimate at $0.70. Discount a little and say the net price of WW $1.00,

 

They say that the next 4 years of contracted rent should produce about 42 cents per share. So you're buying WW at 9 or 10x net income, which seems like an okay downside if their dreams of ~asset repositioning~ don't materialize.

 

I've spent a grand total of about 10 minutes looking at this, so don't take anything I just said seriously.

[Sunrider]

Yes, you can add (as management did) the upside from the increase in WWP value over those years based on the investments they are making. That gets you to ca. $2.11 in value undercounted, according to management.

 

 

[glorysk87]

What I don't really understand is why anyone would take managements liquidation value seriously when they've not only revised it down multiple times, but they spent a substantial amount of time on the LAST earnings call incessantly telling investors that their "new" liquidation value of $9 and change was not going to change.  Their credibility is zero, to me. Can't imagine why anyone would spend time on this here when there are plenty of other opportunities out there.

[thepupil]

What I don't really understand is why anyone would take managements liquidation value seriously when they've not only revised it down multiple times, but they spent a substantial amount of time on the LAST earnings call incessantly telling investors that their "new" liquidation value of $9 and change was not going to change.  Their credibility is zero, to me. Can't imagine why anyone would spend time on this here when there are plenty of other opportunities out there.

 

I hear you, but every sale de-risks that number, no?

 

the end goal is to be in OWW at a discount to where SL Green bought it. Right now if they get $3.84 ($3.14 of which is contracted) from remaining non OWW then I get to about $1.5 billion for 1WW compared to where it just traded ($1.7B) which was a disappointing print and is for a "value add" price rather than trophy / stabilized. The appeal to me is to hopefully get a highly leveraged stake in OWW at a discount to where credible operators just bought the thing when they were one of a few (if not the only bidders) after a slowdown in NY RE.

 

The eventual value of that levered and illiquid stub is obviously very volatile/dependent on the re-positioning and NYC RE market a few years from now. Illiquidity of the remaining stub doesn't bother me. I want to own that stub to have levered exposure to the asset's re-positioning at a discounted price, for a small chunk of my portfolio.  That's the trade in my view. If you buy that thing for $1.00 and they are saying it's throwing off 42 cents over the next 4 years (implying a 10 ish % cash on cash for a big NYC building) that seems decent.

 

Not amazing or anything, but I think a good risk/reward that is on offer because this is bombed out by the loss of credibility/extension of event driven hedge funds timeline and blowing up of the IRR spreadsheets.

 

Assuming the $3.14 in contracted sales go through, then you are paying $0.94 - $1.64 for 1/2 of 1WW ($150mm - $275mm), versus $250 million where the asset just traded/re-financed and the upper bound is if they got $0.00 for the $0.70 of remaining non 1WW which we know will not be the case.

 

 

 

 

 

 

[BG2008]

How come no one talks about the levered nature of this investment?  Most of the value of the stub (post >$3 distribution) is in the WW plaza building.  But they recently financed it with $1.2 bn of debt.  Assuming the building is actually worth $2bn when sold, it's still got a LTV of 60% which is okay for a high end NYC office building.  But let's not forget that leverage cuts both ways and I think people massively miscalculated that in the case of NYRT.  In a way, I think Wendy did the best that she could.  But when you buy into a company with 50% LTV and 50% market cap and a 4% cap rate where foreign buyers, i.e. Chinese (kind of like Japanese in the 80s) set the trophy price, your margin of safety erodes fairly quickly.  But it was a the trendy event driven/workout pick of 2017 amongst the value crowd.  While Ashner is involved in both NYRT and the Winthrop liquidation, there is a key difference in that the Winthrop interest is a prefer security that compounds at a high rate.  So the common shareholders are being paid to wait. 

[Foreign Tuffett]

What I don't really understand is why anyone would take managements liquidation value seriously when they've not only revised it down multiple times, but they spent a substantial amount of time on the LAST earnings call incessantly telling investors that their "new" liquidation value of $9 and change was not going to change.  Their credibility is zero, to me. Can't imagine why anyone would spend time on this here when there are plenty of other opportunities out there.

 

I hear you, but every sale de-risks that number, no?

 

the end goal is to be in OWW at a discount to where SL Green bought it. Right now if they get $3.84 ($3.14 of which is contracted) from remaining non OWW then I get to about $1.5 billion for 1WW compared to where it just traded ($1.7B) which was a disappointing print and is for a "value add" price rather than trophy / stabilized. The appeal to me is to hopefully get a highly leveraged stake in OWW at a discount to where credible operators just bought the thing when they were one of a few (if not the only bidders) after a slowdown in NY RE.

 

The eventual value of that levered and illiquid stub is obviously very volatile/dependent on the re-positioning and NYC RE market a few years from now. Illiquidity of the remaining stub doesn't bother me. I want to own that stub to have levered exposure to the asset's re-positioning at a discounted price, for a small chunk of my portfolio.  That's the trade in my view. If you buy that thing for $1.00 and they are saying it's throwing off 42 cents over the next 4 years (implying a 10 ish % cash on cash for a big NYC building) that seems decent.

 

Not amazing or anything, but I think a good risk/reward that is on offer because this is bombed out by the loss of credibility/extension of event driven hedge funds timeline and blowing up of the IRR spreadsheets.

 

Assuming the $3.14 in contracted sales go through, then you are paying $0.94 - $1.64 for 1/2 of 1WW ($150mm - $275mm), versus $250 million where the asset just traded/re-financed and the upper bound is if they got $0.00 for the $0.70 of remaining non 1WW which we know will not be the case.

 

If I'm understanding you correctly, I'm seeing this basically the same way you are:

 

If you (1) take the math from the last conference call (2) "look through" the $3.14 per share in announced and likely near term distributions and (3) discount the $0.70 per share in other marketed properties by an appropriate amount to account for management's poor track record of estimating sale prices and the time value of money, you are left with (4) a price for One Worldwide Plaza ("1WW") that is significantly discounted. A discount persists even once you adjust the NAV to account for the extended holding period (time value of money).

 

The kicker is that the above analysis uses the GAAP liquidating accounting that management made such a brouhaha about on the last conference call. Liquidation accounting values 1WW at the price of the recent transaction. If you read the transcript closely, there are three different sources of low hanging fruit: (1) 3 years of additional rental cash flows (2) the money the new ownership structure has allocated to make capital improvements to the building (3) a "transfer tax" that will not have to be paid due to the extended holding period. These sources of low hanging fruit are basically why NYRT management kept referencing a NAV # that was higher than the GAAP liquidation accounting NAV #.

 

Here an analyst quote from the call's transcript that follows a similar line of thinking:

 

"....just back on the Worldwide Plaza math, by my numbers, it doesn’t look like you’re assuming a big increase. If you take the $1.725 billion, if you invest about, I guess, 160 to 180 [million dollars] because SL Green will invest as well, that you get to 1.9 billion and then the tax savings – the transfer tax savings, you’re almost to the 2 billion."

[BG2008]

What I don't really understand is why anyone would take managements liquidation value seriously when they've not only revised it down multiple times, but they spent a substantial amount of time on the LAST earnings call incessantly telling investors that their "new" liquidation value of $9 and change was not going to change.  Their credibility is zero, to me. Can't imagine why anyone would spend time on this here when there are plenty of other opportunities out there.

 

I hear you, but every sale de-risks that number, no?

 

the end goal is to be in OWW at a discount to where SL Green bought it. Right now if they get $3.84 ($3.14 of which is contracted) from remaining non OWW then I get to about $1.5 billion for 1WW compared to where it just traded ($1.7B) which was a disappointing print and is for a "value add" price rather than trophy / stabilized. The appeal to me is to hopefully get a highly leveraged stake in OWW at a discount to where credible operators just bought the thing when they were one of a few (if not the only bidders) after a slowdown in NY RE.

 

The eventual value of that levered and illiquid stub is obviously very volatile/dependent on the re-positioning and NYC RE market a few years from now. Illiquidity of the remaining stub doesn't bother me. I want to own that stub to have levered exposure to the asset's re-positioning at a discounted price, for a small chunk of my portfolio.  That's the trade in my view. If you buy that thing for $1.00 and they are saying it's throwing off 42 cents over the next 4 years (implying a 10 ish % cash on cash for a big NYC building) that seems decent.

 

Not amazing or anything, but I think a good risk/reward that is on offer because this is bombed out by the loss of credibility/extension of event driven hedge funds timeline and blowing up of the IRR spreadsheets.

 

Assuming the $3.14 in contracted sales go through, then you are paying $0.94 - $1.64 for 1/2 of 1WW ($150mm - $275mm), versus $250 million where the asset just traded/re-financed and the upper bound is if they got $0.00 for the $0.70 of remaining non 1WW which we know will not be the case.

 

If I'm understanding you correctly, I'm seeing this basically the same way you are:

 

If you (1) take the math from the last conference call (2) "look through" the $3.14 per share in announced and likely near term distributions and (3) discount the $0.70 per share in other marketed properties by an appropriate amount to account for management's poor track record of estimating sale prices and the time value of money, you are left with (4) a price for One Worldwide Plaza ("1WW") that is significantly discounted. A discount persists even once you adjust the NAV to account for the extended holding period (time value of money).

 

The kicker is that the above analysis uses the GAAP liquidating accounting that management made such a brouhaha about on the last conference call. Liquidation accounting values 1WW at the price of the recent transaction. If you read the transcript closely, there are three different sources of low hanging fruit: (1) 3 years of additional rental cash flows (2) the money the new ownership structure has allocated to make capital improvements to the building (3) a "transfer tax" that will not have to be paid due to the extended holding period. These sources of low hanging fruit are basically why NYRT management kept referencing a NAV # that was higher than the GAAP liquidation accounting NAV #.

 

Here an analyst quote from the call's transcript that follows a similar line of thinking:

 

"....just back on the Worldwide Plaza math, by my numbers, it doesn’t look like you’re assuming a big increase. If you take the $1.725 billion, if you invest about, I guess, 160 to 180 [million dollars] because SL Green will invest as well, that you get to 1.9 billion and then the tax savings – the transfer tax savings, you’re almost to the 2 billion."

 

Foreign Buffet,

 

Just wondering what your thoughts on the LTV of 60% and how that affects outcomes.  If the building got sold for $2.0 bn or $2.3 bn, it's a great outcome.  But if it got sold for $1.7bn, then there is only $500mm to be split between SLG and NYRT.  Net of a 3-6% sales cost (commission, closing cost, etc), there's less than $250mm net to NYRT.  Wendy and executives will be paid, so some additional G&A will have to be accounted for.  Four years stuck in a non-trade 60% LtV RE stub demands a high IRR.  A good way to think of this is that if you were pitched a private RE project, what kind of IRR would you demand to compensate for the risk.  I think 15-20% is probably the right number. 

[thepupil]

The appeal to me is to hopefully get a highly leveraged stake in OWW at a discount to where credible operators just bought the thing when they were one of a few (if not the only bidders) after a slowdown in NY RE.

 

The eventual value of that levered and illiquid stub is obviously very volatile/dependent on the re-positioning and NYC RE market a few years from now. Illiquidity of the remaining stub doesn't bother me. I want to own that stub to have levered exposure to the asset's re-positioning at a discounted price, for a small chunk of my portfolio.  That's the trade in my view. If you buy that thing for $1.00 and they are saying it's throwing off 42 cents over the next 4 years (implying a 10 ish % cash on cash for a big NYC building) that seems decent.

 

Not amazing or anything, but I think a good risk/reward that is on offer because this is bombed out by the loss of credibility/extension of event driven hedge funds timeline and blowing up of the IRR spreadsheets.

 

Assuming the $3.14 in contracted sales go through, then you are paying $0.94 - $1.64 for 1/2 of 1WW ($150mm - $275mm), versus $250 million where the asset just traded/re-financed and the upper bound is if they got $0.00 for the $0.70 of remaining non 1WW which we know will not be the case.

 

 

How come no one talks about the levered nature of this investment? 

 

who is saying it isn't levered? the leverage is kind of the point. If you can point me to where else I can buy fully levered NYC real estate for ~10% cash on cash initial yield (based on the estimate of cash flow over the 4 years) with upside optionality, I'm all ears.

 

I agree it's similar to real estate PE, which is not easy to access without a)very large check size, b) paying full fees.

 

I view this as a direct private real estate investment with a low minimum investment, unclear but probably lower than PE fee drag.

 

But it's definitely highly levered and exposed to a weakening NYC office market. the likely discount to where the asset just traded is modest and does not provide a large margin of safety, but one can easily see SLG paying you $2+ in stock for the half of the JV down a few years down the road, which along with the presumed cash flow over the four years can provide high upside.

[johnny]

At these prices I'm not sure I'd even call the gross discount unsubstantial. By my math it's about 20%.

 

The WWPstub should have a marketcap of $180m, of which $90m is just the cash they claim is totally optional and sitting on the side. So that is $90m for half of the equity of WWP.

 

That makes the implied gross value of WWP $1.2B + $90*2, or $1.38B, which is about 20% shy of the $1.725B figure

 

I'm a bit concerned that this cash reserve they're setting aside is being somewhat mischaracterized. One gets the vibe from the call that it's this totally optional just-in-case pot of money that they might use to gold-plate a lobby and really send the property into the trophy stratosphere, but I'm suspicious that it might actually just realistically be the money they're going to need to fund tenant improvements to keep the thing at 99% until 2021. In other words just maintenance capex, in which case the implied gross value of WWP is actually something like $1.56B.

 

The behavior of the shares over the past few days has me concerned that some parties may know things that we don't. Is there any hint that these sales aren't going through as planned? I just can't come up with a theory for why somebody would own this stock last week but be willing to sell at under $5 today.

[Foreign Tuffett]

At these prices I'm not sure I'd even call the gross discount unsubstantial. By my math it's about 20%.

 

The WWPstub should have a marketcap of $180m, of which $90m is just the cash they claim is totally optional and sitting on the side. So that is $90m for half of the equity of WWP.

 

That makes the implied gross value of WWP $1.2B + $90*2, or $1.38B, which is about 20% shy of the $1.725B figure

 

I'm a bit concerned that this cash reserve they're setting aside is being somewhat mischaracterized. One gets the vibe from the call that it's this totally optional just-in-case pot of money that they might use to gold-plate a lobby and really send the property into the trophy stratosphere, but I'm suspicious that it might actually just realistically be the money they're going to need to fund tenant improvements to keep the thing at 99% until 2021. In other words just maintenance capex, in which case the implied gross value of WWP is actually something like $1.56B.

 

The behavior of the shares over the past few days has me concerned that some parties may know things that we don't. Is there any hint that these sales aren't going through as planned? I just can't come up with a theory for why somebody would own this stock last week but be willing to sell at under $5 today.

 

I think one reason for the discount, is that the market doesn't trust most anything that NYRT's management says anymore. Maybe I'm playing the role of a gullible patsy here, but IMO they've done an OK job after being dealt a poor hand in the form of a NYC commercial real estate market that has weakened substantially since the initial announcement that the company would liquidate. Their biggest mistake has been overly optimistic NAV estimates, but I think the NAV has been substantially derisked by (1) NAV estimates coming way down (2) asset sale realizations and (3) months of discussions with potential buyers that should allow management to have a decent idea of how much the remaining buildings can be sold for. 

 

Yes, you could be right that the 1WW cash reserve will end up basically being maintenance capex. I don't believe that any credit is given for the reserve under the GAAP liquidation accounting, so there's possible upside if it ends up being, as management has signaled, more growth capex-ey.

 

I think the stock has fallen due to the recent distribution announcement. Maybe some holders were expecting a larger Dec. distribution (which would equal a quicker liquidation and a higher IRR)? I dunno.

[johnny]

Eh, I think the IRR impact of the 15 cent move in the past few days probably overwhelms the IRR impact of a few lost dollarmonths. But I guess it doesn't matter.

 

I am having some amount of trouble getting comfortable with another thing. They say they expect the four years of free cash from WWP to be about 42 cents, which is ~$17.6 million a year.

 

But on the 3Q call when they went over their liquidation accounting, they mentioned that they were adding in $13m for WWP cashflow for the coming year. This seems like a pretty big difference that isn't going to be explained by standard escalations. They're already 99% leased, and I think there are only two or three floors expiring from 2017 to 2020, so even the rosiest assumptions about releasing spreads doesn't get me there. Any thoughts here?

[bizaro86]

I'm pretty sure there are some "free rent" incentives expiring shortly that could make up part of that difference.

[johnny]

Who would the new tenants be? We're talking about two floors of missing rent, if that's the explanation.

 

Speaking of tenants: In the September call, they mention that they think a key component of the asset reposition/revaluation would come from an opportunity to do ~something~ with a current tenant. Since there's only two big tenants, I would have guessed this is Nomura, they've got a ton of space and pay less than almost everyone else for it.

 

But in the November call, Wendy actually mentions possibly doing something with Cravath. Cravath's lease expires in 2024, and they re-upped at the tippy top of the market in 2007/2008. So their current rates are the highest in the building, by far.

 

http://www.abajournal.com/news/article/cravath_signs_900_m_midtown_lease/news/article/do_you_volunteer_on_a_regular_basis/?utm_campaign=sidebar

 

I think $100 a square foot is going to look like a pretty good deal in five months.

 

Also, right after signing the richest-law-firm-lease-ever deal, they were almost immediately laying off associates and offering buyouts to new hires.

 

Cravath got burned REALLY bad the last time they renegotiated their lease, AND they currently pay the highest prices in the building; so I'm actually super interested to see how that thing could possibly be extended in a way that reads as a clear victory for NYRT and a boost to the value of WWP. It's hard to imagine Cravath has just forgotten what happened last time, especially since they're still not utilizing all of the space on their lease.

 

SIDENOTE:

 

I've gotten so pre-occupied with the WWP situation I've sort of handwaved away the big question about the 70 cents of the no-offer-yet-in-place proceeds. Has anybody figured out how leveraged that pool of properties is, or are we stuck just assuming that it's a representative sample?

[Foreign Tuffett]

Johnny is asking some good questions that I don't have the answers to. Here are a couple of slides from SL Green Realty's recent analyst day that might hint at them.

[johnny]

Alright, I'm in.

 

I wasn't able to get to very confident about the estimated 70 cents, but the bottom line is that the entire 70 cents could blow up and your return will be mediocre, but probably not negative.

 

On the incentives, I just don't see why management would not be motivated to underwrite that 70 cents very conservatively, since they were going to get beat up over the revision anyway. Would they have suffered any more, really, if they called it 50 instead of 70? Surely they all have a strong incentive to go out on a positive note. This isn't a strong case, just thinking out my rationale(ization). I realize the same case could be made about the first NAV revision, but I think I buy management's argument that the market simply moved; the third party data is totally consistent with that.

 

I think there's a very good chance this gets snatched up or at least substantially reprices before the liquidating trust, so I don't think the probability of truly, totally being locked in the thing for four years is as high as some people may be fearing.

 

As mentioned before, assuming management sells everything at par, WWPstub is $180M right now. The JV partners committed about 2x that price for their same stake in the building. So it's hard for me to imagine why, of all people, they wouldn't be very tempted to pick up the stub once the rest of the properties have been cleared out.

 

I'm really taking the lazy way out here on this analysis, but if there are any strong skeptics still cruising the thread, please give me a reason to cancel some orders. :)

[johnny]

Almost had a heart attack when I opened my Schwab app and saw this.

 

Just a glitch in the chart drawing.

 

Anybody else actually messing around with this still?

[given2invest]

Johnny:

 

"So it's hard for me to imagine why, of all people, they wouldn't be very tempted to pick up the stub once the rest of the properties have been cleared out."

 

They can't buy the stub.  It would trigger transfer tax in 1WWP.

 

I also own this and agree w/ the rest of your analysis.  The only real wildcard here on out is Viceroy and it's marked really low, less than 50 cents on dollar they paid for it and well below what even the crappiest NYC hotels have traded at on a per key basis.