TPHS - Trinity Place Holdings

[Saluki]

My first post!

 

A friend told me about this site, and while I'm new here, I have gotten a lot out of reading the analysis here on some of the positions I own. I wanted to contribute, so here is a position that I own and was talking about when I met some of you in Toronto:

 

http://www.trinityplaceholdings.com/cms/wp-content/uploads/2018/04/TPHS-Investor-Presentation-April-2018-FINAL_2.pdf

 

Basically, it's the post-bankruptcy real estate of retailer Syms and Filene's basement.  They still own the intellectual property of both, which I value at $0. But they had a few legacy properties that they owned. They sold off all but 3 properties.

 

1 is now a walmart in florida,

1 is now leased to Restoration Hardware in New Jersey,

1 is a 5 story building in the financial district in manhattan.

and a couple of apartment buildings in brooklyn that they bought recently.

 

The Manhattan bldg has been approved for a 50 story luxury residential tower with waterfront views (this is like owning a unicorn in NYC).

It also has the bottom few floors rented to a future charter school who will pay for the buildout of their own space, and start paying rent upon delivery (i.e. cash coming in before the rest of building is completed).

 

TPHS has $230 million in NOL from their bankruptcy which they can use to shield future income from rents and sales of the luxury condos. 

Enterprise value is $240 million.

 

Michael Price owns a big slug of the common and I noticed he was buying on the dips (I noticed the purchases on Dataroma since he's a 10% owner and has to file 3 days after every purchase) so I pulled the 10-k and started digging.  The power point summarizes all the good points and now you don't have to read the 10-k like I did.

 

I'm not a fan of the 2 residential apartment buildings, but since they are new builds, one has a 15 year property tax abatement and the other has a 25 year tax abatement.  That, plus the huge NOL starts to look very interesting. 

 

The NYC tower is approved, construction has begun and they have $190million construction loan in place from MetLife with pretty favorable terms (they only pay interest on the loan as it's used, so it's like a line of credit).

 

If any of you have any thoughts (particularly if you think I'm wrong and am missing something) please let me know. 

 

[Thomas Niel]

About a year ago I looked into determining the NPV of what the proceeds from the condo tower will be when it is completed in 2020. I'll admit I'm not familiar with construction financing terms, but the phrase "93% bought-out", does that mean that $189.5m is 93% of the total estimated cost to build 77 Greenwich? I understand that ~$40m of that will be returned when NYC buys the shell for the elementary school.

 

https://seekingalpha.com/pr/17033690-trinity-closes-189_5-million-construction-loan-mixed-use-development

 

Do you have an estimate what the gross proceeds will be? Back of the envelope I guess $400m (~$2k/sqft for the condo units), plus ~$40m for the shell, and they'll own 17,000 sq ft of storefront retail that could be sound for thousands a square foot. Caveat: after my adventures with AmBase Corporation, take my opinion with a grain of salt.

 

As commenter Charlie's Munger on SA sees it, the long term value is the management team continuing to make smart investments in NYC multifamily properties. Fact "smart money" has turned this into a hedge fund hotel appears to be another plus for further consideration.

[Saluki]

Here's an article that says they think they can sell the units for between $2-$3k per square foot.

 

https://therealdeal.com/2016/09/06/trinity-place-holdings-plans-90-condo-units-for-fidi-tower/

 

I looked up some back of the envelope calculations I had when I started looking at this last year:

 

The $230 million NOL carryforward: ($82 million value assuming 35% income tax rate)

50 story tower completed in 2020 will have 285,000 sq feet. (average manhattan construction cost is $220/ sq foot but varies depending on type of construction and height).  The most expensive price I found is  ~$1000/sq foot for luxury construction in Manhattan.

 

They expect to sell at $2-3k/sq foot.  So $285mil - $570 mil  potential profit when completed for residential,

plus 17k square feet commercial (???).

So $367 mil - $652 mil by 2020 for residential parts of the tower.

 

Then if you add the NOL and the commercial, it seems like you're getting a lot of value for ~$220 million in market cap. The main drawback is that it's an all or nothing bet on manhattan real estate since most of the value of the company is in one giant asset, and the value of the 2 brooklyn apartment buildings will likely be correllated with whatever happens to Manhattan real estate prices. .

[morob]

To me the lower Manhattan development seems to be largely de-risked from a financing standpoint. Also so called "affordable luxury" which is how they label those residential units under development still finds decent demand. The new elementary school underneath should also help marketing the property.  The value of the existing assets seem to offer an attractive discount. However, whether this stock turns out to be good investment will equally depend on how they recycle the proceeds from selling the existing assets. Their stated goal is to create a portfolio of critical mass of NY Metro multifamily properties similar to the last two deals they did in Brooklyn. If NY Metro real estate stays soft it could actually be a blessing in disguise as they should be able to buy some of the new supply coming to market at attractive prices. The bulk of their investments will likely take place over the next three to five years, so buying into a falling market isn't such a bad thing. The key questions is whether those NY Metro areas can get back to historical rent growth after this cyclical downturn is over. I think this is a good bet but it will take time to play out.

[Thomas Niel]

Thanks Saluki, sorry for the late response, I also saw that in April TPHS had another presentation that gives clearer insight into what proceeds from the condo sales will be: http://www.trinityplaceholdings.com/cms/wp-content/uploads/2018/04/TPHS-Investor-Presentation-April-2018-FINAL_2.pdf

 

Page 19, TPHS estimates "Illustrative 77 Greenwich net residential valuation" (their words) at between $150.5m and $204.9m (assuming sales prices PSF of $2500-$2900, with common areas the total amount of salable square footage appears to be 136,000). Midpoint valuation ($2700 PSF sales price) was $177.7m

 

With NYC making payments for the school portion of the building TPHS and the construction project being GMP, TPHS anticipates no additional capital commitment beyond the $189.5m construction facility.

 

Page 32 also gives management's estimate of what they value the other assets (~$137m), and they believe the stock has an implied value of ~$10/share. This figure is subjective, as based on the footnote includes a valuation for the NOLs and intangible assets.

 

Agree with Morob's point that they are well positioned to start making additional acquisitions during an inevitable downturn (2019-2021). Next year or so may provide a great buying opportunity if a general market selloff keeps TPHS share price depressed (or at the very least, around $7/share, where it has been trading for the past year).

[Saluki]

This had a nice pop yesterday (+5.6%) with no news. 7x the usual trading volume so I'm assuming since there is no news that some bigger fund was buying sloppily. 

 

https://www.equities.com/news/trinity-place-holdings-inc-tphs-soars-5-67-on-october-03

 

I'd prefer cheaper prices since I'm still buying on the dips, but the price is lower now than it was when I mentioned this and the story is improving.  Excavation on the tower was finished and the foundation was completed last month so now they are building up now and they are on schedule and on budget. 

 

They are not doing pre-sales on the tower until 2019 and it won't be completed until 2020 so I think there will be plenty more time to build a position. 

[BG2008]

The problem with taking advantage of a softer NYC market is that if you're selling into one, you may not be able to sell at all.  If you just google some of the headlines of apartments that are above $2-3mm (assume 1,000 sqft at $2,500-2,900/sqft) is that they are tough to move.  Now you have interest rates moving up. 

 

The first rule of real estate development is that you need buyers to buy the condo units.  It's really a catch 22.  If you sell into a hot market, the opportunity to re-deploy capital is minimal.  If you sell into a cold market, you're stuck with your inventory.   

[DeepValuePlay]

How does everyone feel about this name now that the share price declined significantly?

As far as I know the story has only improved - though I'll admit I'm new to the company and only starting my research efforts.

[morob]

Right now, the all important question is the average per sqft price they will be able to achieve for the Greenwich residential tower. Selling will start in about a month or two. If they can sell around an average of $2000/sqft, the stock should work well with break-even around $1300-1400/sqft. Prices for luxury apts in NY have come under considerable pressure. Two years ago these apts might have sold in the high $2000s/sqft. One positive element with their tower is that the apts start at high floors since the school occupies the bottom floors. So the average prices per sqft should be a bit higher than comps which also have to sell lower floors with no views. Once construction is complete you should expect some refinancing of the construction loan which could be a catalyst for the stock.

 

In the mean time, their palm beach retail property is finally improving occupancy with three recent leasing deals. On the other hand the Paramus, NJ retail site has lost their Carmax deal due to local opposition to locate a car dealer on the property. Also one of their recently acquired Brooklyn residential buildings has had a slow down in the lease-up process due to the competitive environment in Brooklyn and some defective construction causing flooding in some apts (they have sued the developer and submitted insurance claims). While all these things are important, either one of those issues will be fixed and represents only a small part of the NAV relative to the Greenwich tower.

 

Assuming the Greenwich tower has positive equity, the question will arise what to do with the proceeds and whether TPHS is big enough to justify a stand alone existence as a public company. Their stated aim to build a multi family portfolio in NY metro similar to the recently acquired Brooklyn buildings makes sense but on their own they might lack the necessary scale to do so.

[Saluki]

I've only added a small amount to my position even though the price is lower. I would feel more comfortable after sales begin.

 

I agree with everything stated above, the pricing for manhattan luxury apts has softened a bit recently but other than that the story does look better now than it did before.  The building is on time and on budget and currently is 26 stories high (out of 40 stories) so it's passed the halfway point in terms of height.

 

Also, they don't have to build out the charter school on the lower floors, just deliver it with bare walls and floors, and then they will start getting payments on that portion of the building. I'm holding for now but will probably add more when pre-sales start this spring.

[BG2008]

NYC resident here.  I stopped by that location recently with my wife the other day.  Her immediate reaction was "why would anyone pay $3mm for that location?" It's on a narrow street and there were a parade of buses stopped in traffic jam stretching down the street.  There are certain choke points in the city such as areas near the bridges and tunnels where there are just constant traffic and congestion right outside your building.  If you look at Google Maps, it seems like this is where the traffic flow from Brooklyn's Hugh L Carey Tunnel comes into Manhattan.  I forgot about this dynamic and it was very apparent on the day that I visited.  I'm holding off until we get pre-sale figures.   

 

 

[BG2008]

NYC resident here.  I stopped by that location recently with my wife the other day.  Her immediate reaction was "why would anyone pay $3mm for that location?" It's on a narrow street and there were a parade of buses stopped in traffic jam stretching down the street.  There are certain choke points in the city such as areas near the bridges and tunnels where there are just constant traffic and congestion right outside your building.  If you look at Google Maps, it seems like this is where the traffic flow from Brooklyn's Hugh L Carey Tunnel comes into Manhattan.  I forgot about this dynamic and it was very apparent on the day that I visited.  I'm holding off until we get pre-sale figures. 

 

FYI, I don't own any shares as of this moment and hard to convince myself to own any when something like Griffin (GRIF) is trading with 100% upside and there is ample cashflow already. 

[oscarazocar]

I also checked the site out recently.  I see what you mean about being close to the tunnel entrance, but the site does have some significant positives.  It is a block away from Trinity Church and adjacent to the Financial District, which I understand is booming as a family/residential area, and I have spent some time there and see the appeal.  It's the old-school NYC, back when Wall Street was the northern-most barrier that kept out the hordes.

 

Perhaps more importantly, and what people may pay for, the views of New York Harbor from most of the apartments are going to be spectacular.

[morob]

77 Greenwich apts sales office just opened https://77greenwich.com/residences/

 

Seems available per sqft prices are in the range of 2088 - 2560/sqft. Considering they are likely not sold at list prices I would think it should be possible for them to receive an average per sqft around $2100 for the residential part. This would be a good outcome and not reflected in share price which under this scenario should rather be between $6 and $7

 

[Saluki]

The units for sale on their website jump from 17 to 25, then 30, then 35 and 37.  Does that mean they've already sold units in the floor numbers that aren't listed? 

 

This was a 5% position for me, now about 3% after the share price drifted down.  I picked up a little bit today since I was waiting for the sales office to open before I added to my position.  It's on time and on budget and although prices for manhattan high end real estate have come down a bit off their peaks, it still looks good to me. 

 

But maybe I'm the guy with the hammer who thinks everything is a nail. I'm only in 12 positions and 5 of those are real estate related (JOE, HHC, SRG, BAM & TPHS). 

[morob]

The units for sale on their website jump from 17 to 25, then 30, then 35 and 37.  Does that mean they've already sold units in the floor numbers that aren't listed? 

 

This was a 5% position for me, now about 3% after the share price drifted down.  I picked up a little bit today since I was waiting for the sales office to open before I added to my position.  It's on time and on budget and although prices for manhattan high end real estate have come down a bit off their peaks, it still looks good to me. 

 

But maybe I'm the guy with the hammer who thinks everything is a nail. I'm only in 12 positions and 5 of those are real estate related (JOE, HHC, SRG, BAM & TPHS).

 

Not clear to me why those floors. They probably would like to curate the available inventory at the beginning for marketing purposes. The next real catalyst is the refi of the construction loan.

[walkie518]

The units for sale on their website jump from 17 to 25, then 30, then 35 and 37.  Does that mean they've already sold units in the floor numbers that aren't listed? 

 

This was a 5% position for me, now about 3% after the share price drifted down.  I picked up a little bit today since I was waiting for the sales office to open before I added to my position.  It's on time and on budget and although prices for manhattan high end real estate have come down a bit off their peaks, it still looks good to me. 

 

But maybe I'm the guy with the hammer who thinks everything is a nail. I'm only in 12 positions and 5 of those are real estate related (JOE, HHC, SRG, BAM & TPHS).

 

Not clear to me why those floors. They probably would like to curate the available inventory at the beginning for marketing purposes. The next real catalyst is the refi of the construction loan.

 

in many cases, developers don't finish until a certain % are sold

 

now that the NYC market has cooled, my guess is they are doing what work they can given whatever capital constraints they may have, but pricing on these units certainly reflect softness relative to say 2-3 yrs ago

 

likely just a cycle and bounces back... 77 Greenwich St is not in the most desirable location in NYC in which to live, but someone will and Brookfield Place and other new amenities make it a much better place to live than say 20 years ago

[Saluki]

Article about the 77 Greenwich property that TPHS is building

 

https://www.nytimes.com/2019/05/11/realestate/from-slacks-to-square-footage.html

 

Doesn't add a lot to what we already know about it, but has some nice pictures of what the inside and outside will look like when completed. 

[Saluki]

I'm still waiting for the results of the pre-sales from the new sales office for 77 Greenwich to come in before I add size to my position, but I've been nibbling at this a little when it dips below $4. It looks like Michael Price increased his position by 50% in a block trade for shares he bought from another investor. He and Marty Whitman's Third Avenue fund now own 36% combined.

 

https://finance.yahoo.com/news/michael-price-adds-stake-popular-232935138.html

 

I'd like to take a bigger bite of this, but since most of the upside in this stock is one asset and they have one way to win, I want to make sure I'm on the winning side, but I don't want to miss the run up either. 

[morob]

Key here is when will they refinance the construction loan. That should be the next catalyst. They are probably waiting for some pre-sales to show in order to get better terms, so another 2-3 months from here.

 

The removal of the Marcato exit overhang is important. It's looks like a good risk/return from here.

[tu2]

I'm focused on cash flows, but sometimes accounting numbers can get market attention. Seems like $60+M of deferred real estate deposits related to the school condominium will be recognized as revenue in Q3 when title transfers to the city/state. Most of that should fall to bottom line thanks to NOLs. May be another catalyst.

[Saluki]

Some nice shots of the exterior in progress.  Looks like the outside glass curtain wall is almost done one side. 

 

https://newyorkyimby.com/2019/08/77-greenwich-streets-facade-quickly-climbing-above-financial-district.html

[Saluki]

I was in NYC last week, so I did my customary visit to the Bronze Wall Street Charging Bull statue and tapped on it's balls for luck, then headed down to 77 greenwich to look at the TPHS property there. 

 

I've been nibbling a bit and adding a little to my TPHS position because it seems really cheap at this point.

 

My only real concern is not with 77 Greenwich, but with a taller property up the street by a different developer (125 Greenwich). 

 

https://therealdeal.com/2019/07/29/florida-developer-takes-over-defaulted-debt-on-125-greenwich/

 

My Concern was that if the developer goes under, then would some firesale priced properties compete with the units at 77 Greenwich?  After thinking about it, I think the opposite is true.  If you want to live/work in the financial district, and have over $1mm to plunk down on a property with a river view, would you look at TPHS or give your money to the other guy who is bankruptcy and being sued by two sets of people who arguing over the property and cash?  I wouldn't fork over money until the cash settles b/c I don't want my money to be an asset (secured or unsecured) that would be the subject of litigation when a property is available up the street with non such headaches. So this makes TPHS' property more attractive by comparison, IMHO.  The apartment buildings in Brooklyn and strip malls properties that were once Filene's Basement/Syms are just icing on the valuation cake.

 

Am I right about this or engaging in confirmation bias?

[Deepdive]

I was in NYC last week, so I did my customary visit to the Bronze Wall Street Charging Bull statue and tapped on it's balls for luck, then headed down to 77 greenwich to look at the TPHS property there. 

 

I've been nibbling a bit and adding a little to my TPHS position because it seems really cheap at this point.

 

My only real concern is not with 77 Greenwich, but with a taller property up the street by a different developer (125 Greenwich). 

 

https://therealdeal.com/2019/07/29/florida-developer-takes-over-defaulted-debt-on-125-greenwich/

 

My Concern was that if the developer goes under, then would some firesale priced properties compete with the units at 77 Greenwich?  After thinking about it, I think the opposite is true.  If you want to live/work in the financial district, and have over $1mm to plunk down on a property with a river view, would you look at TPHS or give your money to the other guy who is bankruptcy and being sued by two sets of people who arguing over the property and cash?  I wouldn't fork over money until the cash settles b/c I don't want my money to be an asset (secured or unsecured) that would be the subject of litigation when a property is available up the street with non such headaches. So this makes TPHS' property more attractive by comparison, IMHO.  The apartment buildings in Brooklyn and strip malls properties that were once Filene's Basement/Syms are just icing on the valuation cake.

 

Am I right about this or engaging in confirmation bias?

 

Saluki,

 

I think that TPHS just have too much "single property" risk associated with it.  All the value is tied up in 77 Greenwich.  I would just limit your position size properly.  Over 5% would be tough as there is a potential for permanent impairment if we go into a bad recession.  It has a bit of "running through firework factory with lit matches dynamics."

 

Look out for the midgets, you don't have to wrestle the heavyweights.

[Saluki]

Thanks deepdive,

 

It's not a huge position for me, but I just keep scratching my head and wondering what I'm missing.  I know it's not apples to apples, but I remember when Brookfield (over)paid $1.6 billion for that Kushner property that needed to be completely rehabbed and I think that just selling the dirt this asset is sitting on in the financial district would get you to the market cap + debt, but adding a brand new shining building and it should be a no-brainer (absent a crash in manhattan real estate prices). 

 

I think you're right about the single-asset risk.  I own some HHC, which his a lot of levers to pull to make money but this may be undervalued by the market because it's the elephant gun with only one bullet in the chamber.