Investment Thesis:
Trinity Place Holdings (Trinity) has been battered in recent months. For background, see Azalea’s VIC analysis from November, 2015 and subsequent messages. At the current price, there is an imputed value of $1450/square foot for Trinity’s key asset: a condominium building under construction at 77 Greenwich Street in lower Manhattan. Yes, the market has softened in NYC. But it hasn’t softened anywhere close to the magnitude reflected in the stock price. I will show that it is hard to come up with a value much below $6/share barring a total collapse in the NY market and that a current value of $7.50-8.50/share, even reflecting market weakness, is realistic.
Corporate Presentations:
If this has piqued your interest, I would recommend reading the following company materials before going further:
1. Trinity Place Holdings Shareholders Meeting Presentation, June 15, 2017
2. Trinity Place Holdings Investor Presentation, April 25, 2018
77 Greenwich:
Construction is well underway on a 90 unit condo building. As the pictures in the presentations highlight, every unit will have unobstructed harbor views. Sales will start this spring and the building should be ready for occupancy in mid-late 2020. New York City will buy the lower floors of the building for a new elementary school, paying for its share of construction and a $41MM purchase price. The school is badly needed in the Financial District given the rapid population growth in recent years--over 60,000 residents today, or 3X the number in 2000. (Of course, having a school literally downstairs is a tremendous building amenity.)
Gilbane Construction is the construction manager under a guaranteed maximum contract. Trinity has arranged $189.5MM in construction financing which works like a line of credit at LIBOR (capped at 2.5%) +
8.25%. Management asserts that this line plus the payments from the City will at least fully cover construction costs.
The key variable underlying Trinity’s value is the selling price for apartments. In the April, 2018 presentation, there are useful charts on page 19 (showing per foot pricing at a range of values and subsequent valuation of the building), page 32 (translating those values and an estimate of the value of the rest of the company into fair value for the stock), and page 39 (showing comps at other recently built downtown buildings). The market is definitely softer than it was several months ago, but I believe that $2000/foot is a dire valuation and $2300/foot a more realistic valuation. At $2000/foot and $100MM in total for the other assets (the midpoint of management’s estimate is $137MM), it works out to $5.80/ share-- up 40% from current prices. At $2300/foot, which i i think is still a little conservative, and $120MM for the other assets, I get $7.70/share. Implicitly, management thinks more in the $9-10 range.
Other Assets:
Trinity’s strategy is to acquire apartment buildings in NYC with a focus on Brooklyn. The long-term dynamics of the market are excellent given robust job and population growth. Near-term, management believes that a wave of speculative building by people/entities who had no desire to be long-term owners will lead to forced selling. We will see. Interestingly, over the last 25 years rental rates in NYC apartments have compounded at slightly better than 4%/year.
To date, Trinity has bought The Berkley at 223 North 8th St. in Williamsburg in a 50/50 JV at the end of 2016 (with Pacolet, the real estate arm of the Milliken family) and 237 11th St., on the border between Park Slope and Gowanus. Both buildings are doing well and both have 421-A tax abatements, a city program that has expired. Total equity invested (at Trinity’s share) is $28MM. I think they are worth that or possibly a little more.
Trinity also owns 2 former Syms’ sites in Paramus, NJ and West Palm Beach, FL. Currently in Paramus, which is on a major retail corridor (Route 17) right next to the Garden State Parkway, Restoration Hardware and
Lenscrafters are the tenants. Trinity had a proposed deal with CarMax but the town turned down a zoning approval for a car lot (somewhat inexplicably given the area). Going forward it is likely that the company will find another tenant and retain a ground lease (as the CarMax deal was structured) or sell to a developer. There is an $11MM undrawn line of credit against the property, which is cash flow positive. The West Palm property is a little more problematic. Only about 70% occupied, the key tenant is a WalMart Marketplace. While it is also cash flow positive, it has $9MM in debt. Together, I value them at $12MM in a pessimistic case and $18MM in a realistic case--but honestly these are pure guesses.
There are three other important assets:
1. Cash: $17MM.
2. 77 Greenwich retail space: 7500 square feet. Based on conversations with people in the market, my conservative assumption is a $150/foot and more optimistic is $180/foot. This should translate into $20-25MM value.
3. Tax loss carryforwards: $231MM very long-lived federal dating back to
the Syms days. Of course, the more Trinity is able to realize for the condos at 77 Greenwich, the greater the present value. But we have taken that into account already by not tax affecting the proceeds from the condos. At a selling price of $2300/foot, I estimate that Trinity generate about $120-125MM in gains, leaving about $105MM for the future. Another shot in the dark here, but I’m valuing them presently at $20-25MM.
Hence, in all, I think a good range of total value for the other assets is $100-120MM.
Management and Key Shareholders:
Matt Messinger, an alumnus of Forest City Ratner, has been the CEO since soon after the emergence from bankruptcy. He controls over 1MM shares of stock and has been a steady, though small, buyer (as recently as yesterday!)--paying as much as $6.08 in last summer. Steve Kahn, CFO,
with a background in public accounting and at SL Green, has also been buying stock.
Third Avenue Management, primarily through their well-regarded Real Estate Value fund, has owned the stock since 2013 and currently owns just under 5MM shares. It has a designated member of the Board. MFP Partners (Michael Price) owns over 4MM shares and added 265,000 shares over the course of 2018. Other filing shareholders are Marcato Capital, DS Fund, and Horse Island Partners, an investment vehicle of Tom O’Malley (Phibro, Tosco and PBF). An impressive list, but so far no one has made any money.
