|Shares Out. (in M):||20||P/E||0||0|
|Market Cap (in $M):||122||P/FCF||0||0|
|Net Debt (in $M):||20||EBIT||0||0|
Trinity Place Holdings (“Trinity”, “TPHS” or “the Company”) offers investors* an opportunity to participate in the currently robust market for Manhattan real estate. The Company’s crown jewel asset is its real estate located at 28-42 Trinity Place in Lower Manhattan that boasts significant development potential. While the property/location currently has ~200k-300k square feet of development rights, the Company is believed to be in the process of assembling additional rights that could enable it to construct a tower totaling more than 1 million square feet, over three times its current authorization. Management is heavily incentivized (via equity compensation) to unlock value and it is worth noting that MFP Partners (~5% shareholder), which is led by renowned value investor Michael Price, has agreed to backstop a recent rights offering (up to $20 million commitment) that is being conducted to facilitate redevelopment of Trinity’s existing properties.
*At this point, due to low liquidity, the opportunity is likely only appropriate for smaller funds or for investors investing within their personal accounts.
Trinity is the successor to Syms, which operated as an off-price retailer under the Syms and Filene’s Basement banners and filed for bankruptcy in 2011. Subsequent to the Company’s chapter 11 filing, a number of its real estate holdings were sold, with proceeds used to pay former Syms creditors (~$11 million in claims remain outstanding/unpaid as of August 2015). In September 2012, Trinity emerged from bankruptcy with a portfolio of real estate, intellectual property and tax assets. The Company’s real estate holdings include the aforementioned Manhattan property, a shopping center located in West Palm Beach, FL and retail boxes in Westbury, NY and Paramus, NJ. In addition to its real estate, TPHS owns the rights to the Filene’s Basement trademark and Stanley Blacker brand as well as intellectual property associated with the “Running of the Brides” event and the slogan “An Educated Consumer is Our Best Customer.” The Company also holds $213 million of federal NOLs and $125 million of state NOLs.
Real Estate – Trinity Place Property is Crown Jewel:
The following provides a summary of the Company’s real estate that was included in Trinity's most recent 10-Q filing:
Trinity Place Property. The Trinity Place Property consists of a vacant 6-story commercial building of approximately 57,000 square feet, yielding approximately 174,000 square feet of zoning floor area as-of-right. We also have ownership of approximately 60,000 square feet of development rights from adjacent tax lots, one of which is owned in fee by us and has a 4-story landmark building.
Paramus Property. The Paramus property consists of a 1 and part 2-story, 73,000 square foot freestanding building and an outparcel building of approximately 4,000 square feet, for approximately 77,000 total square feet of rentable space. The 73,000 square foot building currently has no tenants, although we are in discussions with potential tenants on an ongoing basis. The outparcel building has a tenant which has a lease expiring in 2016 and which has been in the space since 1996. The primary building is comprised of approximately 47,000 square feet of ground floor space, and two separate mezzanine levels of approximately 21,000 and 5,000 square feet. The land area of the Paramus property consists of approximately 292,000 square feet, or approximately 6.7 acres.
West Palm Beach Property. The West Palm Beach property consists of a one-story neighborhood shopping center that contains approximately 112,000 square feet of rentable area, which includes three outparcel locations with approximately 11,000 combined square feet. The land area of the West Palm Beach property consists of approximately 515,000 square feet, or approximately 11.8 acres. As of October 8, 2015, the property is approximately 69% leased (77,413 square feet) to 18 tenants. Five of the 18 tenants are existing tenants on month to month leases, three of the 18 tenants have leases that expire through March 2016, while seven out of the 18 tenants are existing tenants who recently signed long term renewal leases at revised rents. Three of the 18 tenants are new tenants with recently executed leases and represent approximately 48,300 square feet. Two of the three tenants include Walmart Marketplace and Tire Kingdom, which both have accepted possession and are expected to open for business by the summer of 2016.
Westbury Property. The Westbury property consists of a 1-story building and lower level that in the aggregate contains approximately 92,000 square feet of rentable space. The land area of the Westbury property consists of approximately 256,000 square feet, or approximately 6.0 acres.
I believe that Trinity represents an excellent opportunity to participate in the robust real estate conditions currently being experienced in Manhattan. According to data from Cushman & Wakefield, the buildable price per square foot of sold land (south of 96th street) increased by 30% in 2014 to $578.67 vs. the $445.56 realized in 2013 and was 80% above 2011 levels ($322.23). Lower Manhattan has benefited from these robust real estate conditions and it is worth noting that the area now boasts a vibrant residential real estate market. In fact, asking prices for new condos at 50 West Street, which is located near Trinity’s NYC property, are in the $1,500-$2,000 per square foot range with the penthouse seeking a whopping $5,000 per square foot. According to data from Miller Samuel/Douglas Elliman, the average sales price per square feet during 4Q 2014 for Lower Manhattan was $1,256, slightly below the $1,284 the real estate firm reported for Manhattan as a whole.
Although there are currently just 200k-300k of development rights associated with the Company’s property in Lower Manhattan, there have been reports that a much larger tower is being planned for the site. There is a large historic site located in close proximity to the property (Trinity Church) with a significant amount of air rights that Trinity could potentially acquire and utilize. In April 2015, real estate development site New York YIMBY, stated that preliminary plans call for a mixed use (hotel, residential, other) project to be constructed on Trinity’s NYC site totaling 1 million feet and standing ~80 stories tall.
The Company’s Lower Manhattan property is in a prime location and its value should benefit from the increase in office supply associated with a number of new office buildings in the area including One World Trade Center (3 million square feet; opened 2014), Two World Trade Center (2.5 million square feet; expected 2018), Three World Trade Center (2.8 million square feet; expected 2018) and Four World Trade Center (2.3 million; opened in 2013). Meanwhile, there are two new transportation hubs in the area including Fulton Center (opened November 2014) and World Trade Center (expected to be completed and opened in 2016), which should further enhance the neighborhood’s appeal. While many may not consider Lower Manhattan a vibrant residential area, it is interesting to note that its residential population has doubled over the past 10 years. Although there were no new residential projects completed during 2014 in Lower Manhattan, there are a number slated for completion in the coming years.
While the Trinity Property is the most valuable, there could be other development opportunities within the Company’s remaining real estate assets including the Paramus, NJ property, which sits on nearly 7 acres of land and the Westbury, NY location that has 6 acres. Between 2012 and 2014, Trinity sold 12 of the former Syms properties, but held onto the four properties detailed above. Given the real estate experience of the current management team in the NYC area (see below), I suspect that there are likely development opportunities associated with the non-Manhattan properties that it has chosen to retain.
Rights Offering – MFP Partners Agrees to Backstop; Third Avenue Participating:
In November 2015, TPHS began a rights offering to provide funding for future development activities associates with its various properties. The following are some key highlights of the offering:
Rights are exercisable for up to 5 million shares of TPHS at a subscription price of $6 per share and the rights are non-transferable. Assuming the rights offering is fully subscribed, Trinity’s balance sheet will include $60 million in cash (~$2.24 a share). The rights offering expires on 11/30/2015.
MFP Partners (Michael Price), which currently owns ~5% of TPHS, has effectively agreed to backstop the rights offering (agreeing to commit up to $20 million) and has also entered into a special purchase agreement that could result in the issuance of an additional 1.7 million shares (in addition to the 5 million from the rights offering). MFP’s ownership in TPHS could increase to as much as 18% following the offering.
Major shareholder Third Avenue (17% stake) has agreed to participate in the rights offering representing 837k shares (~$5 million) and is eligible to purchase additional shares pursuant to an oversubscription privilege (at its discretion).
TPHS intends to use proceeds in connection with the “redevelopment, predevelopment and repositioning of existing properties, investment in new properties, to make payments contemplated by the Plan and general corporate purposes.”
Management – CEO Heavily Incentivized:
After emerging from bankruptcy, the Company has brought in a number of seasoned real estate executives to help it pursue development opportunities associated with its flagship property. In October 2013, Matthew Messinger was appointed CEO, joining the Company from noted real estate developer Forest City Ratner. Mr. Messinger had been with Forest City Ratner for 18 years prior to joining Trinity and most recently served as executive vice president and director of investment management, a position he was promoted to in 2006. Mr. Messinger is heavily incentivized (in terms of equity comp) to unlock value at the Company having been granted RSUs covering nearly 2 million shares over the past 2 years. An RSU award covering an additional 363k shares will likely be granted by the end of December 2015. In September 2015, Steven Kahn joined TPHS as its Chief Financial Officer, after serving in a similar capacity for United Realty. Mr. Kahn has 20 years of real estate accounting and financial experience. Miriam Harris joined the Company in February 2014 as an Executive Vice President from the New York City Economic Development Corporation where she led a team of real estate professionals who executed transformative public private partnerships on behalf of the city of New York (Seward Park, Cornell Technion Campus, etc.). Prior to the NYCEDC, Ms. Harris was with Forest City Ratner for over 10 years where she served as the development manager for the NY Times building and worked on the company’s hotel developments. In September 2015, Jeffrey Travia joined as Vice President of Acquisitions and Development. Mr. Travia has over ten years of real estate experience, most recently raising over $1 billion of capital for clients at Ackman-Ziff.
Online Retail Opportunity:
Trinity recently took its first step toward monetizing some of its valuable intellectual property. During the third quarter of FY 2015, TPHS launched its online marketplace FilenesBasement.com. The online retail industry is a crowded landscape these days, but perhaps the Company will be better able to capitalize on Filene’s loyal following by leveraging this new format.
Valuation – Attractive Risk/Reward:
I currently estimate that Trinity’s NAV approximates its current share price of ~$6 a share. In determining the NAV, I have valued the Company’s non-Manhattan real estate at ~$50-$60 million utilizing comparables and/or prior property assessed values. I have estimated the Company’s NYC real estate to be worth ~$100 million by valuing its current development rights at $450 per square foot. I believe this value is conservative; a nearby comparable property (125 Greenwich) with ~360k in development rights recently sold for $180 million ($501 per square foot). It should be noted that I have not assigned any value for the Company’s NOLs.
While this NAV does not look very appealing relative to the current stock price, I do not believe that investors such as MFP and Third Avenue (both firms have representatives on Trinity’s board) would have agreed to backstop/participate in the rights offering if there was not the opportunity for significant value creation beyond the Company’s current NAV. As a further testament to the value of Trinity’s NYC property, the Company recently borrowed $40 million at extremely favorable rates (prime + 1.25%) with its Lower Manhattan real estate and related air rights used as collateral (loan only requires interest payments through its 2017 maturity). If the property were to be developed beyond its current authorization, I believe the Company’s NAV would likely be more than double the current share price. Accordingly, I believe the shares offer an extremely attractive risk/reward scenario at current levels.
Selection of Trinity Place Holdings Resources:
Prospectus for Rights Offering:
First Look: 42 Trinity Place, Another Supertall Coming to the Financial District:
Matthew Messinger Bio:
42 Trinity Place:
Manhattan’s Riskiest Development Deals:
The Dirt on NYC’s Soaring Land Values:
ABS Partners Real Estate’s 2Q 2015 update (see P. 31):
Trinity Place Raising Up To $30M To Develop Former Assets of Filene's Basement:
Downturn in economic conditions adversely impacting Manhattan real estate values
Increased residential development/conversions in Lower Manhattan that leads to pricing pressures
Inability to secure adequate development rights and/or financing to complete redevelopment
Potential for future dilutive rights offerings
Acquisition of additional development rights following completion of rights offering
Development of Manhattan property or sale to another developer
Sale or development of the Company’s non-Manhattan real estate
Traction with online-retailer FilenesBasement.com or monetization of other intellectual property