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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

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 001-08546

TRINITY PLACE HOLDINGS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

22-2465228

(State or Other Jurisdiction of

(I.R.S. Employer Identification No.)

Incorporation or Organization)

 

 

 

340 Madison Avenue, New York, New York

10173

(Address of Principal Executive Offices)

(Zip Code)

(212) 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

Common Stock $0.01 Par Value Per Share

 

TPHS

 

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. 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). 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 

Accelerated Filer 

Non-Accelerated Filer 

Smaller Reporting Company 

Emerging Growth Company 

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

    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 32,172,107 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

Table of Contents

INDEX

 

 

PAGE NO.

PART I.

FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 (audited)

3

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)

4

Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, June 30 and September 30, 2020 and 2019 (unaudited)

5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 (unaudited) and September 30, 2019 (unaudited)

6

Notes to Condensed Consolidated Financial Statements (unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4.

Controls and Procedures

40

PART II.

OTHER INFORMATION

41

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

43

2

Table of Contents

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, 

December 31, 

    

2020

    

2019

(unaudited)

(audited)

ASSETS

 

  

 

  

Real estate, net

$

263,883

$

293,226

Cash and cash equivalents

 

5,192

 

9,196

Restricted cash

 

12,972

 

9,474

Prepaid expenses and other assets, net

 

2,639

 

9,097

Investments in unconsolidated joint ventures

 

19,893

 

10,673

Receivables

 

1,017

 

1,836

Deferred rents receivable

67

6

Right-of-use asset

 

1,651

 

1,904

Intangible assets, net

 

9,357

 

9,912

Total assets

$

316,671

$

345,324

LIABILITIES

 

  

 

  

Loans payable, net

$

185,951

$

169,735

Corporate credit facility, net

29,880

Secured line of credit, net

 

7,144

 

5,236

Note payable

5,863

670

Deferred real estate deposits

 

 

82,856

Accounts payable and accrued expenses

 

12,707

 

22,243

Pension liabilities

 

524

 

1,033

Lease liability

1,805

2,065

Warrant liability

465

1,795

Total liabilities

 

244,339

 

285,633

Commitments and Contingencies

 

  

 

  

STOCKHOLDERS’ EQUITY

 

  

 

  

Preferred stock, $0.01 par value; 40,000,000 shares authorized; no shares issued and outstanding

 

 

Preferred stock, $0.01 par value; 2 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019

 

 

Special stock, $0.01 par value; 1 share authorized, issued and outstanding at September 30, 2020 and December 31, 2019

 

 

Common stock, $0.01 par value; 79,999,997 shares authorized; 38,326,367 and 37,612,465 shares issued at September 30, 2020 and December 31, 2019, respectively; 32,152,934 and 31,881,961 shares outstanding at September 30, 2020 and December 31, 2019, respectively

 

383

 

376

Additional paid-in capital

 

135,684

 

134,217

Treasury stock (6,173,433 and 5,730,504 shares at September 30, 2020 and December 31, 2019, respectively)

 

(56,791)

 

(55,731)

Accumulated other comprehensive loss

 

(2,837)

 

(3,174)

Retained earnings (accumulated deficit)

 

(4,107)

 

(15,997)

Total stockholders’ equity

 

72,332

 

59,691

Total liabilities and stockholders’ equity

$

316,671

$

345,324

See Notes to Condensed Consolidated Financial Statements

3

Table of Contents

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, 

September 30, 

    

2020

    

2019

2020

    

2019

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenues

  

  

 

  

  

 

Rental revenues

$

196

$

946

$

774

$

3,520

Other income

80

231

Total revenues

 

276

 

946

 

1,005

 

3,520

Operating Expenses

 

  

 

  

 

  

 

  

Property operating expenses

 

2,709

 

1,191

 

5,464

 

2,687

Real estate taxes

 

19

 

90

 

59

 

264

General and administrative

 

1,188

 

1,286

 

3,953

 

3,971

Pension related costs

165

183

495

549

Transaction related costs

 

27

 

29

 

131

 

166

Depreciation and amortization

 

690

 

600

 

2,076

 

2,377

Total operating expenses

 

4,798

 

3,379

 

12,178

 

10,014

Operating loss

(4,522)

(2,433)

(11,173)

(6,494)

Gain on sale of school condominium

24,196

Equity in net loss from unconsolidated joint ventures

 

(176)

 

(218)

 

(1,302)

 

(626)

Unrealized (loss) gain on warrants

(58)

1,330

Interest (expense) income, net

 

(545)

 

14

 

(795)

 

53

Interest expense - amortization of deferred finance costs

 

(40)

 

 

(148)

 

(Loss) income before taxes

 

(5,341)

 

(2,637)

 

12,108

 

(7,067)

Tax expense

 

(51)

 

(8)

 

(218)

 

(199)

Net (loss) income attributable to common stockholders

$

(5,392)

$

(2,645)

$

11,890

$

(7,266)

Other comprehensive gain (loss):

 

 

  

 

 

  

Unrealized gain (loss) on pension liability

 

112

 

116

 

337

 

(1,302)

Comprehensive (loss) income attributable to common stockholders

$

(5,280)

$

(2,529)

$

12,227

$

(8,568)

(Loss) income per share - basic

$

(0.17)

$

(0.08)

$

0.37

$

(0.23)

(Loss) income per share - diluted

$

(0.17)

$

(0.08)

$

0.36

$

(0.23)

Weighted average number of common shares - basic

 

32,297

 

31,953

 

32,290

 

31,896

Weighted average number of common shares - diluted

 

32,297

 

31,953

 

32,731

 

31,896

See Notes to Condensed Consolidated Financial Statements

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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)

 

37,161

$

372

$

132,831

 

(5,514)

$

(54,758)

$

(15,466)

$

(3,518)

$

59,461

Net loss attributable to common stockholders

 

 

 

 

 

 

(2,213)

 

 

(2,213)

Settlement of stock awards

 

329

 

3

 

 

(134)

 

(566)

 

 

 

(563)

Unrealized gain (loss) on pension liability

 

 

 

 

 

 

1,649

 

(1,533)

 

116

Stock-based compensation expense

332

332

Balance as of March 31, 2019 (unaudited)

 

37,490

$

375

$

133,163

 

(5,648)

$

(55,324)

$

(16,030)

$

(5,051)

$

57,133

Net loss attributable to common stockholders

 

 

 

 

 

 

(2,408)

 

 

(2,408)

Settlement of stock awards

 

109

 

1

 

 

(51)

 

(203)

 

 

 

(202)

Unrealized gain on pension liability

 

 

 

 

 

 

 

115

 

115

Stock-based compensation expense

 

 

 

351

 

 

 

 

 

351

Balance as of June 30, 2019 (unaudited)

 

37,599

$

376

$

133,514

 

(5,699)

$

(55,527)

$

(18,438)

$

(4,936)

$

54,989

Net loss attributable to common stockholders

 

 

 

 

 

 

(2,645)

 

 

(2,645)

Settlement of stock awards

 

4

 

 

 

 

 

 

 

Unrealized gain on pension liability

 

 

 

 

 

 

 

116

 

116

Stock-based compensation expense

 

 

 

353

 

 

 

 

 

353

Balance as of September 30, 2019 (unaudited)

 

37,603

$

376

$

133,867

 

(5,699)

$

(55,527)

$

(21,083)

$

(4,820)

$

52,813

Balance as of December 31, 2019 (audited)

 

37,612

$

376

$

134,217

 

(5,731)

$

(55,731)

$

(15,997)

$

(3,174)

$

59,691

Net loss attributable to common stockholders

 

 

 

 

 

 

(3,253)

 

 

(3,253)

Settlement of stock awards

 

438

 

4

 

 

(197)

 

(648)

 

 

 

(644)

Unrealized gain on pension liability

 

 

 

 

 

 

 

112

 

112

Stock-based compensation expense

280

280

Stock-based consulting fees

190

2

598

600

Stock buy-back

 

 

 

 

(74)

 

(134)

 

 

 

(134)

Balance as of March 31, 2020 (unaudited)

 

38,240

$

382

$

135,095

 

(6,002)

$

(56,513)

$

(19,250)

$

(3,062)

$

56,652

Net income attributable to common stockholders

 

 

 

 

 

 

20,535

 

 

20,535

Settlement of stock awards

 

66

 

1

 

 

(26)

 

(52)

 

 

 

(51)

Unrealized gain on pension liability

 

 

 

 

 

 

 

113

 

113

Stock-based compensation expense

294

294

Stock buy-back

 

 

 

 

(136)

 

(213)

 

 

 

(213)

Balance as of June 30, 2020 (unaudited)

 

38,306

$

383

$

135,389

 

(6,164)

$

(56,778)

$

1,285

$

(2,949)

$

77,330

Net loss available to common stockholders

 

 

 

 

 

 

(5,392)

 

 

(5,392)

Settlement of stock awards

 

20

 

 

 

 

 

 

 

Unrealized gain on pension liability

 

 

 

 

 

 

 

112

 

112

Stock-based compensation expense

 

 

 

295

 

 

 

 

 

295

Stock buy-back

 

 

 

 

(9)

 

(13)

 

 

 

(13)

Balance as of September 30, 2020 (unaudited)

 

38,326

$

383

$

135,684

 

(6,173)

$

(56,791)

$

(4,107)

$

(2,837)

$

72,332

See Notes to Condensed Consolidated Financial Statements

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TRINITY PLACE HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

(unaudited)

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net income (loss) attributable to common stockholders

$

11,890

$

(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

 

2,224

 

2,377

Stock-based compensation expense

 

602

 

675

Gain on sale of school condominium

 

(24,196)

 

Deferred rents receivable

 

(61)

 

(33)

Other non-cash adjustments - pension expense

 

337

 

346

Unrealized gain on warrants

(1,330)

Equity in net loss from unconsolidated joint ventures

 

1,302

 

626

Distribution from unconsolidated joint ventures

865

33

Decrease (increase) in operating assets:

 

 

Receivables

 

2,319

 

(73)

Prepaid expenses and other assets, net

 

355

 

476

(Decrease) increase in operating liabilities:

 

 

Accounts payable and accrued expenses

 

(807)

 

1,088

Pension liabilities

 

(509)

 

(1,010)

Net cash used in operating activities

 

(7,009)

 

(2,761)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Additions to real estate

 

(39,772)

 

(71,484)

Deferred real estate deposits of condominiums

 

1,971

 

30,664

Investments in unconsolidated joint ventures

(10,575)

Net cash used in investing activities

 

(48,376)

 

(40,820)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Proceeds from loans and corporate facility

69,740

42,448

Proceeds from secured line of credit

 

4,400

 

5,037

Payment of finance costs

(339)

(148)

Repayment of loans and secured line of credit

(17,868)

Settlement of stock awards

 

(695)

 

(765)

Stock buy-back

 

(359)

 

Net cash provided by financing activities

 

54,879

 

46,572

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

(506)

 

2,991

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

 

18,670

 

14,025

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

$

18,164

$

17,016

CASH AND CASH EQUIVALENTS, BEGINNING PERIOD

$

9,196

$

11,496

RESTRICTED CASH, BEGINNING OF PERIOD

 

9,474

 

2,529

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

$

18,670

$

14,025

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

5,192

$

5,705

RESTRICTED CASH, END OF PERIOD

 

12,972

 

11,311

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

$

18,164

$

17,016

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

  

Cash paid during the period for: Interest

$

11,466

$

9,072

Cash paid during the period for: Taxes

$

196

$

312

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

Accrued development costs included in accounts payable and accrued expenses

$

7,246

$

10,864

Capitalized amortization of deferred financing costs and warrants

$

2,107

$

2,105

Capitalized stock-based compensation expense

$

267

$

362

Right-of-use asset

$

$

1,986

Lease liabilities

$

$

(2,149)

See Notes to Condensed Consolidated Financial Statements

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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 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.

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 $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.

Note 2 – Summary of Significant Accounting Policies

Basis 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”).

a.

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

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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.

b.

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 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

 

10 - 39 years

Tenant improvements

 

Shorter of remaining term of the lease or useful life

Furniture and fixtures

 

5 - 8 years

g.

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

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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 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.

h.

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, 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.

j.

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

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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.

m.

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 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.

o.

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 441,166 restricted stock units that have vested but not yet settled and 7,179,000 warrants exercisable at $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 $6.0 million and $3.0 million at September 30, 2020 and December 31, 2019, respectively. Costs for our $70 million corporate credit facility of $5.0 million were included in prepaid expenses and other assets, net at December 31, 2019. Deferred finance costs are amortized over the

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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.

q.

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 $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 single lease component in accordance with ASC 842. Also, we elected the ‘package or practical expedients’ approach which allows us not to reassess our previous conclusions about lease identification, lease classification and initial direct costs.

Note 3 – Real Estate, Net

As of September 30, 2020 and December 31, 2019, real estate, net, includes the following (in thousands):

September 30, 

December 31, 

    

2020

    

2019

(unaudited)

(audited)

Real estate under development

$

197,525

$

225,673

Building and building improvements

 

41,358

 

41,358

Tenant improvements

 

127

 

125

Furniture and fixtures

 

720

 

708

Land and land improvements

 

27,939

 

27,939

 

267,669

 

295,803

Less: accumulated depreciation

 

3,786

 

2,577

$

263,883

$

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.

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Depreciation expense amounted to approximately $403,000 and $402,000 for the three months ended September 30, 2020 and 2019, respectively, and $1.2 million and $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 $81.2 million, excluding transaction costs of approximately $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 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.

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 one year to 27.5 years. We amortize the amount allocated to values associated with real estate tax abatement over the estima