The following discussion related to our consolidated financial statements should
be read in conjunction with the financial statements appearing in Item 8 of this
Annual Report on Form 10-K/A.
Overview
We are a real estate holding, investment, development and asset management
company. Our largest asset is currently 77 Greenwich Street in Lower Manhattan
("77 Greenwich"), which is nearing completion of 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 recently built 105-unit,
12-story multi-family property located at 237 11th Street in Brooklyn, New York
("237 11th"), and, through joint ventures, a 50% interest in a recently built
95-unit multi-family property known as The Berkley, located at 223 North 8th
Street, Brooklyn, New York ("The Berkley) which is under contract for sale, and
a 10% interest in a recently built 234-unit multi-family property located one
block from The Berkley at 250 North 10th Street ("250 North 10th"). In addition
we own a property occupied by retail tenants in Paramus, New Jersey. See Item 2.
Properties above for a more detailed description of our properties. In addition
to our real estate portfolio, we also control a variety of intellectual property
assets focused on the consumer sector, a legacy of our predecessor, Syms Corp.
("Syms"). We also had approximately $254.8 million of federal net operating loss
carry forwards ("NOLs") at December 31, 2021, which can be used to reduce our
future taxable income and capital gains.
We continue to evaluate new investment opportunities, with a focus on newly
constructed multi-family properties in New York City as well as properties in
close proximity to public transportation in the greater New York metropolitan
area. We consider investment opportunities involving other types of properties
and real estate related assets, as well as repurchases of our common stock,
taking into account our cash position, liquidity requirements, and our ability
to raise capital to finance our growth. In addition, we may selectively consider
potential acquisition, development and fee-based opportunities, as well as
disposition, sale or consolidation opportunities.
Impact of COVID-19
Our business, financial condition, results of operations and stock price have
been and may continue to be adversely impacted by the outbreak of COVID-19 and
resulting restrictions and such impact could continue to be material. The extent
of the impact going forward will largely depend on future developments, which
are highly uncertain and cannot be predicted, including the severity and
duration of the outbreak, in New York City in particular, the success of actions
taken to contain or treat COVID-19, actions taken by governmental entities,
companies and individuals in response to the pandemic and reactions to such
actions, the impact on local and broader economic activity and capital markets
from the
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COVID-19 pandemic and new information that emerges with respect to the foregoing
and other aspects of COVID-19. The extent to which the COVID-19 pandemic will
impact the Company's business, operations and financial results in the future
will depend on numerous evolving factors that the Company is not able to predict
at this time, including, but not limited to, the impact on sales of residential
condominium units at 77 Greenwich, which has been material, and the impact on
the timing for construction of 77 Greenwich; the impact on the timing of the 237
11th litigation due to backlog in the New York City court system and the
slowdown in judicial proceedings, and the receipt of any payments we may receive
in connection with the litigation; increased operating costs related to cleaning
and disinfecting our properties; the effect of the pandemic on our tenants and
their ability to make rental payments; the impact of decisions of the NYC Rent
Guidelines Board on our ability to raise rents; our ability to raise capital in
the form of equity, debt, asset sales or otherwise on acceptable terms or at all
and our ability to enter into strategic or other transactions. These
developments and events have and will continue to adversely impact the Company's
business, financial condition, results of operations and stock price, which has
been and is anticipated to continue to be material, although in recent months we
have seen indications of a recovery in the New York City real estate market and
improvements in the financing markets, including our ability to successfully
refinance our 237 11th mortgage loan in June 2021 and our 77 Greenwich
construction facility in October 2021. See Note 1 - Business to our
consolidated financial statements and Part II. Item 1A. Risk Factors, of this
Annual Report on Form 10-K/A for further information.
Vacancy rates for multi-family properties across all boroughs of New York City
increased since the start of the COVID-19 pandemic, with the largest increases
in Manhattan. The work from home phenomenon resulted in significant number of
people moving out of urban areas to suburban areas. This drove a drop in rental
rates and an increase in concessions resulting in lower net effective rents,
primarily on new leases. In recent months, with the implementation of COVID-19
vaccination programs and companies encouraging employees to return to the
office, more potential tenants are moving back into New York City, which has
resulted in an increase in face rents and a reduction in concessions. New York
State imposed a moratorium on tenant evictions in March 2020 which has been
extended several times, and was in place until January 15, 2022. Rent
collections at our properties have been strong and in line with pre-pandemic
collection rates. Notwithstanding these broader market trends, signs of
distress, including discounted sales prices and debt workouts, in the New York
City investment market have been almost non-existent over the past year.
Multi-family property sales transaction volumes increased in 2021 compared to
2020 and properties are being sold at record prices.
Transactions, Development and Other Activities During 2021
Continued Progress in Development of 77 Greenwich
As of December 31, 2021, all residential unit finishes were complete through the
34th floor and the 35th floor was prepped for wood flooring. We have received
our TCOs for floors 11-30 and 32-34, the lobby, mechanical rooms and portions of
the cellar and anticipate receiving TCOs for the balance of the development
through completion of the project. The project was approximately 92% complete at
December 31, 2021.
Other Activities
In June 2021, we refinanced the senior loan on 237 11th with a $60.0 million
loan from a new lender. Remediation work was completed as of December 31, 2021
? and the property was 97.1% leased. We also signed a lease for the remaining
retail space such that the retail space was 100% leased as of December 31,
2021. See Item 2. Properties above for additional information.
In October 2021, we closed on a new $166.7 million inventory loan for 77
? Greenwich and repaid the more expensive construction loan. The new loan has no
sales pace or financial covenants for the first 18 months.
Simultaneous with the closing of the inventory loan in October 2021, we closed
? on an increase of $22.0 million to our 77 Greenwich mezzanine loan with an
affiliate of the lender under our Corporate Credit Facility and amended that
facility.
? In October 2021, we completed a private placement and raised approximately $4.8
million.
? In December 2021, we completed a rights offering and raised approximately $1.7
million.
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As of December 31, 2021, we had closed on the sale of 14 residential
condominium units at 77 Greenwich, at an aggregate gross sales price of $24.8
million, and as of March 31, 2022 we had closed on three additional residential
condominium units at an aggregate gross sales price of $6.3 million. Other
units are under contract that are expected to close in the coming months, as
they are completed and TCOs are received, allowing for their occupancy. Units
? that closed during 2021were generally lower priced, smaller units on the
building's lower floors, many of which entered into contract during the height
of the pandemic. These units were completed first and were covered by the
initial TCOs. Getting these units under contract allowed us to obtain approval
from the New York State Attorney General and therefore start the closing
process on residential units. All proceeds from the sales of residential
condominiums are applied first to repayment of our 77 Greenwich Mortgage Loan
(as defined below) until it has been repaid in full.
Results of Operations
The discussion below includes the results of the restated financial statements
for the year ended December 31, 2021 and revised financial statements for the
year ended December 31, 2020 and 2019 whereby the Company identified an error in
the application of generally accepted accounting principles, principally as they
relate to the capitalization of construction soft costs and internally allocated
costs incurred in connection with the Company's development project at 77
Greenwich, which involves significant judgment. These adjustments decreased cost
of sales arising from the reduction in capitalized costs at 77 Greenwich. The
Company also identified and corrected an error related to the reclassification
of our Paramus property from under development to an operating property and an
error in the accounting treatment regarding certain advertising and marketing
costs which were capitalized to construction costs at the development project at
77 Greenwich Street and should have been expensed as incurred. See additional
discussion in Note 3 to this Form 10-K/A.
Results of Operations for the Year Ended December 31, 2021 (As Restated)
Compared to the Year Ended December 31, 2020 (As Revised)
Rental revenues increased by approximately $1.6 million to $3.2 million for the
year ended December 31, 2021 from $1.6 million for the year ended December 31,
2020. This consisted of an increase in rent revenues of approximately $1.6
million to $3.0 million for the year ended December 31, 2021 from $1.4 million
for the year ended December 31, 2020, partially offset by a decrease in tenant
reimbursements of approximately $3,000 to $188,000 for the year ended December
31, 2021 from $191,000 for the year ended December 31, 2020. The increase in
total revenues and its related components was due to higher occupancy, higher
face rents and less rent concessions at 237 11th during the year ended December
31, 2021 compared to the year ended December 31, 2020 due to the progress made
in remediating the construction related defects.
Other income increased by approximately $92,000 to $355,000 for the year ended
December 31, 2021 from $263,000 for the year ended December 31, 2020 which
consisted mainly of the forgiveness of our PPP Loan of $243,000 during the year
ended December 31, 2021, partially offset by lower SCA construction supervision
fees we recognized during the year ended December 31, 2021 in accordance with
the revenue recognition policies effective after the closing on the sale of the
school condominium to the SCA in April 2020.
In connection with the commencement of sales of residential condominium units at
77 Greenwich for the year ended December 31, 2021, we recorded gross sales
proceeds of approximately $23.7 million. Units that closed during 2021 were
generally lower priced, smaller units on the building's lower floors, many of
which entered into contract during the height of the pandemic. These units were
completed first and were covered by the initial TCOs. Getting these units under
contract allowed us to obtain approval from the New York State Attorney General
and therefore start the closing process on residential units.
Property operating expenses decreased by approximately $3.5 million to $5.6
million for the year ended December 31, 2021 from $9.1 million for the year
ended December 31, 2020. The decrease was principally due to reduced expenses
associated with 237 11th, including approximately $3.7 million in lower costs
incurred during the year ended December 31, 2021 compared to the year ended
December 31, 2020 to repair the construction related defects and $220,000 less
in other operating expenses. These reductions were partially offset by
increases of $220,000 in leasing commissions incurred as more apartment units at
237 11th were leased as they became fully remediated. Property operating
expenses consisted primarily of expenses incurred for utilities, payroll,
COVID-19 related supplies and general operating expenses as well as repairs and
maintenance and leasing commission at 237 11th as well as general advertising
and marketing expenses.
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Real estate tax expense increased by approximately $470,000 to $724,000 for the
year ended December 31, 2021 from $254,000 for the year ended December 31, 2020.
This increase was mainly due to less capitalized real estate taxes for 77
Greenwich in the year ended December 31, 2021 as compared to the year ended
December 31, 2020.
General and administrative expenses decreased by approximately $79,000 to $5.1
million for the year ended December 31, 2021 from $5.2 million for the year
ended December 31, 2020. For the year ended December 31, 2021, approximately
$477,000 related to stock-based compensation, $2.7 million related to payroll
and payroll related expenses, $1.1 million related to other corporate expenses,
including board fees, corporate office rent and insurance and $854,000 related
to legal, accounting and other professional fees. For the year ended December
31, 2020, approximately $765,000 related to stock-based compensation, $2.7
million related to payroll and payroll related expenses, $960,000 related to
other corporate expenses, including board fees, corporate office rent and
insurance and $788,000 related to legal, accounting and other professional fees
which included approximately $200,000 of legal fees to resolve a legacy Syms
claim related to the multiemployer pension plan.
Pension related costs decreased by approximately $278,000 to $67,000 for the
year ended December 31, 2021 from $345,000 for the year ended December 31, 2020.
These costs represent professional fees and other periodic pension costs
incurred in connection with the legacy Syms Pension Plan. See Note 10 - Pension
Plan to our consolidated financial statements for further information.
In connection with the commencement of sales of residential condominium units at
77 Greenwich for the year ended December 31, 2021, we recorded cost of sales of
approximately $22.4 million, which consists of construction and capitalized
operating costs that are allocated to the respective condominium units being
sold.
Transaction related costs were not incurred during the year ended December 31,
2021 and were $133,000 for the year ended December 31, 2020. These costs
represent professional fees and other costs incurred in connection with the
underwriting and evaluation of potential acquisitions and investments for
transactions that were not consummated, as well as costs for potential leases at
our retail properties that were not consummated.
Depreciation and amortization expense for the year ended December 31, 2021
increased by approximately $96,000 to $4.0 million for the year ended December
31, 2021 from $3.9 million for the year ended December 31, 2020. For the year
ended December 31, 2021, depreciation and amortization expense consisted of
depreciation for the Paramus, New Jersey property of $1.1 million, 237 11th of
approximately $1.7 million and the amortization of lease commissions, acquired
in-place leases and warrants of approximately $1.2 million. For the year ended
December 31, 2020, depreciation and amortization expense consisted of
depreciation for the Paramus, New Jersey property of $1.1 million 237 11th of
approximately $1.7 million and the amortization lease commissions, acquired
in-place leases and warrants of approximately $1.1 million. The slight increase
in depreciation and amortization expense for the year ended December 31, 2021
compared to the year ended December 31, 2020 was primarily due to amortization
of warrants.
Gain on sale of condominium of $24.2 million for the year ended December 31,
2020 consists of the sale of the school condominium to the SCA of $20.0 million
and an additional gain of $4.2 million related to the recognition of our
construction supervision fee. This gain was recorded upon the closing on the
sale of the school condominium to the SCA in April 2020.
Equity in net loss from unconsolidated joint ventures decreased by approximately
$1.0 million to $555,000 for the year ended December 31, 2021 from $1.6 million
for the year ended December 31, 2020. Equity in net loss from unconsolidated
joint ventures represents our 50% share in The Berkley and our 10% share in 250
North 10th. For the year ended December 31, 2021, our share of the loss is
primarily comprised of operating income before depreciation of $1.7 million
offset by depreciation and amortization of $1.5 million, interest expense of
$745,000 and the change in the fair market value of the interest rate swap of
$77,000. For the year ended December 31, 2020, our share of the loss was
primarily comprised of operating income before depreciation of $1.8 million
offset by depreciation and amortization of $2.6 million and interest expense of
$800,000.
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Unrealized gain on warrants decreased by approximately $892,000 to $73,000 for
the year ended December 31, 2021 from a $965,000 for the year ended December 31,
2020. This represents the change in the fair market valuation of the warrants
due mainly to the change in our stock price on the measurement date.
Interest expense, net increased by approximately $6.3 million to $7.9 million
for the year ended December 31, 2021 from $1.5 million for the year ended
December 31, 2020. For the year ended December 31, 2021, there was
approximately $21.2 million of gross interest expense incurred, $13.3 million of
which was capitalized into real estate under development, and $2,000 of interest
income. For the year ended December 31, 2020, there was approximately $17.2
million of gross interest expense incurred, $15.6 million of which was
capitalized, and $57,000 of interest income. The increase in gross interest
expense was due to the larger and growing borrowings outstanding on the 77
Greenwich Construction Facility during the period, which was refinanced in
October 2021, as well as new borrowings under the 77 Mortgage Loan, Corporate
Credit Facility, Mezzanine Loan and secured line of credit as described in more
detail in "Liquidity and Capital Resources" section below.
Interest expense - amortization of deferred costs increased approximately $1.2
million to $1.5 million for the year ended December 31, 2021 from $261,000 for
the year ended December 31, 2020. The increase was principally due to deferred
finance costs of $567,000 that were expensed in June 2021 due to the refinancing
of the 237 11th Loan, as well as the amortization of finance costs for our
loans and secured line of credit that were not capitalized as part of real
estate under development.
We recorded $265,000 in tax expense for the year ended December 31, 2021
compared to $306,000 in tax expense for the year ended December 31, 2020.
Net loss attributable to common stockholders increased by approximately $25.1
million to $20.8 million for the year ended December 31, 2021 from net income of
$4.3 million for the year ended December 31, 2020 as a result of the changes
discussed above, principally due to the gain on sale of the school condominium
to the SCA in April 2020 and less costs being capitalized.
Results of Operations for the Year Ended December 31, 2020 (as Revised) Compared
to the Year Ended December 31, 2019 (as Revised)
Rental revenues in total decreased by approximately $3.1 million to $1.6 million
for the year ended December 31, 2020 from $4.6 million for the year ended
December 31, 2019. This consisted of a decrease in rent revenues by
approximately $2.7 million to $1.4 million for the year ended December 31, 2020
from $4.0 million for the year ended December 31, 2019, as well as a decrease in
tenant reimbursements by approximately $407,000 to $191,000 for the year ended
December 31, 2020 from $598,000 for the year ended December 31, 2019. The
decrease in total revenues and its related components was partially due to the
sale of the West Palm Beach, Florida property (approximately $1.2 million) in
November 2019 as well as lower occupancy, lower face rents and increased rent
concessions at 237 11th due to certain construction related defects that are
being repaired.
Other income of $263,000 consisted mainly of the SCA construction supervision
fees we recognized since the closing on the sale of the school condominium to
the SCA in April 2020.
Property operating expenses increased by approximately $2.0 million to $9.1
million for the year ended December 31, 2020 from $7.1 million for the year
ended December 31, 2019. The increase was principally due to expenses associated
with 237 11th, including approximately $3.2 million more in costs incurred
during the year ended December 31, 2020 to repair the construction related
defects than during the year ended December 31, 2019. The increase was partially
offset by approximately $690,000 less in advertising and marketing expenses
incurred during the year ended December 31, 2020 compared to December 31, 2019
related to the sale of residential condominium units at 77 Greenwich, as well as
a reduction in expenses from the West Palm Beach, Florida property which was
sold in November 2019. These amounts consisted primarily of expenses incurred
for utilities, payroll, COVID-19 related supplies and general operating expenses
as well as repairs and maintenance at 237 11th.
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Real estate tax expense decreased by $256,000 to $254,000 for the year ended
December 31, 2020 from $510,000 for the year ended December 31, 2019, due
primarily to the sale of the West Palm Beach, Florida property in November 2019.
General and administrative expenses decreased by $460,000 to $5.2 million for
the year ended December 31, 2020 from $5.7 million for the year ended December
31, 2019. For the year ended December 31, 2020, approximately $785,000 related
to stock-based compensation, $2.7 million related to payroll and payroll related
expenses, $960,000 related to other corporate expenses, including board fees,
corporate office rent and insurance, and $788,000 related to legal, accounting
and other professional fees which included approximately $200,000 of legal fees
to resolve a legacy Syms claim related to the multiemployer pension plan. For
the year ended December 31, 2019, approximately $938,000 related to stock-based
compensation, $2.9 million related to payroll and payroll related expenses, $1.1
million related to other corporate expenses, including board fees, corporate
office rent and insurance and $743,000 related to legal, accounting and other
professional fees.
Pension related costs decreased by $388,000 to $345,000 for the year ended
December 31, 2020 from $733,000 for the year ended December 31, 2019. These
costs represent professional fees and other periodic pension costs incurred in
connection with the legacy Syms Pension Plan (see Note 10 - Pension Plans to our
consolidated financial statements for further information).
Transaction related costs decreased by $34,000 to $133,000 for the year ended
December 31, 2020 from $167,000 for the year ended December 31, 2019. These
costs represent professional fees and other costs incurred in connection with
the underwriting and evaluation of potential acquisitions and investments for
transactions that were not consummated, as well as costs for potential leases at
our retail properties that were not consummated.
Depreciation and amortization expense decreased by approximately $209,000 to
$3.9 million for the year ended December 31, 2020 from approximately $4.1
million for the year ended December 31, 2019. For the year ended December 31,
2020, depreciation and amortization expense consisted of depreciation for the
Paramus, New Jersey property of approximately $1.1 million, 237 11th of
approximately $1.7 million and the amortization of lease commissions, acquired
in-place leases and warrants of approximately $1.1 million. For the year ended
December 31, 2019, depreciation and amortization expense consisted of
depreciation for the Paramus, New Jersey property of approximately $1.1 million,
237 11th approximately $1.8 million and the amortization of trademarks and lease
commissions and acquired in-place leases of approximately $1.2 million. The
decrease in depreciation and amortization expense for the year ended December
31, 2020 compared to December 31, 2019 was primarily due to the in-place lease
costs at 237 11th being fully amortized by December 31, 2019 and the sale of the
West Palm Beach, Florida property in November 2019.
Gain on sale of condominium of $24.2 million for the year ended December 31,
2020 consists of the gain on sale of the school condominium to the SCA of $20.0
million and an additional gain of $4.2 million related to the recognition of our
construction supervision fee which had been deferred. This gain was recorded
upon the conveyance of the school condominium to the SCA in April 2020. Gain on
sale of real estate for the year ending December 31, 2019 of $9.5 million was
due to the sale of the West Palm Beach, Florida property in November 2019 for
consideration of $19.6 million.
Equity in net loss from unconsolidated joint ventures increased by approximately
$752,000 to $1.6 million for the year ended December 31, 2020 from approximately
$819,000 for the year ended December 31, 2019 primarily due to higher
depreciation and amortization expenses, approximately $800,000 of which was our
portion of the write-off of deferred finance costs in connection with the
refinancing of the Berkley Loan during the second quarter of 2020. This was
partially offset by higher rental revenue from the acquisition of 250 North 10th
in January 2020. Equity in net loss from unconsolidated joint ventures
represents our 50% share in The Berkley and our 10% share in 250 North 10th. For
the year ended December 31, 2020, our share of the loss is primarily comprised
of operating income before depreciation of $1.8 million offset by depreciation
and amortization of $2.6 million and interest expense of $800,000. For the year
ended December 31, 2019, our share of the loss, which consisted only of The
Berkley, is primarily comprised of operating income before depreciation of $1.2
million offset by depreciation and amortization of $1.0 million and interest
expense of $953,000.
Unrealized gain on warrants of $965,000 represents the change in the
mark-to-market of the valuation of warrants during the year ended December 31,
2020.
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Interest expense, net increased by $1.4 million to $1.5 million for the year
ended December 31, 2020 from approximately $113,000 for the year ended December
31, 2019. For the year ended December 31, 2020, there was approximately $17.2
million of gross interest expense incurred, $15.7 million of which was
capitalized, and $57,000 of interest income. For the year ended December 31,
2019, there was approximately $13.5 million of gross interest expense incurred,
substantially all of which was capitalized, and $67,000 of interest income. The
increase in gross interest expense and capitalized interest is due to the larger
and growing borrowings outstanding on the 77 Greenwich Construction Facility
during the period, as well as new borrowings under the Corporate Credit Facility
as described in more detail in the Liquidity and Capital Resources section
below.
Interest expense - amortization of deferred costs increased approximately
$222,000 to $261,000 for the year ended December 31, 2020 from $39,000 for the
year ended December 31, 2019. The increase was principally due amortization of
finance costs for our loans and secured line of credit that were not capitalized
as part of real estate under development.
We recorded $306,000 in tax expense for the year ended December 31, 2020
compared to $128,000 in tax in expense for the year ended December 31, 2019.
Net income attributable to common stockholders increased by approximately $9.6
million to $4.3 million for the year ended December 31, 2020 from a loss of $5.3
million for the year ended December 31, 2019 as a result of the changes
discussed above, principally the gain on sale of the school condominium to the
SCA.
Liquidity and Capital Resources
COVID-19 Pandemic, Management's Plans and Liquidity
The COVID-19 pandemic and related matters, including government actions, shifts
in residential consumer sentiment and changes to the broader and local
economies, have had a significant adverse impact on our business. While we
believe many of these trends will reverse and the New York City economy and
residential real estate markets will continue the improvement seen to date in
2022, given our focus on New York City residential real estate, our business has
been particularly impacted, and may continue to be, as described elsewhere in
this Annual Report on Form 10-K/A. Although the impact of the pandemic has
impeded the sale of residential condominium units at 77 Greenwich, the pace of
signing contracts has increased in 2021, and we closed on 14 residential
condominium units in 2021 and have closed on three additional residential
condominium units as of March 31, 2022, and residents are moving into their
respective units. Units sold during 2021 were smaller, lower floor units that
went under contract and closed during the height of the pandemic. These units
were completed first and were covered by the initial TCOs obtained. Getting
these units under contract allowed us to obtain AG approval of our condominium
plan and start closing on residential unit sales. However, we have a limited
amount of unrestricted cash and liquidity available for working capital and our
cash needs are variable under different circumstances. Although there are no
assurances that any transactions will be completed on acceptable terms or at
all, we are currently exploring pursuing a variety of capital raising and other
transactions, including the sale of certain assets or interests in assets,
capital raises through equity offerings, including our ATM Program, debt
borrowings, refinancings, including refinancing the Paramus line of credit and
property at 237 11th, and/or strategic transactions, in each case, with the goal
of maximizing the value of the assets and attributes of the Company while
balancing short-term liquidity constraints. In addition, The Berkley is under
contract for sale for a price of $71,020,000, which is currently anticipated to
close in April 2022.
We currently expect that our principal sources of funds to meet our short-term
and long-term liquidity requirements for working capital and funds for
acquisition and development or redevelopment of properties, tenant improvements,
leasing costs, and repayments of outstanding indebtedness will include some or
all of the following:
(1) cash on hand;
(2) proceeds from new debt financings, increases to existing debt financings
and/or other forms of secured or unsecured debt financing;
proceeds from equity or equity-linked offerings, including rights offerings
(3) or convertible debt or equity or equity-linked securities issued in
connection with debt financings;
(4) cash flow from operations; and
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(5) net proceeds from divestitures of properties or interests in properties,
including the sale of The Berkley by our joint venture.
Cash flow from operations is primarily dependent upon the occupancy level of our
portfolio, the net effective rental rates achieved on our leases, the
collectability of rent, operating escalations and recoveries from our tenants
and the level of operating and other costs.
As of December 31, 2021, we had total cash and restricted cash of $24.8 million,
of which approximately $4.3 million was cash and cash equivalents and
approximately $20.5 million was restricted cash. As of December 31, 2020, we had
total cash and restricted cash of $16.1 million, of which approximately $6.5
million was cash and cash equivalents and approximately $9.6 million was
restricted cash. Restricted cash represents amounts required to be restricted
under our loan agreements, letters of credit (see Note 12 - Loans Payable and
Secured Line of Credit to our consolidated financial statements for further
information), deposits on residential condominium sales at 77 Greenwich and
tenant related security deposits.
At this time, we believe our existing balances of cash and cash equivalents,
together with proceeds that may be raised from the sale of The Berkley, which is
under contract, subject to usual closing conditions and currently anticipated to
close in April 2022, planned refinancing of the Paramus line of credit, or sale
of the Paramus property and sales of the larger, higher floor condominium units
at 77 Greenwich will be sufficient to satisfy our working capital needs and
projected capital and other expenditures associated with our operations over the
next 12 months, and the Company has concluded that management's current plan
alleviates the substantial doubt about its ability to continue as a going
concern. Additionally, we continue to evaluate opportunities to raise capital
through sales of equity, including under our ATM program, debt issuances or
refinancings, including refinancing the property located at 237 11th Street, and
continue to evaluate dispositions of other properties or other assets and/or
sales of partial interests in properties. Facts and circumstances could change
in the future that are outside of management's control, such as additional
government mandates, health official orders, travel restrictions and extended
business shutdowns due to COVID-19, and the impact of such matters on
residential sentiment in New York City in particular.
Corporate Credit Facility
In December 2019, we entered into a credit agreement (the "Corporate Credit
Facility" or "CCF") with an affiliate of a global institutional investment
management firm as initial lender (the "CCF Lender") and Trimont Real Estate
Advisors, LLC, as administrative agent (the "Corporate Facility Administrative
Agent"), pursuant to which the CCF Lender agreed to extend us credit in multiple
draws aggregating $70.0 million, which provided for an increase by $25.0 million
subject to satisfaction of certain conditions and the consent of the CCF Lender.
Draws under the Corporate Credit Facility were originally permitted to be made
during the 32-month period following the closing date of the CCF (the "Closing
Date"). The CCF matures on December 19, 2024, subject to extensions until
December 19, 2025 and June 19, 2026, respectively, under certain circumstances.
The CCF provided for the proceeds of the Corporate Credit Facility to be used
for investments in certain multi-family apartment buildings in the greater New
York City area and certain non-residential real estate investments approved by
the CCF Lender in its reasonable discretion, as well as in connection with
certain property recapitalizations and in specified amounts for general
corporate purposes and working capital. The CCF bears interest at a rate per
annum equal to the sum of (i) 5.25% and (ii) a scheduled interest rate (the
"Cash Pay Interest Rate") based on six-month periods from the Closing Date,
which Cash Pay Interest Rate, from the Closing Date until the six-month
anniversary of the Closing Date initially equaled 4.0% and increases by 125
basis points in each succeeding six-month period, subject to increase during the
extension periods. A $2.45 million commitment fee was payable 50% on the initial
draw and 50% as amounts under the CCF are drawn, with any remaining balance due
on the last date of the draw period, and a 1.0% exit fee is payable in respect
of CCF repayments. As of December 31, 2021, we had paid $1.85 million of the
commitment fee. The CCF may be prepaid at any time subject to a prepayment
premium on the portion of the CCF being repaid.
At December 31, 2021, the Corporate Credit Facility had an outstanding balance
of $35.75 million, excluding deferred finance fees of $2.9 million, and an
effective interest rate of 9.63%. Accrued interest totaled approximately $3.8
million at December 31, 2021, which included approximately $413,000 of interest
that was paid the first week of January 2022. See Note 12 - Loans Payable and
Secured Line of Credit to our consolidated financial statements for further
discussion.
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In connection with the December 2020 transaction noted below, the Company
entered into an amendment to the Corporate Credit Facility (the "Corporate
Facility Amendment") pursuant to which, among other things, (i) the CCF Lender
and the Corporate Facility Administrative Agent permitted the Company to enter
into the Mezzanine Loan Agreement (as defined below), the amendment to the 77
Greenwich Construction Facility and related documents, (ii) the commitment made
by the CCF Lender under the Corporate Credit Facility was reduced by the amount
of the Mezzanine Loan (as defined below) from $70.0 million to $62.5 million,
subject to increase by $25.0 million upon satisfaction of certain conditions and
the consent of the CCF Lender, and (iii) the multiple on invested capital, or
MOIC, amount that would be due and payable by the Company upon the final
repayment of the loan pursuant to the Corporate Credit Facility if no event of
default exists and is continuing under the Corporate Credit Facility at any time
prior to December 22, 2022, was amended to combine the Corporate Credit Facility
and the Mezzanine Loan for purposes of calculating the MOIC, to the extent not
previously paid, if any. See Note 12 - Loans Payable and Secured Line of Credit
to our consolidated financial statements for further discussion.
In connection with the closing of the 77 Mortgage Loan and amendment to the
Mezzanine Loan described below, we entered into amendments, dated as of October
22, 2021 and November 10, 2021, to our CCF pursuant to which, among other
things, the parties agreed that no additional funds will be drawn under the CCF,
the minimum liquidity requirement was made consistent with the 77 Mortgage Loan
Agreement until May 1, 2023 and the MOIC provisions were revised to provide that
(i) the MOIC amount due upon final repayment of the CCF loan was amended to be
consistent with the Mezzanine Loan such that if no event of default exists and
is continuing under the CCF at any time prior to June 22, 2023, the amount due
will be combined with the Mezzanine Loan, to the extent not previously paid, if
any, and (ii) the amount of the CCF used to calculate the MOIC was reduced to
$35.75 million.
In connection with the Corporate Credit Facility, we also entered into a warrant
agreement with the CCF Lender pursuant to which we issued to the CCF Lender
ten-year warrants (the "Warrants") to purchase up to 7,179,000 shares of our
common stock. In connection with the Corporate Facility Amendment, the exercise
price of the Warrants was amended from $6.50 per share to $4.31 per share,
payable in cash or pursuant to a cashless exercise. See Note 13 - Stockholders
Equity - Warrants to our consolidated financial statements for further
discussion regarding the warrants.
As of December 31, 2021, we were in compliance with all covenants of the CCF.
77 Greenwich Construction Facility
In December 2017, we closed on a $189.5 million construction facility for 77
Greenwich (the "77 Greenwich Construction Facility"). We drew down proceeds as
costs related to the construction of the new mixed-use building were incurred.
There was an outstanding balance of approximately $159.4 million on the 77
Greenwich Construction Facility at September 30, 2021. See Note 12 - Loans
Payable and Secured Line of Credit to our consolidated financial statements for
further discussion. As a result of the refinancing transaction in October 2021,
the 77 Greenwich Construction Facility was repaid in full.
77 Mortgage Loan
In October 2021, a wholly-owned subsidiary of ours (the "Mortgage Borrower")
entered into a loan agreement with Macquarie PF Inc., a part of Macquarie
Capital, the advisory, capital markets and principal investment arm of Macquarie
Group, as lender and administrative agent (the "77 Mortgage Lender"), pursuant
to which 77 Mortgage Lender agreed to extend credit to Mortgage Borrower in the
amount of up to $166.7 million (the "77 Mortgage Loan"), subject to the
satisfaction of certain conditions (the "77 Mortgage Loan Agreement"). The 77
Greenwich Construction Facility had an aggregate balance of $159.4 million at
the time it was repaid in full at closing of the 77 Mortgage Loan. We borrowed
$133.1 million on the closing date of the 77 Mortgage Loan and the balance of
the funds used to repay the facility were obtained from an increase in the
Mezzanine Loan, the Berkley Partner Loan as well as funds raised through the
Private Placement. The $33.6 million remaining availability will be used to,
among other things, complete construction of 77 Greenwich and fund carry costs
while the residential condominium units are being sold.
The 77 Mortgage Loan has a two-year term with an option to extend for an
additional year under certain circumstances and is secured by the Mortgage
Borrower's fee interest in 77 Greenwich. The 77 Mortgage Loan bears interest at
a rate
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per annum equal to the greater of (i) 7.00% in excess of LIBOR and (ii) 7.25%;
provided that, if, on April 22, 2023, the outstanding principal balance of the
77 Mortgage Loan, together with any accrued and unpaid PIK Interest and unpaid
Additional Unused Fee (as those terms are defined below) is equal to or greater
than $91.0 million, the rate per annum will be equal to the greater of (i) 9.00%
in excess of LIBOR and (ii) 9.25%. If cash flow from 77 Greenwich (including
proceeds from the sales of residential units) is insufficient to pay interest
payments when due, any accrued but unpaid interest will remain unpaid and
interest will continue to accrue on such unpaid amounts ("PIK Interest") until
the cumulative PIK Interest and Additional Unused Fee accrues to $4.5 million
(the "Threshold Amount"), after which all such amounts in excess of the
Threshold Amount shall be paid in cash on a monthly basis until such amounts are
less than the Threshold Amount. As advances of the 77 Mortgage Loan are made to
Mortgage Borrower and the outstanding principle balance of the 77 Mortgage Loan
increases, net proceeds from the sales of condominium units will be paid to 77
Mortgage Lender to reduce the outstanding balance of the 77 Mortgage Loan. A 1%
per annum fee (the "Additional Unused Fee") on a $3.0 million portion (the
"Additional Amount") of the 77 Mortgage Loan, is payable on a monthly basis on
the undrawn portion of such Additional Amount. To the extent the 77 Mortgage
Loan is not fully funded by October 22, 2022 (April 22, 2023 in the case of
amounts with respect to construction work related to the new handicapped
accessible subway entrance on Trinity Place), 77 Mortgage Lender may in its
discretion force fund the remaining balance other than the Additional Amount
into a reserve account held by 77 Mortgage Lender and disbursed in accordance
with the terms of the 77 Mortgage Loan Agreement. The 77 Mortgage Loan is
prepayable without penalty, subject to 77 Mortgage Lender receiving a minimum
total return of $15.26 million, or if an advance has been made of the Additional
Amount, the sum of $15.26 million, plus 10% of the Additional Amount that has
been disbursed, in each case, inclusive of interest and fees, and must be
prepaid in part in certain circumstances such as in the event of the sale of
residential and retail condominium units. Mortgage Borrower is required to
achieve completion of the construction work and the improvements for the Project
on or before July 1, 2022, subject to certain exceptions. The 77 Mortgage Loan
Agreement also includes additional customary affirmative and negative covenants
for loans of this type, with the first sales pace covenant in April 2023.
In connection with the 77 Mortgage Loan Agreement, we entered into guarantees
with the 77 Mortgage Lender pursuant to which we guaranteed the completion and
payment of costs and expenses related to the construction; the payment of
accrued and unpaid interest and other fees, costs, expenses and payments due and
payable with respect to the 77 Mortgage Loan or 77 Greenwich; and the payment
when due of all amounts due to 77 Mortgage Lender, as a result of "bad-boy"
provisions. Mortgage Borrower and the Company also entered into an environmental
compliance and indemnification undertaking for the benefit of 77 Mortgage
Lender. Additionally, Mortgage Borrower is required to provide a letter of
credit in an amount not less than $4.0 million. The letter of credit will be
reduced to $3.0 million following, among other things, (x) final completion of
the Project, subject to certain exceptions, and (y) paydown of the 77 Mortgage
Loan to a basis of $625 per square feet of the unsold residential units.
As of December 31, 2021, the 77 Mortgage Loan had been paid down by
approximately $8.9 million through closed sales of residential condominium units
to a balance of $125.4 million and we had accrued $1.8 million in PIK interest,
which is recorded in accounts payable and accrued expenses in the consolidated
balance sheet. As of December 31, 2021, we were in compliance with all
covenants under the 77 Mortgage Loan.
Mezzanine Loan
In December 2020, we entered into a mezzanine loan agreement with an affiliate
of the CCF Lender (the "Mezzanine Loan Agreement", and the loan thereunder, the
"Mezzanine Loan"). The Mezzanine Loan was originally for the amount of $7.5
million and has a term of three years with two one-year extension options,
exercisable under certain circumstances. The collateral for the Mezzanine Loan
was the borrower's equity interest in its direct, wholly-owned subsidiary, which
owns 100% of the equity interests in the borrower under the 77 Greenwich
Construction Facility. The blended interest rate for the 77 Greenwich
Construction Facility and the Mezzanine Loan, assuming the 77 Greenwich
Construction Facility and the Mezzanine Loan are fully drawn, was 9.44% on an
annual basis. Interest on the Mezzanine Loan is not payable on a monthly basis
but instead is automatically added to the unpaid principal amount on a monthly
basis (and therefore accrues interest) and is payable in full on the maturity
date of the Mezzanine Loan. Upon final repayment of the Mezzanine Loan, a MOIC
will be due on substantially the same terms as provided for in the CCF. The
Mezzanine Loan may not be prepaid prior to prepayment in full of the 77
Greenwich Construction Facility, but if the 77 Greenwich Construction Facility
is being prepaid in full, the Mezzanine Loan may be prepaid simultaneously
therewith. Subject to the prior sentence the Mezzanine Loan may be prepaid in
whole or in part, without penalty or premium (other than payment of the MOIC
amount,
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if applicable, as provided above), upon prior written notice to the lender under
the Mezzanine Loan. In connection with the Mezzanine Loan, the Company entered
into a completion guaranty, carry guaranty, equity funding guaranty, recourse
guaranty and environmental indemnification undertaking substantially consistent
with the Company's existing guarantees made to the 77 Greenwich Lender in
connection with the 77 Greenwich Construction Facility.
In October 2021, the Mezzanine Loan Agreement was amended and restated to, among
other things, (i) increase the amount of the loan thereunder by approximately
$22.77 million, of which $0.77 million reflects interest previously accrued
under the original Mezzanine Loan, (ii) reflected the pledge of the equity
interests in the Mortgage Borrower to the Mezzanine Lender as additional
collateral for the Mezzanine Loan and (iii) conform certain of the covenants to
those included in the 77 Mortgage Loan Agreement, as applicable. Additionally,
the existing completion guaranty, carry guaranty, recourse guaranty and
environmental indemnification executed in connection with the original Mezzanine
Loan Agreement were amended to conform to the mortgage guarantees and mortgage
environmental indemnity made in connection with the 77 Mortgage Loan (and the
existing equity funding guaranty was terminated).
As of December 31, 2021, the Mezzanine Loan had a balance of $30.3 million and
accrued interest totaled approximately $1.1 million. See Note 12 - Loans
Payable and Secured Line of Credit to our consolidated financial statements for
further discussion.
As of December 31, 2021, we were in compliance with the covenants of the
Mezzanine Loan.
237 11th Loans
In May 2018, in connection with the acquisition of 237 11th, we entered into
two-year interest-only financings with an aggregate principal amount of $67.8
million, which was comprised of a $52.4 million mortgage loan and a $15.4
million mezzanine loan bearing interest at a blended average rate of 3.72% over
the 30-day LIBOR, each with a one-year extension option upon satisfaction of
certain conditions. The mezzanine loan was repaid in full in February 2020. In
June 2020, the maturity of the 237 11th mortgage loan was extended to June 2021
and amended to include a delayed draw facility of $4.25 million. In conjunction
with the amendment, a LIBOR floor of 50 basis points was put in place, the
spread was increased by 25 basis points to 2.25% and the exit fee was increased
by 50 basis points to 1.0%. In June 2021, we repaid the 237 11th mortgage
loan's balance of $56.4 million in full and paid an exit fee of $567,000.
Simultaneously, in June 2021, in connection with the refinancing of the 237 11th
mortgage loan, we entered into a $50.0 million senior loan (the "237 11th Senior
Loan") and a $10 million mezzanine loan (the "237 11th Mezz Loan" and together
with the 237 11th Senior Loan, the "237 11th Loans"), provided by Natixis,
bearing interest at a blended rate of 3.05% per annum. The 237 11th Loans have
an initial term of two years and three one-year extension options. The first
extension option is not subject to satisfaction of any financial tests. $1.5
million of the 237 11th Senior Loan proceeds were held back by Natixis to cover
debt service and operating expense shortfalls, as well as leasing related costs.
There was an outstanding balance of $48.7 million from the 237 11th Senior Loan
and $10.0 million from the 237 11th Mezz Loan at December 31, 2021.
From time to time, properties that we own, acquire or develop may experience
defects, including concealed defects, or damage due to natural causes, defective
workmanship or other reasons. In these situations, we pursue our rights and
remedies as appropriate with insurers, contractors, sellers and others. Due to
certain construction defects at 237 11th that resulted in water penetration into
the building and damage to certain apartment units and other property, which
defects we believe were concealed and which would have required significant
invasive work of a type not usually required or permitted, especially on a
newly-built asset, to be detected, we submitted proofs of loss to our insurance
carrier for property damage and business interruption (lost revenue) in March
2019. The insurance carrier subsequently disclaimed coverage for the losses
and we filed a complaint against the carrier alleging that it breached the
insurance policy by denying coverage. 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 incurred to
repair the property through the litigations and/or settlement negotiations with
the seller, its parent company, the general contractor, the subcontractors, and
the insurance carrier, although the amount of damages that may be recoverable in
litigation and/or potential settlement negotiations 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 resulting backlog in the court system and
slowdown
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in judicial proceedings. We have engaged in mediation with the seller, its
parent company, the general contractor, and the third-party defendants impleaded
by the general contractor to explore the possibility of settling the case
involving those parties, but to date, have not reached an agreement. We
incurred significant cash outflows for costs associated with these repairs and
remediation, which commenced in September 2019. As of December 31, 2021,
remediation work was complete. During the year ended December 31, 2021, we
collected approximately 100% of rent due. As of December 31, 2021, the property
was approximately 97.1% leased.
The Berkley Loan
We own a 50% interest in a joint venture formed to acquire and operate The
Berkley, which is currently under contract for sale. In December 2016, the joint
venture closed on the acquisition of The Berkley through a wholly-owned special
purpose entity for a purchase price of $68.885 million, of which $42.5 million
was financed through a 10-year loan (the "Berkeley Loan") secured by The
Berkley, and the balance was paid in cash, half of which was funded by us. On
February 28, 2020, in connection with a refinancing, the Berkley Loan was repaid
in full and it was replaced with a new 7-year, $33.0 million loan (the "New
Berkley Loan") which bears interest at a fixed rate of 2.717% and is interest
only during the initial five years. It is pre-payable at any time and can be
increased by up to $6.0 million under certain circumstances. We and our joint
venture partner are joint and several recourse carve-out guarantors under the
New Berkley Loan.
The Berkley Partner Loan
In October 2021, we entered into a loan agreement with our partner in The
Berkley JV, pursuant to which our partner agreed to lend us up to $10.5 million
principal amount, $500,000 of which is available only to be applied to interest
payments, secured by our interest in the joint venture entity, maturing in one
year, with two 12-month extension options subject to satisfaction of certain
conditions. The loan bears interest at a rate of 10% per year, with a portion
deferred until maturity. $10.0 million was funded at closing of the loan and is
the balance of the loan at December 31, 2021.
Secured Line of Credit
Our $12.75 million secured line of credit with Webster Bank (formerly known as
Sterling National Bank) is secured by the Paramus, New Jersey property. In
March 2021, we entered into an amendment to extend the maturity date to March
2022, and in February 2022 it was extended to March 2023. The secured line of
credit, which prior to the amendment, bore interest at 200 basis points over the
30-day LIBOR, now bears interest at the prime rate, currently 3.25%. The
secured line of credit is pre-payable at any time without penalty. As of
December 31, 2021, the secured line of credit had an outstanding balance of
$12.75 million and an effective interest rate of 3.25%.
250 North 10th Note
We own a 10% interest in a joint venture with TF Cornerstone (the "250 North
10th JV") formed to acquire and operate 250 North 10th, a recently built
234-unit apartment building in Williamsburg, Brooklyn, New York. On January 15,
2020, the 250 North 10th JV closed on the acquisition of the property through a
wholly-owned special purpose entity for a purchase price of $137.75 million, of
which $82.75 million was financed through a 15-year mortgage loan (the "250
North 10th Note") secured by 250 North 10th and the balance was paid in cash.
Our share of the equity totaling approximately $5.9 million was funded through a
loan (the "Partner Loan") from our joint venture partner. The Partner Loan bears
interest at 7.0% and is prepayable any time within its four year term. Our
partner has the option of having the Partner Loan repaid in our common stock if
the price of our common stock exceeds $6.50 per share at the time of
conversion. The non-recourse 250 North 10th Note bears interest at 3.39% for the
duration of the loan term and has covenants, defaults, and a non-recourse carve
out guaranty executed by us. We earned an acquisition fee at closing and are
entitled to ongoing asset management fees and a promote upon the achievement of
certain performance hurdles.
Private Placement Transaction and Rights Offering
On October 22, 2021, we entered into a private placement agreement with certain
existing stockholders ("Investors"), pursuant to which we issued to the
Investors an aggregate of 2,539,473 shares of our common stock at a price of
$1.90 per share, and we received gross proceeds of $4.8 million, which closed on
the same day.
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On December 8, 2021, we closed on a common stock rights offering to existing
stockholders at a price of $1.90 per share, which resulted in the issuance of
903,576 shares of our common stock and we received gross proceeds of $1.7
million.
At-The-Market Equity Offering Program
In August 2021, we entered into an "at-the-market" equity offering program (the
"ATM Program"), to sell up to an aggregate of $10.0 million in shares of our
common stock.
During the year ended December 31, 2021, we sold 701,327 shares of our common
stock for aggregate gross proceeds of approximately $1.4 million (excluding
approximately $169,000 in professional and brokerage fees) at a weighted average
price of $1.95 per share. As of December 31, 2021, approximately $8.6 million of
our common stock remained available for issuance under the ATM Program.
Cash Flows
Cash Flows for the Year Ended December 31, 2021 (as Restated) Compared to the
Year Ended December 31, 2020 (as Restated)
Net cash used in operating activities decreased by approximately $34.6 million
to $21.2 million for the year ended December 31, 2021 from $55.9 million for the
year ended December 31, 2020. This decrease was primarily due to the $22.3
million in net proceeds from the closing on sales of residential condominium
units at 77 Greenwich during 2021, as well as a reduction of $15.8 million in
net additions to the residential condominium units for sale for the year ended
December 31, 2021 compared to December 31, 2020.
Net cash used in investing activities decreased by approximately $9.5 million to
$140,000 for the year ended December 31, 2021 from $9.7 million for the year
ended December 31, 2020. The decrease in cash used in investing activities was
primarily due to the reduction of $4.1 million in net additions to real estate
this period compared to the same period last year. In addition, we contributed
$5.4 million to our investment in The Berkley joint venture in connection with
the pay-down of its mortgage during the year ended December 31, 2020.
Net cash provided by financing activities decreased by approximately $32.7
million to $30.2 million for the year ended December 31, 2021 from $62.9 million
for the year ended December 31, 2020. The decrease in cash provided by financing
activities primarily relates to the $134.3 million, $21.2 million, $58.7
million, $22.8 million, $10 million and $3.3 million in borrowings from the 77
Mortgage Loan, 77 Greenwich Construction Facility, the New 237 11th Loans, the
Mezzanine Loan, the Berkley Partner Loan and the 237 11th Loan, respectively,
during the year ended December 31, 2021 as compared to borrowing $35.75 million,
$42.1 million, $7.5 million, $5.0 million, $723,000 and $243,000 in proceeds
from the Corporate Credit Facility, 77 Greenwich Construction Facility, the
Mezzanine Loan, the Secured Line of Credit, the 237 11th Loan and the Paycheck
Protection Program loan, respectively, during the year ended December 31, 2020.
This was partially offset by the payment of the 77 Greenwich Construction
Facility of $160.3 million, 237 11th Loan of $56.4 million and the 77 Mortgage
Loan of $8.9 million during the year ended December 31, 2021 compared to
repaying the $15.4 million 237 11th mezzanine loan, $8.0 million on the 77
Greenwich Construction Facility and $2.5 million on the Secured Line of Credit
during the year ended December 31, 2020.
Cash Flows for the Year Ended December 31, 2020 (as Restated) Compared to the
Year Ended December 31, 2019 (as Restated)
Net cash used in operating activities decreased by approximately $14.7 million
to $55.9 million for the year ended December 31, 2020 from $70.6 million for the
year ended December 31, 2019. This decrease was mainly due to a reduction of
$18.6 million in net additions to the residential condominium units for sale for
the year ended December 31, 2020 compared to December 31, 2019, as well as
approximately $1.2 million increase in operating liabilities and approximately
$727,000 decrease in receivables and prepaid expenses for the year ended
December 31, 2020 compared to December 31, 2019.
Net cash used in investing activities increased by approximately $37.3 million
to $9.7 million for the year ended December 31, 2020 from net cash provided by
investing activities of $27.6 million for the year ended December 31, 2019. The
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increase in net cash used in investing activities was due to the net proceeds of
$18.8 million received upon the sale of our West Palm Beach, Florida property
and $33.6 million in deferred real estate deposits from SCA condominium for the
year ended December 31, 2019, partially offset by $20.5 million less in real
estate additions and in our investment in our joint venture for The Berkley in
connection with the pay-down of debt ($5.4 million) during the year ended
December 31, 2020.
Net cash provided by financing activities increased by approximately $15.3
million to $62.9 million for the year ended December 31, 2020 from approximately
$47.7 million for the year ended December 31, 2019. The increase in financing
activities primarily relates to the $35.75 million, $42.1 million, $7.5 million,
$5.0 million, $723,000 and $243,000 in proceeds from the Corporate Credit
Facility, 77 Greenwich Construction Facility, the Mezzanine Loan Agreement, the
Line of Credit, the 237 11th Loan and the Paycheck Protection Program loan,
respectively, during the year ended December 31, 2020, as compared to $53.3
million, $7.2 million, $1.5 million and $670,000 in borrowings from the 77
Greenwich Construction Facility, the Line of Credit, the West Palm Beach Loan
and the Partner Loan, respectively, during the year ended December 31, 2019. We
also repaid the $15.4 million 237 11th mezzanine loan, $8.0 million on the 77
Greenwich Construction Facility and $2.5 million on the Line of Credit during
the year ended December 31, 2020 as compared with repayment of the WPB Loan of
$12.6 million during the year ended December 31, 2019
Material Cash Requirements
We estimate that for the year ending December 31, 2022, our cash requirements
will be approximately $105,000 for capital expenditures and development or
redevelopment expenditures (including tenant improvements and leasing
commissions) on existing properties, other than for 77 Greenwich which will be
funded under the 77 Mortgage Loan, including our portion of our two joint
venture properties. We anticipate funding these capital expenditures through
cash on hand and operating cash flow. We currently anticipate that the proceeds
available under the 77 Mortgage Loan, together with equity funded by us to date,
will be sufficient to complete the construction and development of 77 Greenwich
without us making any further equity contributions. Future property acquisitions
may require substantial capital investments for refurbishment and leasing costs.
Net Operating Losses
We believe that our U.S. federal NOLs as of the emergence date of the Syms
bankruptcy were approximately $162.8 million and believe our U.S. federal NOLs
as of December 31, 2021 were approximately $254.8 million. In connection with
the conveyance of the school condominium to the SCA, we applied approximately
$11.6 million of federal NOLs against taxable capital gains of approximately
$18.5 million. Since 2009 through December 31, 2021, we have utilized
approximately $22.5 million of the federal NOLs. Pursuant to the TCJA, corporate
alternative minimum tax ("AMT") credit carryforwards are eligible for a 50%
refund in tax years 2018 through 2020, and beginning in tax year 2021, any
remaining AMT credit carryforwards are 100% refundable. As a result of these new
rules, we had recorded a tax benefit and refund receivable of $3.1 million in
2017 in connection with our valuation allowance release. We received
approximately $1.6 million of the refund receivable in October 2019, and the
balance of approximately $1.5 million in July 2020.
On March 27, 2020, the "Coronavirus Aid, Relief, and Economic Security (CARES)
Act" was signed into law. The CARES Act accelerated the ability of corporations
to recover AMT credits, permitting a full refund for tax years 2018 and 2019.
The CARES Act also included provisions relating to refundable payroll tax
credits, deferral of employer side social security payments, net operating loss
carrybacks and carryforwards, modifications to the net interest deduction
limitations, increased limitations on qualified charitable contributions, and
technical corrections to tax depreciation methods for qualified improvement
property. It also appropriated funds for the SBA Paycheck Protection Program
loans that are forgivable in certain situations to promote continued employment,
as well as Economic Injury Disaster Loans to provide liquidity to small
businesses harmed by COVID-19. Management is monitoring the impact that the
CARES Act may have on the Company. The CARES Act did not have a material impact
on our financial position, results of operations, or cash flows for fiscal years
2021 and 2020.
Based on management's assessment, it is more likely than not that the entire
deferred tax assets will not be realized by future taxable income or tax
planning strategies. Accordingly, a valuation allowance of $70.1 million was
recorded as of December 31, 2021.
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We believe that certain of the transactions that occurred in connection with our
emergence from bankruptcy in September 2012, including the rights offering and
the redemption of the Syms shares owned by the former majority shareholder of
Syms in accordance with the Plan, resulted in us undergoing an "ownership
change," as that term is used in Section 382 of the Code. However, while the
analysis is complex and subject to subjective determinations and uncertainties,
we believe that we should qualify for treatment under Section 382(l)(5) of the
Code. As a result, we believe that our NOLs are not subject to an annual
limitation under Section 382. However, if we were to undergo a subsequent
ownership change in the future, our ability to utilize our NOLs could be subject
to limitation under Section 382. In addition, the TCJA limited the deductibility
of NOLs arising in tax years beginning after December 31, 2017 to 80 percent of
taxable income (computed without regard to the net operating loss deduction) for
the taxable year. However, the CARES Act suspended the 80% limitation on the use
of NOLs for tax years beginning before January 1, 2021, and allowed losses
arising in taxable years beginning after December 31, 2017 and before January 1,
2021 to be carried back up to five years.
Even if all of our regular U.S. federal income tax liability for a given year is
reduced to zero by virtue of utilizing our NOLs, we may still be subject to
state, local or other non-federal income taxes.
Our certificate of incorporation includes a provision intended to help preserve
certain tax benefits primarily associated with our NOLs. This provision
generally prohibits transfers of stock that would result in a person or group of
persons becoming a 4.75% stockholder, or that would result in an increase or
decrease in stock ownership by a person or group of persons that is an existing
4.75% stockholder.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("GAAP"). The preparation of financial statements in
conformity with GAAP requires the use of estimates and assumptions that could
affect the reported amounts in our consolidated financial statements. Actual
results could differ from these estimates. A summary of our significant
accounting policies is presented in Note 2 - Summary of Significant Accounting
Policies in our consolidated financial statements. Set forth below is a summary
of the accounting policies that management believes are critical to the
preparation of the consolidated financial statements included in this report.
Certain of the accounting policies used in the preparation of these consolidated
financial statements are particularly important for an understanding of the
financial position and results of operations presented in the historical
consolidated financial statements included in this report and require the
application of significant judgment by management and, as a result, are subject
to a degree of uncertainty.
Critical Accounting Policies
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
a. 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
Residential Condominium Units for Sale - 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
b. estate taxes, insurance and compensation and related costs of personnel
directly involved with the specific project related to real estate that is
under development. Capitalization of these costs begin when the activities and
related expenditures commence, and ceases as the property receives its
temporary certificates of occupancy ("TCOs").
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77 Greenwich is a residential condominium development project currently in the
development stage which include condominium units that are ready for sale.
Residential condominium units for sale as of December 31, 2021 and 2020
includes 77 Greenwich, and in all cases, excludes costs of development for the
residential condominium units at 77 Greenwich that were sold. The residential
condominium units to be sold are stated at the lower of cost or net realizable
value. Management considers relevant cash flows relating to budgeted project
costs and estimated costs to complete, estimated sales velocity, expected
proceeds from the sales of completed condominium units, including any potential
declines in market values, and other available information in assessing whether
the 77 Greenwich development project is impaired. Residential condominium units
that are under contract are evaluated for impairment based on the contracted
sales price compared to the total estimated cost to construct. Unsold
residential condominium units are evaluated for impairment by analyzing recent
comparable sales prices within the applicable project to the costs incurred to
date plus the expected costs to complete. Any calculated impairments are
recorded immediately in cost of sales.
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
c. 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 all the
aforementioned indicators of impairment for our real estate for the years
ended December 31, 2021, 2020 and 2019, respectively, and no provision for
impairment was recorded during the year ended December 31, 2021, 2020 and
2019, respectively.
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
d. 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 December 31, 2021 and 2020,
we had determined that no liabilities are required in connection with
unrecognized tax positions. As of December 31, 2021, our tax returns for the
years ended December 31, 2018 through December 31, 2021 are subject to review by
the Internal Revenue Service. Our state returns are open to examination for the
years December 31, 2017 or 2018 through December 31, 2021, depending on the
jurisdiction.
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 estate taxes,
insurance and other property operating expenses. As lessor, when reporting
revenue, we have elected to combine the lease and non-lease components of our
e. operating lease agreements and account for the components as a single lease
component in accordance with ASC Topic 842. Lease revenues and reimbursement
of real estate taxes, insurance and other property operating expenses are
presented in the consolidated statements of operations and comprehensive
(loss) income 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. We applied the guidance under ASC 842 in assessing our lease
payments: if collection of rents under specific operating leases is not
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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.
Revenues on sale of residential condominiums reflects the gross sales price from
sales of residential condominium units which are recognized at the time of the
closing of a sale, when title to and possession of the units are transferred to
the buyer. Our performance obligation, to deliver the agreed-upon condominium,
is generally satisfied in less than one year from the original contract date.
Cash proceeds from unit closings held in escrow for our benefit are included in
restricted cash in the consolidated balance sheets. Customer cash deposits on
residential condominiums that are in contract are recorded as restricted cash
and the related liability is recorded in accounts payable and accrued expenses
in our consolidated balance sheets. Our cost of sales consists of allocated
expenses related to the initial acquisition, demolition, construction and
development of the condominium complex, including associated building costs,
development fees, as well as salaries, benefits, bonuses and share-based
compensation expense, including other directly associated overhead costs, in
addition to qualifying interest and financing costs.
Stock-Based Compensation - We have granted stock-based compensation, which is
described below in Note 14 - 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
f. (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 non-employees. 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.
Accounting Standards Updates
See Note 2 - Summary of Significant Accounting Policies to our consolidated
financial statements.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K/A, including information included or
incorporated by reference in this Annual Report on or any supplement to this
Annual Report, may include forward-looking statements within the meaning of
Section 27A of the Securities Act and the Exchange Act, and information relating
to us that are based on the beliefs of management as well as assumptions made by
and information currently available to management. These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, expectations and intentions that are not historical facts, and other
statements identified by words such as "may," "will," "expects," "believes,"
"plans," "estimates," "potential," or "continues," or the negative thereof or
other and similar expressions. In addition, in some cases, you can identify
forward-looking statements by words or phrases such as "trend," "potential,"
"opportunity," "believe," "comfortable," "expect," "anticipate," "current,"
"intention," "estimate," "position," "assume," "outlook," "continue," "remain,"
"maintain," "sustain," "seek," "achieve," and similar expressions. Such
statements reflect our current views with respect to future events, the outcome
of which is subject to certain risks, including among others:
? the impact of COVID-19;
risks and uncertainties as to the terms, timing, structure, benefits and costs
? of any capital raising or strategic transaction and whether one will be
consummated on terms acceptable to us or at all;
? our limited cash resources, generation of minimal revenues from operations, and
our reliance on external sources of financing to fund operations in the future;
our ability to execute our business plan, including as it relates to the
? development of and sale of residential condominium units at our largest asset,
77 Greenwich;
? risks associated with our debt, including the risk of defaults on our
obligations and debt service requirements;
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? risks associated with covenant restrictions in our loan documents that could
limit our flexibility to execute our business plan;
? adverse trends in the New York City residential condominium market;
? general economic and business conditions, including with respect to real
estate, and their effect on the New York City real estate market in particular;
? our ability to obtain additional financing and refinance existing loans and on
favorable terms;
our investment in property development may be more costly than anticipated and
? investment returns from our properties planned to be developed may be less than
anticipated;
? our ability to enter into new leases and renew existing leases with tenants at
our commercial and residential properties;
? we may acquire properties subject to unknown or known liabilities, with limited
or no recourse to the seller;
? risks associated with the effect that rent stabilization regulations may have
on our ability to raise and collect rents;
? competition for new acquisitions and investments;
? risks associated with acquisitions and investments in owned and leased real
estate;
? risks associated with joint ventures;
? our ability to maintain certain state tax benefits with respect to certain of
our properties;
our ability to obtain required permits, site plan approvals and/or other
? governmental approvals in connection with the development or redevelopment of
our properties;
costs associated with complying with environmental laws and environmental
? contamination, as well as the Americans with Disabilities Act or other safety
regulations and requirements;
? loss of key personnel;
? the effects of new tax laws;
? our ability to utilize our NOLs to offset future taxable income and capital
gains for U.S. Federal, state and local income tax purposes;
? risks associated with current political and economic uncertainty, and
developments related to the outbreak of contagious diseases;
? risks associated with breaches of information technology systems;
risks associated with a material weaknesses in our internal control over
financial reporting that we have identified and determined that our disclosure
controls and procedures were ineffective as of December 31, 2021, as a result
of the restatement of our financial statements as of and for the years ended
? December 31, 2021 and 2020; in the future, we may identify additional material
weaknesses or otherwise fail to maintain an effective system of internal
control over financial reporting or adequate disclosure controls and
procedures, which may result in material errors in our financial statements or
cause us to fail to meet our periodic reporting obligations;
? stock price volatility and other risks associated with a lightly traded stock;
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? stockholders may be diluted by the issuance of additional shares of common
stock or securities convertible into common stock in the future;
? a declining stock price may make it more difficult to raise capital in the
future;
? the influence of certain significant stockholders;
limitations in our charter on transactions in our common stock by substantial
? stockholders, designed to protect our ability to utilize our NOLs and certain
other tax attributes, may not succeed and/or may limit the liquidity of our
common stock;
certain provisions in our charter documents and Delaware law may have the
? effect of making more difficult or otherwise discouraging, delaying or
deterring a takeover or other change of control of us;
certain provisions in our charter documents may have the effect of limiting our
? stockholders' ability to obtain a favorable judicial forum for certain
disputes; and
unanticipated difficulties which may arise and other factors which may be
? outside our control or that are not currently known to us or which we believe
are not material.
In evaluating such statements, you should specifically consider the risks
identified under the section entitled "Risk Factors" in this Annual Report on
Form 10-K/A, any of which could cause actual results to differ materially from
the anticipated results. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those contemplated by any forward looking
statements. Subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety
by the cautionary statements in this paragraph and elsewhere described in this
Annual Report on Form 10-K/A and other reports filed with the SEC. All
forward-looking statements speak only as of the date of this Annual Report on
Form 10-K/A or, in the case of any documents incorporated by reference in this
Annual Report on Form 10-K, the date of such document, in each case based on
information available to us as of such date, and we assume no obligation to
update any forward-looking statements, except as required by law.
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