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Who's News:
Trump's Growing Appetite for Cash
By Neil Barsky
Staff Reporter of The Wall Street Journal
What's going on with Donald Trump?
Over the past few months, the casino and real estate
mogul, widely thought of as a voracious buyer, has discussed
selling, refinancing or securitizing virtually every major
asset he holds. He said yesterday for the first time that he
has retained Merrill Lynch &amp; Co. to negotiate a sale of the
Trump Shuttle. In addition, he said he has considered various
deals involving Trump Tower and the Grand Hyatt Hotel in
Manhattan, and his three casinos in Atlantic City, N.J.
In a two-hour interview, Mr. Trump explained that he is
raising cash today so he can scoop up bargains in a year or
two, after the real estate market shakes out. Such an
approach worked for him a decade ago when he bet big that New
York City's economy would rebound, and developed the Trump
Tower, Grand Hyatt and other projects.
"What I want to do is go and bargain hunt," he said. "I
want to be king of cash."
Others in the financial community are watching closely,
however, for signs that he may be accumulating cash to deal
with a current or anticipated shortage resulting from his
heavy debt load.
Mr. Trump vehemently and angrily denied any suggestion
that his empire faces even the hint of a cash problem. To
verify his financial health, Mr. Trump produced a letter from
the accounting firm Arthur Andersen &amp; Co. It stated that as
of Nov. 30, 1989, Mr. Trump had $384,598,000 in cash and cash
equivalents. But the Arthur Andersen review isn't an audit,
and the letter doesn't detail Mr. Trump's liabilities,
according to the letter's author. "It doesn't prove or
disprove he's in distress," said Arthur Andersen's Richard
Robbins, who wrote the letter. "I have no indications that he
is in distress," Mr. Robbins added.
Mr. Trump was upbeat about his financial situation
yesterday. He said his 1989 net cash flow was $157 million;
this year, he projects it to be $171 million. In addition, he
said, he expects to make a profit of $275 million on two
Manhattan condominium projects, despite the soft residential
market. "There's nobody that has the cash flow that I have,"
he said. (He was so adamant about his cash flow situation
that he threatened a libel suit if any problem was
The mystery surrounding Mr. Trump's empire comes down to
the question of exactly how much he owns -- and how much he
owes. Except for his casinos, which were financed with
publicly traded junk bonds, most of his holdings are private.
As a result, accounts of his wealth must come either from him
or from the real estate and investment banking rumor mills.
Those sources have been inaccurate at times in the past.
Although he denies ever having said it, Mr. Trump told
reporters that he purchased Manhattan's St. Moritz Hotel for
$30 million. Records indicate he paid $73 million. Days after
the Oct. 19, 1987, stock market crash, Mr. Trump said he had
sold all his holdings. It later emerged that he still owned
substantial stock in Alexander's Inc. and Resorts
International Inc.
In building his empire, Mr. Trump borrowed from banks or
floated bonds totaling more than $2 billion, according to
this newspaper's and others' accounts of each transaction.
Many properties, such as the Plaza Hotel and Trump City, a
74-acre tract of land on Manhattan's Upper West Side, are
believed to be worth much more than Mr. Trump paid for them.
But these properties, and possibly others, are cash drains on
the Trump empire because they don't produce enough income to
cover interest payments. Thus they must be supported by cash
cows such as casinos and condominiums.
With regulators forcing banks to tighten up on highly
leveraged real estate transactions, some junk bond investors
are beginning to wonder whether Mr. Trump will be forced by
banks to pay down his loans. "We are developing more than a
passing interest in Donald Trump's bonds," said James B.
Rubin, of Sass Lamle Rubin &amp; Co., an investment firm that
deals with distressed securities. "Atlantic City is an
overbuilt market, so I wonder how viable his properties might
Mr. Trump's ardor for cash is such that he has decided to
look at a sale of the Trump Shuttle less than a year after
purchasing it with much fanfare and attaching his name to the
carrier. At the time of the purchase, Mr. Trump vowed to make
the Shuttle, acquired with bank loans from Eastern Airlines
for $365 million, "one of the really fine airlines in the
world." Now that he's accomplished that objective, he said,
he's thinking of selling it.
Mr. Trump said he is weighing the sale because he was
approached by so many airlines interested in the property. "I
am a trader," he said. He declined to say whether he is
making money on the Shuttle, which he said has 50% of the
market share. But the Shuttle probably costs between $36
million and $40 million in annual debt service. And one
individual familiar with the deal said Mr. Trump had sought a
market share of about 65% by now.
Mr. Trump also is trying to raise cash from some of his
prime real estate. Because the cash flow from Manhattan's
Trump Tower and Grand Hyatt Hotel is so great and is expected
to improve, he said, he's in the process of refinancing the
trophy properties for a total of $290 million.
Mr. Trump said he plans to retire a $75 million loan for
Trump Tower from Chase Manhattan Bank and replace it with a
$90 million loan from Prudential Insurance Co. of America.
Mr. Trump purchased the 50% of the retail and office space
that he didn't already own from the Equitable Life Assurance
Society for $60 million in 1987. Mr. Trump said he has also
arranged for a $200 million loan from a "major commercial
bank" secured by the Grand Hyatt, of which he owns 50%.
There are also the deals that might have been. Early this
year, Mr. Trump said, he came close to selling a 49% interest
in the Plaza Hotel to Japanese investors. That deal fell
through when the Japanese financial markets crashed, he said.
Now, he said of the Plaza, "I'm never going to sell the
He can't say the same, however, for his three Atlantic
City casinos, which represent the biggest chunk of his cash
flow. The $1 billion Taj Mahal casino, which opened this
month, will have to bring in between $1 million and $1.3
million a day to break even. So far, Mr. Trump said, the Taj
is easily exceeding those levels.
But Mr. Trump said he is considering ways to raise money
from the casino properties, which also include the Trump's
Castle and Trump Plaza, by selling an interest to the public
in some form. "Going public would be one of the easy things
in life."
Meanwhile, he appears to have tried to unload the Trump's
Castle, the property that suffered a net operating loss of $6
million last year. Just how he plans to dispose of that
property is a matter of some dispute, however. Mr. Trump said
Hilton Hotels Corp., from which he purchased the property
with $320 million in junk bonds, had approached him to swap
its Waldorf Astoria Hotel for the Castle. "The idea was
suggested by somebody within Hilton," he said. Hilton
officials said Mr. Trump approached them. "We emphatically
deny we approached Mr. Trump," said Vice President Roy Judge.
Mr. Trump also said he was approached by someone who
claimed to represent Carnival Cruise Lines Inc. "They
contacted me," he said. A Carnival spokesman denied any
discussion took place with Mr. Trump.
It's too soon to tell whether Mr. Trump's "cash is king"
strategy will work. He didn't disclose the terms of his
refinancings, so it isn't known whether he's paying above or
below the market rate for his money.
It's also still unclear whether Mr. Trump would realize a
profit from the sale of the Shuttle, should he eventually
sell it. He said that much of the value he added to the
property resulted from the use of his name, and that he
doubted he would allow another party to use the Trump name.
Any sale of a Trump property could realize less for Mr.
Trump if he's unwilling to let a new owner use the
still-magical Trump name. The potential buyers "want to buy
the Shuttle with my name," he said. "As of this moment, I'm
not going to do it."