Is Trump Really Underleveraged?

In President Donald Trump’s recent town hall event, he asserted that he is underlevered while refusing to confirm whether the $412 million debt level reported by the New York Times is true or not. If we assume it is, can we say whether Trump is underlevered or overlevered, and can we assess whether his debt load, which comes to term in the next four years, is really a national security risk?

To answer these questions, I have analyzed two sources of data: the OpenSecrets spreadsheet conversion of Donald Trump’s 2019 financial filings. These facts are not in dispute. In addition, I will compare them to the New York Times’s tax record data report, which has been somewhat in dispute by Donald Trump, although he has also implicitly affirmed their veracity by stating that the Times has illegally obtained his tax records. In any case, for our purposes we will assume both data sources are correct for the sake of argument to assess whether Trump’s debts are a national security risk and whether he is in fact underleveraged, as he claims.

Trump’s Assets

Sticking to the left side of the ledger, we see that Trump’s total assets totaled $1.7 billion for 2019 according to OpenSecrets data.

Note: I have removed book/licensing deals as they’re a negligible part of the total

Unsurprisingly, Trump’s assets are largely concentrated in real estate, with golf course holdings accounting for a third, just behind RE development’s 45%. If we add these up with the vineyards and hotels, we see that a massive 89.5% of Trump’s assets are in real estate and just 6% are in stocks, cash, and equity-related funds.

Speaking personally, I think Trump is way overexposed to real estate and this portfolio is woefully undiversified. At the same time, Trump’s background as a real estate developer explains the concentration; it also has important implications for his income earning potential.

If Trump had put his entire portfolio in the SPDR S&P 500 ETF (SPY) and lived off the dividends, he would have a $27.2 million annual income, or $2.3 million per month (this is ignoring borrowing costs, as the assets number are gross of leverage; borrowing will be discussed below).

Trying to analyze whether this would be enough to fund Trump’s lifestyle would be too time consuming and beside the point for our current purposes; if the theory is that Trump could be facing a dire financial emergency that compromises him, we should first establish the viability of his assets to pay off his debts without leading to insolvency.

Still, one way to juice up his cash flow would be to invest in REITs; the SPDR Dow Jones REIT ETF (RWR), for instance, now pays a 4.2% dividend. That would more than double his income.

Perhaps, however, Trump has avoided this passive approach because he can get a higher cash flow from his current portfolio. Fortunately, the Open Secrets data sheds light on this, as it provides data of the revenue Trump has earned from his reported assets. Again ignoring revenue from book and licensing deals (which totaled $12.37 million in 2019, so not an insubstantial amount), we see an extremely high yield on invested capital.

A couple of issues here. One, Trump’s yield on his stock holdings was 1.3%, in large part due to the low-yielding cash in his portfolio. Secondly, the yield on his real estate holdings is striking: 27.9%. This is so high that it bears closer scrutiny.

One way to better understand this number is to look at the revenue of a hotel and compare it to the hotel’s enterprise value to revenue. This is because we should think of the mark-to-market value of Trump’s real estate holdings as the price his assets would get if sold on the market today, and private enterprises are valued in terms of their enterprise value (as a quick refresher: EV is the market capitalization plus the sun of total debt minus cash and cash equivalents). A quick look at the Hyatt (H) company shows that, in 2019, the company averaged an revenue:EV ratio of about 58.2%.

That is to say, for every dollar of H’s value if sold today, the company yielded in revenue 58.2%, significantly higher than Trump’s resorts. This would indicate Hyatt is better run or more popular (it’s worth noting that Trump’s yield on MTM value for his hotels and resorts was much lower in 2014–2015, per Open Secrets data, so this is not a function of his properties losing popularity with his presidency; if anything, the presidency boosted his hotel income considerably from 2014–2016 to 2017–2019).

From this analysis, we can say that Trump receives a substantial amount of his cash flow from his real estate holdings, those holdings are performing better than they were before he became president, and that his current annual income, as per 2019’s data, is about $461 million.

Surely Trump’s income has been substantially negatively affected by Covid-19, although disclosures have not yet documented the impact of the pandemic on his personal net worth. Without that data, this study cannot be complete; however, with the disclosures we can begin to look at how levered Trump was before the pandemic — and we can then use that as a springboard to determine whether a post-pandemic decline in travel spending has brought Trump closer to insolvency.

Trump’s Debts

With the assets and cash flow established, we can look at his debts. The data here is much skimpier, as the Times did not report all of Trump’s $421 million in personally guaranteed debt, but we do know that number. There are also some hints of how much that debt costs him on an annual basis.

It is important to note that this does not cover all of Trump and Trump Organization debts, which have been calculated to be over $1 billion. Whether that number is true or not, it is worth noting those other debts would be dischargeable in bankruptcies limited to beyond Trump himself, and since Trump has used bankruptcy laws to absolve himself from debt in the past, this should be considered separately as to whether he himself is overlevered to the point of being a security risk.

Of the $421 million personally guaranteed, a full 67.6% is issued by Deutschebank (DB) in the form of two property mortgages. Other loans bring up the total.

With those numbers, we can first say that Trump’s total debt-to-asset ratio (24.9%) and debt-to-equity ratio (31.7%) are not terribly high, although his debt-to-assets ratio exceeds that of Hyatt.

It means that, with pre-covid-19 valuations, Trump should in theory have no problem liquidating assets to cover these debts, although the MTM value of his real estate holdings should also mean he would have no problem extending his credit line or accessing credit elsewhere in the market.

It also means that, strictly speaking, there is not sufficient evidence to say that Trump is overlevered, although such a heavy debt load on a tourism-dependent real estate portfolio would not indicate he is underlevered, either.

Post-Covid-19 Valuations

That brings us to the question of his portfolio’s current value. What about post-covid-19 valuations? Without disclosures to hand, this is not easy to triangulate without some very abstract and crude speculation. But let’s try anyway.

Carrying on with Hyatt’s example, which I am limiting myself to because of the hotel line’s skew towards luxury property that should align more with Trump’s holdings, we have seen about a 36% decline in H’s value if we average out market price and EV declines.

Because of Trump’s properties’ higher leverage and lower revenue:EV ratios, we should discount Trump’s properties by a greater amount to account for that; let’s say 50% to account for Trump properties’ poorer performance.

(Note: Trump’s disclosure from 2019 applies for calendar year 2018, so it could be argued that comparing H’s decline from January 2019 to today would be fairer; that decline has been 22% on average. However, to be extra conservative and cautious I am using YTD as my baseline to bring a significantly larger stress test on Trump’s assets and to attempt to account for the less liquid and harder to value private assets Trump owns.)

With these numbers, things are more concerning. If we assume that 50% drop in valuation, Trump’s debt-to-equity ratio has risen to nearly 80%; Trump has also left the tres commas club.

A near 80% debt-to-equity ratio is very high, although this should be considered an extremely conservative worst-case-scenario assumption. Also, it should not be considered cause to conclude that Trump is in dire financial straits and will be unable to rotate his soon-to-be due debts into new debts as they come due.

This, I believe, is the key; those debts come due in 2023 and 2024, and the pandemic will hopefully be over by then, at which point travel is likely to see a historically unprecedented surge of people eager to finally get out of their houses/hometowns and indulge in a bit of tourism. At that point, Trump’s real estate holdings will likely see an even greater MTM valuation regardless of political or cultural views of the man, just because of an intense demand for hotel space and green times. For this reason, the dire current covid-19 valuation should be cause for concern that Trump’s over-concentration in travel/real estate has put him in a precarious position in the short term, but not panic that it is a fundamental national security risk in the long term.

Personal Note

The purpose of this article is to provide as much of an impartial analysis of the data available. This analysis is not intended to encourage people to vote for or against anyone. I hope it is not taken as such, but is merely used to provide further understanding of what Trump’s financial position is so that you can be a more informed voter and investor.