Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and nine months ended September 30, 2022. The filing identifies the registrant as New York City REIT, Inc., not American Strategic Investment Co. The company is an externally managed REIT owning eight New York City properties totaling approximately 1.2 million rentable square feet, primarily office assets, with 84.5% portfolio occupancy as of September 30, 2022.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue from tenants | $15.9 million, versus $15.8 million | $47.8 million, versus $46.0 million |
| Operating loss | $6.3 million, versus $6.3 million | $21.6 million, versus $21.5 million |
| Net loss attributable to common stockholders | $11.1 million, or $0.80 per share | $35.8 million, or $2.65 per share |
| Comprehensive loss | $10.3 million | $32.7 million |
| Cash flow from operating activities | Not separately disclosed for the quarter | $3.3 million, versus $(4.3) million |
| Capital expenditures | Not separately disclosed for the quarter | $4.9 million, versus $2.0 million |
| Interest expense | $4.8 million | $14.2 million |
| Cash, cash equivalents and restricted cash | Not separately disclosed for the quarter | $20.6 million at September 30, 2022 |
Cash and cash equivalents were $7.4 million, compared with $11.7 million at December 31, 2021. Restricted cash was $13.3 million. Mortgage notes payable were $399.5 million gross, or $393.8 million net of deferred financing costs, with a weighted-average effective interest rate of 4.35%. Total assets were $802.2 million and total equity was $328.0 million.
Non-GAAP results included quarterly Cash NOI of $6.2 million and quarterly Core FFO attributable to common stockholders of $(1.9) million. For the nine-month period, Cash NOI was $18.9 million and Core FFO was $(5.8) million.
Material Changes Versus the Prior Comparable Period
- Nine-month tenant revenue increased $1.8 million, primarily from higher occupancy and $0.6 million of revenue from Innovate NYC, the company’s coworking operation at 1140 Avenue of the Americas.
- Portfolio occupancy was 84.5% at September 30, 2022, compared with 85.3% a year earlier and 82.9% at December 31, 2021. Occupancy improved at 9 Times Square and 123 William Street but declined at 1140 Avenue of the Americas and 8713 Fifth Avenue.
- Nine-month property operating expenses increased $0.8 million to $25.9 million, reflecting higher real estate taxes, repairs, maintenance, utilities and other non-reimbursable costs.
- Nine-month general and administrative expense increased $4.0 million to $10.6 million, primarily due to approximately $2.5 million of higher legal and other costs associated with the 2022 proxy contest and timing of other expenses.
- Depreciation and amortization decreased $2.4 million to $21.0 million because of prior-period impairments and write-offs and the absence of new acquisitions.
- The company paid $5.5 million of mortgage principal on 9 Times Square in March 2022. No scheduled principal payments are due in 2022 or 2023; $49.5 million is due in 2024 and $99.0 million in 2026.
- The company suspended common stock dividends beginning with the dividend that would have been payable for the quarter ended June 30, 2022. It paid $2.7 million of common dividends during the first nine months of 2022.
- The company issued 632,911 shares to Bellevue Capital Partners for gross proceeds of approximately $2.0 million. The Advisor also received shares in lieu of certain cash management fees, contributing to the increase in shares outstanding to 14.6 million from 13.3 million at year-end 2021.
Guidance, Outlook, Risks and Unusual Items
- Management expects to fund the next 12 months through cash on hand, property operating cash flow, anticipated release of 9 Times Square trapped cash, approved access to a portion of 1140 Avenue of the Americas trapped cash, potential additional Bellevue investment and continued issuance of shares for Advisor fees. There is no assurance these sources will be available on acceptable terms.
- Cash traps remained in effect at 9 Times Square and 1140 Avenue of the Americas, and an excess cash flow sweep risk remained at 8713 Fifth Avenue. Approximately $9.7 million was held in cash management accounts for 9 Times Square and 1140 Avenue of the Americas at September 30, 2022.
- Management expected 9 Times Square to exit its cash trap in the fourth quarter after reporting two consecutive quarters of covenant compliance. This expectation should be verified because release depended on lender determination.
- The company remained in covenant breach at 1140 Avenue of the Americas for the nine quarters ended September 30, 2022, although the breaches were not events of default. The company was also evaluating whether to fund an additional $125,000 reserve related to 8713 Fifth Avenue.
- Management reported 99% collection of original cash rent for the third quarter, including 100% from the top ten tenants, but cautioned that collections may decline and that vacant space may not be re-leased on favorable terms.
- The company is evaluating a potential sale or lease of the vacant 421 W. 54th Street property, but no agreement had been reached and the property was not classified as held for sale.
- The company identified a material weakness in internal control over financial reporting related to identifying and accruing expenses associated with non-typical events, including the contested proxy solicitation. Previously issued second-quarter 2022 financial statements were restated and first-quarter 2022 figures were revised.
- The 9 Times Square loan and related interest-rate swap transitioned from LIBOR-based provisions to SOFR-based provisions. The replacement swap had a $49.5 million notional amount and a $1.5 million fair-value asset at September 30, 2022.
- COVID-19 effects, tenant bankruptcies and vacancies, inflation, higher operating costs, interest-rate and capital-market volatility, and the concentration of all properties in New York City remain material risks.
Facts Investors Should Verify
- Confirm that the intended issuer is New York City REIT, Inc., since the request metadata names American Strategic Investment Co.
- Verify the status and timing of releasing the $3.4 million 9 Times Square cash trap and the $6.3 million 1140 Avenue of the Americas restricted balance.
- Assess the company’s ability to improve occupancy from 84.5%, particularly at 9 Times Square, 1140 Avenue of the Americas, 8713 Fifth Avenue and the vacant Hit Factory property.
- Review the material weakness remediation and the impact of the Q2 2022 restatement on reported expenses, liabilities and liquidity.
- Evaluate liquidity after excluding restricted cash, the sustainability of negative Core FFO, the suspended dividend policy and the company’s dependence on related-party equity issuances.
- Review upcoming debt maturities, lender covenant requirements and the company’s ability to fund tenant improvements and leasing commissions without additional financing.