Business Context and Reporting Period
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2014. The filing identifies the registrant as American Realty Capital New York City REIT, Inc., not American Strategic Investment Co. The company was incorporated in December 2013, commenced its initial public offering on April 24, 2014, and began real estate operations after acquiring its first property on June 13, 2014. It intends to qualify as a REIT for the year ending December 31, 2014.
At June 30, 2014, the company owned one Manhattan property, the Hit Factory at 421 West 54th Street, containing 12,327 rentable square feet. The property was 100% leased to Gibson Guitar Corporation, with a 6.3-year weighted-average remaining lease term.
Financial Results and Key Metrics
| Metric | Three Months Ended June 30, 2014 | Six Months Ended June 30, 2014 |
|---|---|---|
| Rental income | $43 thousand | $43 thousand |
| Total expenses | $257 thousand | $273 thousand |
| Net loss | $(214) thousand | $(230) thousand |
| Net loss per share | $(0.31) | $(0.65) |
| Net cash used in operating activities | Not separately reported | $(445) thousand |
| Net cash used in investing activities | Not separately reported | $(7.096) million |
| Net cash provided by financing activities | Not separately reported | $58.702 million |
- Expenses included $142 thousand of acquisition and transaction costs, $62 thousand of general and administrative expenses, $43 thousand of depreciation and amortization, and $10 thousand of property operating expenses for the quarter.
- The reported net loss exceeded rental income because the company was newly formed, had only recently acquired its first property, and incurred acquisition, offering-related and corporate expenses.
- FFO was $(171) thousand and MFFO was $(42) thousand for the quarter. These are non-GAAP measures and are not substitutes for GAAP net loss or operating cash flow.
- Cash was $51.161 million at June 30, 2014. Total assets were $69.023 million, including $8.161 million of net real estate investments.
- Total liabilities were $3.522 million and stockholders’ equity was $65.501 million. The company had no debt financing outstanding at June 30, 2014.
- The company raised $72.570 million of gross common-stock proceeds through June 30, 2014 and incurred $6.657 million of offering costs, including $4.963 million of selling commissions and dealer-manager fees.
- Annualized rental income was approximately $0.6 million. Future minimum base rent payments totaled $3.8 million, excluding contingent rent.
Material Changes Versus the Prior Comparable Period
No meaningful prior comparable operating period exists. The company had no shares outstanding, no real estate investments and only $35 thousand of deferred costs at December 31, 2013. By June 30, 2014, it had completed its IPO, acquired one property, issued approximately 3.0 million shares, and accumulated $51.161 million of cash.
The company transitioned from development-stage status to real estate operations on June 13, 2014. Accordingly, the quarter and six-month results reflect only a brief period of rental operations and are not indicative of a full year or stabilized portfolio performance.
Guidance, Outlook, Risks and Unusual Items
- Management expects to continue raising equity capital and to use offering proceeds and future secured financing to acquire additional New York City properties.
- Subsequent to quarter-end, the company entered into agreements to acquire a commercial garage unit at 200 Riverside Boulevard for $9.0 million and three commercial condominium units at 400 East 67th Street for $76.0 million, excluding closing costs. Both transactions remained subject to customary conditions, and the filing states that consummation was not assured.
- As of July 31, 2014, the company had approximately 7.1 million shares outstanding and had raised $175.7 million of gross proceeds from the IPO and distribution reinvestment plan.
- The company declared distributions accruing from June 13, 2014 at a daily rate of $0.0041438356 per share based on a $25.00 share price. Distributions depend on available funds and may be reduced or suspended. No distributions were paid during the six months ended June 30; the first distribution was paid July 1, 2014.
- The company is externally managed and economically dependent on its Advisor and affiliates, which receive acquisition, asset-management, property-management, offering and other fees or reimbursements. Related-party offering and operating fees were material relative to the company’s early operating revenue.
- Gibson Guitar Corporation represented 100% of annualized rental income, creating significant tenant concentration and credit risk. Lease termination, delinquency or non-renewal could materially affect revenue and financial condition.
- The shares are not listed on a national securities exchange, and no public market may develop. The company’s share repurchase program is subject to conditions and funding limitations.
- Management anticipates using debt in the future, potentially creating interest-rate and refinancing risk. The company had no debt as of June 30, 2014 and was discussing a credit facility with lenders.
- The company intends to qualify as a REIT but cannot assure continued qualification. Failure to qualify could increase taxes and reduce cash available for distributions.
- There were no material pending legal proceedings, no material off-balance-sheet arrangements, and management concluded that disclosure controls and procedures were effective.
Facts Investors Should Verify
- Confirm that the filing and financial statements relate to American Realty Capital New York City REIT, Inc., rather than American Strategic Investment Co.
- Verify completion, financing and lease terms for the two post-quarter-end acquisitions totaling $85.0 million of stated purchase prices.
- Assess Gibson Guitar Corporation’s credit quality and the terms, renewal provisions and enforceability of the lease generating all reported rental income.
- Reconcile gross capital raised, offering costs, net cash available and subsequent share issuances through July 31, 2014.
- Evaluate whether distributions are supported by property-level cash flow or by offering proceeds and other financing sources while the portfolio is being assembled.
- Review related-party compensation arrangements, fee caps, potential conflicts of interest and the company’s external-management dependence.
- Monitor future debt levels, interest-rate exposure, liquidity requirements and the company’s ability to achieve REIT qualification.