American Strategic Investment Co. — 2023 Q2 Form 10-Q Summary
Business Context and Reporting Period
The filing covers the quarter and six months ended June 30, 2023. American Strategic Investment Co. is an externally managed commercial real estate company owning eight New York City properties, primarily office assets, totaling approximately 1.2 million rentable square feet. Portfolio occupancy was 85.1% at June 30, 2023, with a weighted-average remaining lease term of 6.8 years.
The company terminated its REIT election effective January 1, 2023, following a strategy change that permits investments in non-REIT-qualifying operating businesses, including hotels and expanded coworking operations. It also completed a 1-for-8 reverse stock split, changed its name from New York City REIT, Inc., and completed a rights offering in February 2023.
Financial Condition and Results
| Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|---|---|
| Revenue from tenants | $15.8 million | $16.2 million | $31.3 million | $31.9 million |
| Operating loss | $(6.2) million | $(8.3) million | $(13.3) million | $(15.3) million |
| Operating margin | (39.3%) | (51.1%) | (42.5%) | (47.9%) |
| Net loss | $(10.9) million | $(13.0) million | $(22.7) million | $(24.7) million |
| Net margin | (69.1%) | (80.1%) | (72.4%) | (77.5%) |
| Net loss per share | $(4.77) | $(7.77) | $(10.47) | $(14.84) |
| Cash NOI | $7.5 million | $6.9 million | $14.5 million | $12.7 million |
| Core FFO deficit | $(1.7) million | $(1.7) million | $(4.3) million | $(3.9) million |
At June 30, 2023, total assets were $775.5 million, including net real estate investments of $662.0 million. Cash and cash equivalents were $7.1 million, while restricted cash was $6.1 million. Total debt was $399.5 million gross, or $394.9 million net of deferred financing costs, with a weighted-average effective interest rate of 4.35%. Total equity was $307.5 million.
Operating cash flow was $(4.2) million for the first six months of 2023, compared with $1.7 million provided in the prior-year period. Investing cash flow used $2.8 million for capital expenditures, and financing activities provided $4.0 million, primarily from $4.1 million of net rights-offering proceeds. Cash, cash equivalents and restricted cash declined from $16.1 million at year-end 2022 to $13.2 million at June 30, 2023.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined 2.8% and six-month revenue declined 1.8%, primarily due to the expiration of percentage-rent arrangements and lower real estate tax reimbursement billings.
- Quarterly operating loss improved by $2.1 million and six-month operating loss improved by $2.0 million, principally because general and administrative expenses were lower than in the 2022 period, which included significant proxy-contest costs.
- Net loss improved by $2.1 million for the quarter and $2.1 million for the six months, although the company remained substantially loss-making.
- Cash NOI increased 8.4% for the quarter and 14.5% for the six months, reflecting improved property-level performance despite lower reported revenue.
- Occupancy increased from 82.7% at December 31, 2022 to 85.1% at June 30, 2023. Occupancy improved at 9 Times Square, 123 William Street, 1140 Avenue of the Americas and 8713 Fifth Avenue.
- The company issued 386,100 shares through the February 2023 rights offering and raised $5.0 million gross, or $4.1 million net.
- Dividends remained suspended; no dividends have been declared or paid since the dividend associated with the quarter ended March 31, 2022.
Guidance, Outlook, Risks and Unusual Items
- Management believes available cash and expected operating cash flow will be sufficient for operating and capital requirements over the next 12 months, but cash availability is constrained by lender-controlled cash traps and ongoing operating losses.
- The $49.5 million 9 Times Square mortgage matures in April 2024. Management is evaluating extension or refinancing alternatives and had no commitment for replacement financing at the filing date.
- The company remained in covenant breach on the $99.0 million 1140 Avenue of the Americas loan and the $10.0 million 8713 Fifth Avenue loan. These breaches were not events of default but restricted access to excess property cash flows and could result in additional cash sweeps or lender remedies if conditions worsen.
- The 1140 Avenue of the Americas cash trap held $2.3 million as of June 30, 2023. No cash had been trapped at 8713 Fifth Avenue. The company may need to fund an additional $125,000 reserve or allow an excess cash flow sweep at 8713 Fifth Avenue.
- The company recorded a $0.2 million impairment charge for the vacant 421 W. 54th Street–Hit Factory property and is evaluating a potential sale or lease, but no sale agreement had been reached.
- Management reported 100% collection of original cash rent due for the second quarter, but cautioned that future collections are not assured and that tenant terminations, bankruptcies, leasing costs and market weakness could adversely affect liquidity and covenant compliance.
- Approximately 85% of leases contain rent escalation provisions, generally averaging 2.1% annual cumulative increases. Management stated that inflation had not materially affected operating costs as of June 30, 2023.
- Related-party asset and property management fees were $2.0 million for the quarter and $3.9 million for the six months. The Advisor and affiliated entities provide essential management and administrative services, creating economic dependency.
- The company expects a taxable loss for 2023 and maintained a full valuation allowance against its net deferred tax assets. No material legal or regulatory proceedings were pending.
Important Facts for Investors to Verify
- Progress toward refinancing or extending the $49.5 million loan maturing in April 2024.
- Whether the 1140 Avenue of the Americas and 8713 Fifth Avenue covenant breaches are cured and whether restricted cash becomes available.
- Future occupancy, leasing costs and tenant retention, particularly at 9 Times Square, 1140 Avenue of the Americas and 8713 Fifth Avenue.
- Cash burn, operating cash flow and the adequacy of the $13.2 million combined cash and restricted-cash balance.
- Potential disposition or redevelopment of the vacant Hit Factory property and the effect of any resulting impairment or sale proceeds.
- The sustainability of operations without dividends, additional equity issuance or new financing.
- The implications of terminating REIT status, including future income-tax obligations and the company’s planned expansion into non-REIT operating businesses.