Business Context and Reporting Period
New York City REIT, Inc. (the filing entity identified in the source text; metadata identifies American Strategic Investment Co.) filed this unaudited Form 10-Q for the three months ended March 31, 2021. The externally managed REIT owned eight New York City properties totaling approximately 1.2 million rentable square feet, acquired for an aggregate purchase price of $790.7 million. The portfolio was 82.8% occupied at quarter-end, with a 6.9-year weighted-average remaining lease term.
Financial Performance and Position
| Metric | Q1 2021 | Q1 2020 / Period-End Comparison |
|---|---|---|
| Revenue from tenants | $15.2 million | $17.5 million |
| Operating loss | $8.8 million | $2.1 million loss |
| Net loss attributable to common stockholders | $13.5 million | $6.8 million loss |
| Net loss per share | $1.06 | $0.53 |
| Cash provided by operating activities | $2.1 million | $4.4 million |
| Cash NOI | $5.6 million | $8.4 million |
| Core FFO attributable to common stockholders | $2.9 million deficit | $0.8 million positive |
| Cash and cash equivalents at March 31 | $29.4 million | $31.0 million at December 31, 2020 |
| Restricted cash at March 31 | $11.2 million | $9.0 million at December 31, 2020 |
| Mortgage notes payable, net | $397.0 million | $396.6 million at December 31, 2020 |
| Total assets | $851.2 million | $861.8 million at December 31, 2020 |
| Total equity | $369.2 million | $381.6 million at December 31, 2020 |
Operating expenses rose to $24.0 million from $19.6 million. The principal increases were a $2.1 million equity-based compensation charge related to the 2020 multi-year outperformance award, higher property operating costs, higher general and administrative expenses, and an increase in depreciation and amortization that included a $1.3 million write-off of deferred leasing costs related to Knotel lease terminations.
Debt consisted of six mortgage loans with $405.0 million of gross principal outstanding, a 4.35% weighted-average effective interest rate, and no scheduled principal maturities during the remainder of 2021. Cash flows from financing activities included $1.3 million of common-stock dividends, $0.2 million of share repurchases under the tender offer, and $0.04 million of distributions to non-controlling interest holders.
Material Changes Versus the Prior Comparable Period
- Revenue declined $2.3 million, or approximately 13%, primarily because of Knotel lease terminations and tenants previously placed on a cash basis.
- Net loss approximately doubled, while operating loss increased substantially because revenue fell and operating expenses increased.
- Cash provided by operations declined $2.3 million, or approximately 52%.
- Cash NOI declined approximately 33%, from $8.4 million to $5.6 million.
- Portfolio occupancy declined from 89.0% at March 31, 2020 and 87.0% at December 31, 2020 to 82.8% at March 31, 2021.
- 9 Times Square occupancy fell to 57.7% from 78.7% at December 31, 2020, and 123 William Street occupancy fell to 87.0% from 90.3%, primarily following Knotel's bankruptcy and lease terminations.
- Four new leases and two replacement leases commenced during the quarter, covering approximately 53,700 square feet; three leases covering approximately 79,000 square feet terminated or expired.
- All leases with Knotel were terminated effective January 31, 2021 after its bankruptcy filing. The Company had re-leased approximately half of the resulting vacant space by quarter-end.
- On March 1, 2021, approximately 3.2 million Class B shares converted into Class A shares and were listed on the NYSE. The remaining tranche was expected to convert on August 13, 2021 unless converted earlier.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected vaccination efforts and reopening activity to support increased office usage and leasing trends after the summer holidays and through 2022, but provided no quantified earnings or occupancy guidance.
- Management expected to fund a portion of operating expenses and other capital requirements with cash on hand through at least the first half of 2021. It stated that available cash was expected to be sufficient for operating cash requirements over the next year, while noting significant uncertainty from rent collections and cash traps.
- First-quarter original cash rent collections were reported at 85% as of April 30, 2021: 92% for office tenants, 63% for retail tenants, and 89% from the top ten tenants. These collection percentages are non-GAAP operating indicators and are not assurances of future collections.
- Three mortgage properties experienced covenant breaches and cash-management or reserve requirements: 1140 Avenue of the Americas, 9 Times Square, and the Laurel Condominium/ICON Garage. The affected loans totaled $204.0 million of principal.
- At 1140 Avenue of the Americas, $4.1 million was held by the lender as restricted cash. At 9 Times Square, the Company anticipated funding interest shortfalls from cash on hand and could remain in breach for up to four consecutive quarters before an event of default could occur.
- Cash generated at the three affected properties was unavailable for other corporate purposes. Additional tenant terminations could trigger further covenant breaches and restrict access to excess property cash flows.
- The Company had no corporate-level revolving credit facility or other corporate-level debt and had not sold shares under its $250 million ATM program as of March 31, 2021. The board had authorized consideration of up to $100 million of Class A share repurchases, but no repurchases had occurred under that program.
- COVID-19 continued to affect tenant operations, rent collections, vacancies, legal expenses, property expenses, and leasing activity. The filing stated that no cash rent was received during the quarter from tenants previously placed on a cash basis.
- The Company was evaluating strategic alternatives, including a potential sale, for the unoccupied 421 W. 54th Street–Hit Factory property. No buyer had been identified and no impairment charge had been recorded.
- The Company declared and paid a $0.10-per-share dividend in April 2021. Future dividends remained subject to board discretion, cash availability, loan restrictions, capital needs, and REIT distribution requirements.
- The filing identified LIBOR transition risk for a mortgage loan and related interest-rate swap, although alternative rates were included in the relevant agreements.
- There were no material pending legal proceedings, no material changes to previously disclosed risk factors, and no material off-balance-sheet arrangements.
Most Important Facts for Investors to Verify
- Confirm the issuer identity and corporate name, because the supplied metadata references American Strategic Investment Co. while the filing text identifies New York City REIT, Inc.
- Verify the status of the Knotel-related vacancies, replacement leasing, occupancy, and rent collections after March 31, 2021.
- Monitor whether the three mortgage covenant breaches are cured, whether cash traps continue, and whether any event of default or accelerated repayment risk develops.
- Assess whether cash on hand and operating cash flow remain sufficient to fund property operations, debt service, capital expenditures, and dividends.
- Review future dividend declarations against operating cash flow, Core FFO, loan restrictions, and REIT qualification requirements.
- Evaluate the potential sale or continued carrying costs of the unoccupied Hit Factory property.
- Track the final Class B-to-Class A conversion, potential dilution from 4.0 million LTIP Units, and any future issuance under the ATM program.