Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and six months ended June 30, 2022. The registrant identified in the filing is New York City REIT, Inc., an externally managed REIT that owns eight New York City properties totaling approximately 1.2 million rentable square feet, primarily office assets in Manhattan. The company operates through New York City Operating Partnership L.P. and is managed by related parties affiliated with AR Global.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue from tenants | $16.2 million, versus $15.0 million | $31.9 million, versus $30.2 million |
| Operating loss | $6.6 million, versus $6.3 million | $12.9 million, versus $15.2 million |
| Net loss | $11.3 million, versus $11.1 million | $22.4 million, versus $24.6 million |
| Net loss per share | $0.84, versus $0.87 | $1.68, versus $1.93 |
| Cash flow from operations | Not separately provided | $1.7 million, versus $(5.4) million |
| Cash flow from investing | Not separately provided | $(1.4) million, versus $(1.1) million |
| Cash flow from financing | Not separately provided | $(8.3) million, versus $0.5 million |
| Cash, cash equivalents and restricted cash | Not separately provided | $20.5 million at June 30, 2022, versus $34.0 million |
Operating margin was approximately negative 40.5% in both the quarter and first half of 2022. Net margin was approximately negative 69.5% for the quarter and negative 70.2% for the first half. Cash NOI was $7.0 million for the quarter and $12.7 million for the first half, compared with $6.0 million and $11.6 million, respectively, in the prior-year periods. Core FFO attributable to common stockholders was a deficit of $1.5 million for the quarter and $3.5 million for the first half.
At June 30, 2022, total assets were $805.9 million, total equity was $335.1 million, and mortgage notes payable were $393.4 million net of deferred financing costs. Gross mortgage principal was $399.5 million, with a weighted-average effective interest rate of 4.35%. Scheduled principal maturities were $49.5 million in 2024, $99.0 million in 2026 and $251.0 million thereafter. The company had $8.1 million of unrestricted cash and $12.4 million of restricted cash.
Material Changes Versus the Prior Comparable Period
- Revenue increased 8.4% for the quarter and 5.7% for the first six months, primarily from improved leasing and occupancy at 8713 Fifth Avenue and 9 Times Square and revenue from Innovate NYC.
- Net loss improved for the six-month period, mainly because depreciation and amortization declined by $1.5 million; quarterly net loss was broadly unchanged.
- General and administrative expense increased to $3.5 million for the quarter and $5.9 million for the first half, driven largely by proxy contest, annual meeting, legal and labor-related costs.
- Cash flow from operations improved to $1.7 million from an outflow of $5.4 million, helped by higher accrued liabilities and $2.3 million of management fees reinvested by the Advisor in company shares.
- The company paid $5.5 million of mortgage principal in March 2022 under a waiver and amendment for 9 Times Square. The related loan balance declined to $49.5 million.
- Portfolio occupancy was 84.6% at June 30, 2022, compared with 82.9% at December 31, 2021 and 84.5% at June 30, 2021.
- The Advisor received $2.3 million of base management fees in company shares during the first half under a side letter, contributing to an increase in shares outstanding to 13.6 million from 13.3 million at December 31, 2021.
Guidance, Outlook, Risks and Unusual Items
- On July 1, 2022, the company suspended its common-stock dividend policy beginning with the dividend that would otherwise have been payable for the quarter ended June 30, 2022. The board will reevaluate the policy quarterly, with no assurance of future dividends.
- Cash traps or reserve requirements remained in effect for 9 Times Square, 1140 Avenue of the Americas and 8713 Fifth Avenue, involving mortgages with aggregate principal of approximately $158.5 million at June 30, 2022. The filing also describes the affected properties as approximately 37% of portfolio rentable square feet.
- The 9 Times Square and 1140 Avenue of the Americas covenant breaches were not events of default at June 30, 2022, but continued breaches could require additional repayment or collateral and could ultimately permit acceleration or foreclosure remedies. Management expected to satisfy the 9 Times Square covenants for June 30 and September 30, 2022, but stated there was no assurance.
- The Laurel/Riverside property satisfied its debt service coverage covenant for the quarter and exited its cash management period. In July 2022, the company replaced short-term garage licenses with leases expiring in June 2037.
- At 8713 Fifth Avenue, the company remained in covenant breach and had not decided whether to fund the $125,000 reserve needed to avoid an excess cash flow sweep. A new tenant was expected to occupy the property in the third quarter of 2022.
- COVID-19 effects continued to create leasing, rent collection and tenant-credit risks, although management reported 98% collection of original cash rent due for the second quarter, including 100% from the top ten tenants. One tenant remained on a cash basis.
- The vacant 421 W. 54th Street property was being evaluated for potential sale, but it was not classified as held for sale because no buyer had been identified.
- The company reported no material pending legal proceedings or material off-balance-sheet arrangements. Management concluded that disclosure controls and procedures were effective.
- Subsequent to quarter-end, the company issued shares in lieu of management fees, amended ownership-limit waivers for Bellevue and related parties, reduced the ownership limit for other stockholders to 6%, and extended the stockholder rights plan to August 2025.
Most Important Facts for Investors to Verify
- Whether occupancy gains and the new long-term garage leases translate into sustainable cash rent and covenant compliance.
- The status of cash traps, reserve requirements and covenant testing for 9 Times Square, 1140 Avenue of the Americas and 8713 Fifth Avenue.
- Liquidity after the dividend suspension, including unrestricted cash of $8.1 million versus total cash and restricted cash of $20.5 million.
- The company’s ability to fund tenant improvements, leasing commissions, operating expenses and debt service without relying on restricted cash or additional equity issuance.
- The effect of continued share issuances to the Advisor and related-party fees on dilution, governance and cash preservation.
- The timing and terms of future debt maturities, particularly the $49.5 million due in 2024 and $99.0 million due in 2026.
- Whether management’s rent collection data remains consistent after the reported period and whether additional tenant bankruptcies, lease terminations or abatements occur.