Business Context and Reporting Period
This unaudited Form 10-Q covers New York City REIT, Inc. for the three and nine months ended September 30, 2021. The filing identifies the registrant as New York City REIT, Inc.; the request metadata identifies American Strategic Investment Co. The Company is an externally managed REIT focused primarily on office properties in New York City. At September 30, 2021, it owned eight properties totaling approximately 1.2 million rentable square feet, with 85.3% portfolio occupancy and a 6.8-year weighted-average remaining lease term.
During the third quarter, the Company launched Innovate NYC, a co-working business at 1140 Avenue of the Americas. The final tranche of Class B common stock converted to Class A common stock on August 13, 2021, leaving 13.3 million Class A shares outstanding and no Class B shares outstanding.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 |
|---|---|---|---|---|
| Revenue from tenants | $15.8 million | $17.0 million | $46.0 million | $53.0 million |
| Operating loss | $(6.3) million | $(7.2) million | $(21.5) million | $(10.2) million |
| Net loss attributable to common stockholders | $(11.1) million | $(12.3) million | $(35.7) million | $(24.4) million |
| Net loss per share | $(0.85) | $(0.96) | $(2.78) | $(1.91) |
| Cash flows from operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $(4.3) million | $(6.0) million |
| Cash NOI | $5.7 million | $6.1 million | $17.4 million | $23.2 million |
| Core FFO attributable to common stockholders | $(0.7) million | $0.5 million | $(5.5) million | $3.9 million |
Approximate revenue-based operating margins were negative 39.8% for the third quarter and negative 46.6% for the first nine months. Net loss margins were negative 70.2% and negative 77.6%, respectively.
- Total assets were $832.1 million, down from $861.8 million at December 31, 2020.
- Net real estate investments were $700.9 million, compared with $721.0 million at year-end 2020.
- Cash and cash equivalents were $23.2 million, compared with $31.0 million at December 31, 2020. Restricted cash was $11.6 million, including $5.2 million retained by a lender due to covenant breaches.
- Mortgage notes payable were $397.7 million net, representing $405.0 million of gross principal. The weighted-average effective interest rate was 4.35%, with no scheduled principal maturities until 2024.
- Total equity was $353.6 million, compared with $381.6 million at December 31, 2020.
- The Company issued $5.3 million of common stock through its ATM program during the first nine months and paid $3.9 million of common dividends.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined $1.1 million, or approximately 6.8%, and nine-month revenue declined $7.0 million, or approximately 13.2%. Management attributed the decreases primarily to lease terminations, the Knotel bankruptcy, lower occupancy and tenants placed on a cash basis.
- Third-quarter net loss improved by $1.2 million versus 2020, primarily because 2020 included $1.3 million of listing expenses and $1.2 million of non-cash Class B unit vesting and conversion expense. The nine-month net loss increased by $11.3 million because 2021 included substantially higher equity-based compensation and lower revenue.
- Equity-based compensation increased to $6.4 million from $1.8 million for the first nine months, principally from amortization of the $25.8 million multi-year outperformance award granted to the Advisor.
- Property operating expenses increased $1.6 million for the first nine months, partly because the Company assumed expenses, including real estate taxes, for tenants placed on a cash basis.
- Cash NOI declined to $17.4 million from $23.2 million for the first nine months. Operating cash flow remained negative, and dividends were funded partly or entirely from cash on hand during the reported periods.
- Occupancy declined to 85.3% from 88.6% at September 30, 2020 and 87.0% at December 31, 2020. Occupancy at 9 Times Square fell to 61.3%, while 123 William Street increased modestly to 90.8%.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- Management expected vaccination progress to support a return to normalcy, increased office usage and improved leasing trends during late 2021 and 2022, but emphasized that the outlook remains uncertain because of vaccine hesitancy and COVID-19 variants.
- The Company collected 92% of original third-quarter 2021 cash rent due across the portfolio, including 97% from office tenants and 77% from retail tenants. Excluding deferred rent subsequently collected, management reported 92% collection of original cash rent for the third quarter.
- Knotel filed for bankruptcy in January 2021, and its leases were terminated. The Company has re-leased part of the affected space, but replacement rents are lower per square foot than Knotel’s rents and additional leasing is uncertain.
- The Company was in breach of covenants under four mortgage loans totaling $214.0 million of principal. These properties represented 47% of portfolio rentable square feet. The breaches generally triggered cash traps or excess cash flow sweeps rather than immediate defaults.
- The Company believed it had breached the 9 Times Square loan covenants for the quarter ended September 30, 2021. If confirmed by the lender, the fourth consecutive quarter of breach could require a significant principal repayment or additional collateral. Failure to cure could lead to acceleration or foreclosure; the required repayment amount was not estimable at the filing date.
- The Company expects to use cash on hand and future ATM or other equity proceeds to fund a portion of operating expenses and capital requirements through at least year-end 2021. Management stated that it believed available cash would be sufficient for operating requirements over the next year, but noted that future capital may not be available on favorable terms or at all.
- The Company recorded a $0.4 million impairment charge on the vacant 421 W. 54th Street-Hit Factory property and is evaluating a potential sale. No buyer had been identified, and the property was not classified as held for sale.
- The Company had no acquisitions or dispositions during the first nine months. It funded $2.0 million of capital expenditures and expected full-year 2021 capital expenditures to be below the $3.8 million invested in 2020.
- On October 1, 2021, the Company declared a $0.10-per-share dividend, paid October 15, 2021, totaling approximately $1.3 million. Future dividends remain subject to board discretion, cash availability, loan restrictions and operating performance.
Important Facts for Investors to Verify
- Confirm the registrant identity, because the filing text is for New York City REIT, Inc., while the request metadata names American Strategic Investment Co.
- Track the lender’s determination regarding the fourth-quarter covenant breach at 9 Times Square and any required “right-sizing” repayment, collateral posting, acceleration or foreclosure risk.
- Assess whether occupancy and rent collections improve sufficiently to release cash traps and restore positive operating cash flow.
- Review the sustainability of the $0.10-per-share quarterly dividend given negative operating cash flow and the use of cash on hand for distributions.
- Monitor leasing progress at 9 Times Square, 123 William Street, 1140 Avenue of the Americas and 8713 Fifth Avenue, including replacement rents and tenant improvement or leasing commission requirements.
- Evaluate liquidity after considering $23.2 million of unrestricted cash, $11.6 million of restricted cash, $405.0 million of gross mortgage debt and the absence of a corporate revolving credit facility.
- Consider the impact of continued COVID-19 effects, tenant bankruptcies, cash-basis tenants, lease abatements and potential additional covenant breaches.