Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and six months ended June 30, 2021. Although the request metadata identifies American Strategic Investment Co., the filing names New York City REIT, Inc. as the registrant. The company is an externally managed REIT focused primarily on office properties in New York City. As of June 30, 2021, it owned eight properties comprising approximately 1.2 million rentable square feet.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|---|---|
| Revenue from tenants | $15.0 million | $18.6 million | $30.2 million | $36.0 million |
| Operating loss | $(6.3) million | $(0.9) million | $(15.2) million | $(3.0) million |
| Net loss attributable to common stockholders | $(11.1) million | $(5.3) million | $(24.6) million | $(12.1) million |
| Net loss per share | $(0.87) | $(0.41) | $(1.93) | $(0.95) |
| Cash NOI | $6.0 million | $8.7 million | $11.6 million | $17.1 million |
| Core FFO attributable to common stockholders | $(1.9) million | $2.7 million | $(4.8) million | $3.4 million |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(5.4) million | $(4.1) million |
Operating margin was approximately (42.2)% for the quarter and (50.2)% for the six-month period. Net loss margin was approximately (73.8)% and (81.5)%, respectively. These margins are affected by depreciation and amortization, including a $1.3 million write-off of deferred leasing costs related to Knotel lease terminations during the first quarter.
- Cash and cash equivalents were $23.9 million at June 30, 2021, down from $31.0 million at December 31, 2020. Restricted cash was $10.1 million, resulting in total cash, cash equivalents and restricted cash of $34.0 million.
- Mortgage notes payable were $405.0 million gross, or $397.3 million net of deferred financing costs. The weighted-average effective interest rate was 4.35%; scheduled principal maturities are $55.0 million in 2024 and $350.0 million thereafter.
- Total assets were $841.4 million and total equity was $362.1 million at June 30, 2021.
- Cash flows from investing activities used $1.1 million, primarily for tenant and building improvements. Financing activities provided $0.5 million, including $3.4 million of common-stock issuance proceeds, partly offset by $2.6 million of dividends and $0.2 million of share repurchases.
- The company declared and paid quarterly dividends of $0.10 per share in January, April and July 2021. Management stated that future dividends remain subject to board discretion and available cash flow.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined 19.3% and six-month revenue declined 16.3%, primarily because of Knotel lease terminations, cash-basis tenants, rent abatements and another lease termination.
- Quarterly operating loss widened to $6.3 million from $0.9 million; the six-month operating loss widened to $15.2 million from $3.0 million.
- Property operating expenses increased 15.3% for the quarter and 12.0% for the six-month period, driven by non-reimbursable legal costs, real estate taxes and other expenses associated with tenants placed on a cash basis.
- Equity-based compensation increased to $2.1 million for the quarter and $4.2 million for the six-month period, principally from amortization of the 2020 multi-year outperformance award granted to the advisor.
- Cash NOI declined 30.8% for the quarter and 32.1% for the six-month period. Core FFO changed from positive $2.7 million to a deficit of $1.9 million for the quarter and from positive $3.4 million to a deficit of $4.8 million for the six-month period.
- Portfolio occupancy was 84.5% at June 30, 2021, compared with 88.6% a year earlier and 87.0% at December 31, 2020. Occupancy at 9 Times Square fell to 57.7%, while occupancy at 123 William Street increased slightly to 90.8%.
Outlook, Risks, Contingencies and Unusual Items
- Management expects vaccination efforts to support increased office usage and leasing trends by the end of 2021 and through 2022, but provides no formal earnings, occupancy or dividend guidance.
- The COVID-19 pandemic continues to affect tenant operations, rent collections, leasing demand and operating costs. The company collected 89% of original cash rent due for the second quarter, including 96% from office tenants and 68% from retail tenants. These collection statistics include receipts through July 31, 2021 and may not predict future periods.
- Knotel filed for bankruptcy in January 2021, terminating leases at 123 William Street and 9 Times Square. The company re-leased some former Knotel space, but replacement rents per square foot are lower than the prior Knotel rents.
- The company breached covenants on four mortgage loans totaling $214.0 million: 9 Times Square, 1140 Avenue of the Americas, 400 E. 67th Street/200 Riverside Boulevard and 8713 Fifth Avenue. These breaches resulted in cash traps, reserve requirements or excess-cash-flow sweeps, but were not events of default as of June 30, 2021.
- Management anticipates that another covenant breach at 9 Times Square in the quarter ending September 30, 2021 could trigger an event of default unless the $55.0 million loan is “right sized” through a principal repayment or additional collateral. The amount required could not be estimated in the filing. Potential consequences include acceleration of the debt and foreclosure.
- The company expects to fund part of its operating expenses and other capital requirements with cash on hand through at least the end of 2021. It has no corporate-level revolving credit facility and may need additional equity, debt financing or asset-sale proceeds.
- The unoccupied 421 W. 54th Street property is being evaluated for sale. No buyer had been identified as of June 30, 2021, and the property generated no offsetting rental revenue.
- The company extended its stockholder rights plan expiration date from August 16, 2021 to August 16, 2022. The remaining Class B common stock converted into Class A common stock on August 13, 2021, after the reporting date.
Important Facts for Investors to Verify
- Reconcile the filing entity with the requested company name; the submitted filing is for New York City REIT, Inc.
- Monitor the 9 Times Square covenant breach, lender negotiations, any required principal repayment or collateral posting, and the risk of acceleration or foreclosure.
- Assess whether occupancy, rent collections and replacement leasing can recover sufficiently to release cash traps and improve operating cash flow.
- Evaluate liquidity after restricted cash, dividends, debt service, tenant improvements and leasing commissions are considered.
- Review the sustainability of the $0.10-per-share quarterly dividend given negative operating cash flow and reliance on cash on hand and equity issuance.
- Consider the effect of additional Class A shares issued through the ATM program and the potential dilution from approximately 4.0 million LTIP units.