American Strategic Investment Co. 2023 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2023, rather than a standalone fourth quarter. American Strategic Investment Co. is an externally managed commercial real estate company owning seven New York City properties totaling approximately 1.2 million rentable square feet, primarily office and retail assets in Manhattan and Brooklyn.
- Portfolio occupancy was 86.7% at December 31, 2023, compared with 82.7% at December 31, 2022.
- Weighted-average remaining lease term was 6.5 years.
- The Company revoked its REIT election effective January 1, 2023 and is now taxed as a C corporation.
- A 1-for-8 reverse stock split became effective January 11, 2023, and the Company changed its name from New York City REIT, Inc. on January 19, 2023.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue from tenants | $62.7 million | $64.0 million | Down $1.3 million |
| Operating loss | $87.1 million | $26.9 million | Down $60.2 million |
| Net loss attributable to common stockholders | $105.9 million | $45.9 million | Loss increased $60.0 million |
| Net loss per share | $47.57 | $26.59 | Loss increased |
| Cash NOI | $27.3 million | $26.9 million | Up $0.4 million |
| Core FFO | $(6.6) million | $(6.0) million | Loss increased $0.6 million |
| Net cash used in operating activities | $7.4 million | $0.5 million | Use increased $6.9 million |
- Total operating expenses increased to $149.8 million from $91.0 million, primarily because of $66.6 million of real estate impairment charges.
- Impairment charges included $66.1 million for 1140 Avenue of the Americas and $0.5 million for the Hit Factory property.
- Interest expense was $18.9 million, broadly unchanged from 2022. Weighted-average debt was approximately $399.5 million with a 4.35% effective interest rate.
- Cash and cash equivalents were $5.3 million and restricted cash was $7.5 million at year-end, for total cash, cash equivalents and restricted cash of $12.8 million, down from $16.1 million.
- Total assets declined to $694.2 million from $790.5 million. Mortgage notes payable, net, were $395.7 million.
- Investing activities provided $0.1 million, including $4.1 million of proceeds from the Hit Factory sale, partially offset by $4.1 million of capital expenditures.
- Financing activities provided $4.0 million, primarily from the rights offering. The February 2023 rights offering generated approximately $4.1 million of net proceeds.
Material changes versus the prior comparable period
- Revenue declined modestly because lease termination fee revenue decreased to $0.8 million from $1.5 million and tenant operating expense reimbursements were lower.
- Occupancy improved by four percentage points, driven principally by leasing at 9 Times Square and 1140 Avenue of the Americas.
- General and administrative expense decreased to $9.4 million from $12.5 million, primarily because 2022 included approximately $2.5 million of proxy contest costs.
- Equity-based compensation decreased to $5.9 million from $8.8 million. The 2020 multi-year outperformance award ended in August 2023, and all 501,605 related LTIP Units were forfeited because performance conditions were not met.
- The Company sold the vacant Hit Factory property for a contract price of $4.5 million and made no property acquisitions.
- The Company did not pay dividends in 2023. Dividends have been suspended since March 2022, and the filing provides no assurance that cash dividends will resume.
- The share count increased through the rights offering and shares issued to the Advisor in lieu of cash fees. Approximately 2.3 million shares were outstanding at December 31, 2023.
Guidance, outlook, risks and unusual items
- Management expects 2024 capital expenditures, including tenant improvements and leasing costs, to be similar to 2023 levels, but this is not a formal earnings forecast.
- The Company continues to pursue leasing, expense-reduction initiatives and potential asset dispositions to support liquidity. There is no assurance that vacant space will be leased on acceptable terms.
- The $49.5 million 9 Times Square mortgage matured in April 2024. The Company had a non-binding term sheet to extend the loan for five years at 7.0%, but no assurance was given that definitive documentation would be completed.
- The $99.0 million 1140 Avenue of the Americas mortgage matures in July 2026. The Company stated that it may be unable to refinance or extend the loan, which was a key factor in the $66.1 million impairment charge.
- The Company remained in covenant breach on mortgages secured by 1140 Avenue of the Americas and 8713 Fifth Avenue. These breaches were described as not being events of default but resulted in cash-trap or excess-cash-sweep restrictions. Approximately $2.5 million related to 1140 Avenue of the Americas was held in segregated restricted cash.
- The Company has no corporate-level revolving credit facility or other corporate-level indebtedness and depends on property cash flow, asset sales and equity financing to meet obligations.
- The transition from REIT status subjects the Company to corporate income taxes. Federal net operating loss carryforwards were $186.5 million, but a 100% valuation allowance was recorded against deferred tax assets.
- Principal risks include concentrated exposure to the New York City office market, work-from-home trends, tenant defaults or bankruptcies, lease expirations, high leverage, refinancing risk, covenant breaches, interest rates, inflation and dependence on the external Advisor and Property Manager.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023. However, the filing discusses prior material weaknesses and restatements or revisions involving 2022 interim financial statements.
- The Company reported no material pending legal or regulatory proceedings and no cybersecurity incidents that materially affected, or were reasonably likely to materially affect, the business as of the filing date.
Most important facts for investors to verify
- Whether the 9 Times Square mortgage extension was completed on acceptable terms and whether any refinancing or repayment pressure remains.
- Whether the Company can cure the 1140 Avenue of the Americas and 8713 Fifth Avenue covenant breaches and regain access to trapped cash.
- Actual 2024 leasing activity, occupancy, rental rates, tenant concessions and capital requirements.
- Whether cash flow from property operations becomes sufficient to fund operating expenses, debt service, tenant improvements and leasing commissions.
- Whether and when the Board resumes cash dividends.
- The valuation and refinancing assumptions supporting the 1140 Avenue of the Americas impairment and the potential for further impairments.
- The effect of additional equity issued to the Advisor or Property Manager on shareholder dilution and related-party costs.
- The Company’s ability to use its federal and state net operating losses, including potential Section 382 limitations.