Business Context and Reporting Period
American Strategic Investment Co. filed an unaudited Form 10-Q for the three months ended March 31, 2023. The company owns eight commercial real estate properties totaling approximately 1.2 million rentable square feet, primarily in Manhattan, with portfolio occupancy of 84.0% at quarter-end.
The company terminated its REIT election effective January 1, 2023, changed its name from New York City REIT, Inc. in January 2023, and continues to evaluate expanding into non-REIT operating businesses. A 1-for-8 reverse stock split became effective January 11, 2023.
Financial Performance and Position
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue from tenants | $15.5 million | $15.6 million | Down $0.1 million |
| Operating loss | $(7.1) million | $(7.0) million | Higher loss by $0.1 million |
| Net loss attributable to common stockholders | $(11.8) million | $(11.7) million | Higher loss by $0.05 million |
| Basic and diluted loss per share | $(5.77) | $(7.07) | Improved primarily from higher share count |
| Cash flow from operating activities | $(0.7) million | $2.2 million | Down $2.9 million |
| Capital expenditures | $2.3 million | $0.4 million | Higher by $1.9 million |
| Cash flow from financing activities | $4.0 million | $(6.9) million | Improved by $10.9 million |
| Cash, cash equivalents and restricted cash | $17.1 million | $23.3 million | Down $6.2 million year over year |
Operating expenses were $22.6 million, including $7.0 million of depreciation and amortization, $8.4 million of property operating expenses, $3.2 million of general and administrative expenses, $2.2 million of equity-based compensation, and $1.9 million of related-party asset and property management fees. The operating loss margin was approximately 45.7% of tenant revenue, and the net loss margin was approximately 75.7%.
Cash and cash equivalents were $8.8 million at March 31, 2023, compared with $9.2 million at December 31, 2022. Restricted cash was $8.3 million. Management stated that cash on hand and unrestricted operating cash are expected to fund operating and capital requirements over the next 12 months, although access to cash generated by certain properties is restricted.
Mortgage debt was $399.5 million gross, or $394.5 million net of deferred financing costs, with a weighted-average effective interest rate of 4.35%. No scheduled principal repayments are due during the remainder of 2023; $49.5 million is scheduled to mature in 2024, followed by $99.0 million in 2026 and $140.0 million in 2027. Debt is fixed rate or effectively fixed through an interest-rate swap.
Non-GAAP FFO attributable to common stockholders was a deficit of $4.8 million, compared with a deficit of $4.7 million in Q1 2022. Core FFO was a deficit of $2.6 million, compared with a deficit of $2.2 million. Cash NOI was $7.0 million, compared with $5.7 million.
Material Changes Versus the Prior Comparable Period
- Revenue declined slightly because of lower overall occupancy, while property operating expenses declined by approximately $0.2 million.
- General and administrative expenses increased to $3.2 million from $3.0 million, partly due to legal and professional costs associated with terminating REIT status and approximately $0.3 million of New York City and New York State capital stock tax accruals.
- Operating cash flow declined from $2.2 million provided to $0.7 million used, while capital expenditures increased substantially for tenant and building improvements.
- The company completed a non-transferable rights offering in February 2023, issuing 386,100 shares and generating $5.0 million of gross proceeds, or $4.1 million net.
- Shares outstanding increased to approximately 2.3 million from 1.9 million at December 31, 2022, including shares issued in the rights offering and 31,407 shares issued to the Advisor in lieu of $0.5 million of January management fees.
- The prior-year comparative financial statements were revised for previously identified errors, increasing Q1 2022 expenses and net loss by $0.6 million.
- The board continued the suspension of common dividends that began with the quarter ended June 30, 2022. No dividend was declared or paid for Q1 2023.
Guidance, Outlook, Risks and Unusual Items
No formal earnings or revenue guidance was provided. Management expects 2023 capital expenditures to be generally similar to 2022 levels, subject to leasing activity and market conditions, and expects to continue pursuing occupancy improvements and replacement tenants.
- Two mortgage loans, totaling $109.0 million, remained subject to cash-trap or excess-cash-flow restrictions at March 31, 2023: the $99.0 million 1140 Avenue of the Americas loan and the $10.0 million 8713 Fifth Avenue loan. The company stated that these covenant breaches were not events of default.
- Approximately $4.3 million related to the 1140 Avenue of the Americas property was held in lender-controlled restricted cash. The company cannot access this cash without lender approval unless the applicable breaches are cured.
- The 8713 Fifth Avenue property reached 88.6% occupancy during the quarter and is expected to reach 100% when the tenant occupies the remaining space in Q2 2023, which management expects could help cure the related covenant breach. This outcome is not assured.
- The company collected 100% of original cash rent due for Q1 2023, based on cash receipts through April 30, 2023, but warned that future collections and recovery of deferred rent are not assured.
- Vacancy remains significant at 9 Times Square, 1140 Avenue of the Americas, and the unoccupied 421 W. 54th Street property. The company is evaluating a potential sale or lease of 421 W. 54th Street, but no agreement had been reached.
- Management noted continuing risks from New York City office-market weakness, tenant bankruptcies or nonpayment, lease rollover, rent concessions, capital requirements, inflation, and restricted property cash flows.
- The company has no corporate-level revolving credit facility or other corporate-level debt and stated that prospective equity, debt, ATM offerings, or asset-sale proceeds may not be available on acceptable terms.
- The company recorded no income tax expense and maintained a full valuation allowance against deferred tax assets. It expects a taxable loss for 2023.
- The company reported no material pending legal or regulatory proceedings and concluded that disclosure controls and procedures were effective as of March 31, 2023.
Most Important Facts for Investors to Verify
- Whether occupancy improvements, particularly at 1140 Avenue of the Americas and 8713 Fifth Avenue, continue and result in covenant cures and release of trapped cash.
- The company’s ability to refinance or repay the $49.5 million mortgage maturity in 2024 while operating cash flow remains negative.
- Future leasing costs, tenant improvement obligations, capital expenditures, and the sustainability of reported 100% rent collections.
- The timing and terms of any sale or lease of 421 W. 54th Street and any broader shift into non-REIT operating businesses.
- Whether the company can improve recurring profitability and cash flow after excluding depreciation, equity compensation, and other non-cash items.
- The impact of the terminated REIT election, including future federal, state, and local tax obligations and the company’s ability to use tax attributes.
- The potential dilution and governance implications of additional equity issuance, including shares issued to the Advisor and ownership concentration involving Bellevue and AR Global affiliates.