Business Context and Reporting Period
The provided filing is New York City REIT, Inc.’s Form 10-K for the fiscal year ended December 31, 2021, not American Strategic Investment Co. The company is an externally managed REIT focused primarily on office properties in New York City, particularly Manhattan. At year-end, it owned eight properties totaling 1.16 million rentable square feet, acquired for an aggregate purchase price of $790.7 million.
The portfolio was 82.9% occupied, compared with 87.0% at December 31, 2020, and had a weighted-average remaining lease term of 6.9 years. The company has no employees and relies on affiliated entities for management, property management, and administrative services.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue from tenants | $70.2 million | $62.9 million | +$7.3 million |
| Operating loss | $(20.4) million | $(22.6) million | Improved $2.2 million |
| Net loss attributable to common stockholders | $(39.5) million | $(41.0) million | Improved $1.5 million |
| Basic and diluted loss per share | $(3.05) | $(3.21) | Improved $0.16 |
| Cash NOI | $24.5 million | $27.3 million | Down $2.8 million |
| FFO attributable to common stockholders | $(7.0) million | $(9.2) million | Improved $2.3 million |
| Core FFO attributable to common stockholders | $1.5 million | $(2.9) million | Improved $4.4 million |
| Net cash used in operating activities | $(7.9) million | $(13.6) million | Improved $5.7 million |
| Capital expenditures | $3.4 million | $3.8 million | Down $0.4 million |
| Cash and cash equivalents | $11.7 million | $31.0 million | Down $19.3 million |
| Restricted cash | $16.8 million | $9.0 million | Up $7.8 million |
| Mortgage notes payable, gross | $405.0 million | $405.0 million | No change |
| Mortgage notes payable, net | $398.1 million | $396.6 million | Up $1.5 million |
Interest expense was $19.1 million, compared with $19.1 million in 2020. Weighted-average outstanding debt was $405.0 million with a weighted-average effective interest rate of 4.35%. All debt was fixed-rate or effectively fixed-rate through an interest-rate swap.
Total assets were $823.1 million, total liabilities were $471.9 million, and total equity was $351.1 million at December 31, 2021. Real estate investments, net, totaled $694.8 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased primarily because of $7.9 million of accelerated amortization of below-market lease liabilities, $1.5 million of lease termination fees, increased leasing activity at 123 William Street, and $0.3 million of Innovate NYC revenue. These benefits were partly offset by approximately $3.0 million of lost revenue from lease terminations, including Knotel.
- Net loss improved modestly, but results continued to be negatively affected by high depreciation and amortization, property operating expenses, interest expense, and $8.5 million of equity-based compensation.
- Cash NOI declined to $24.5 million from $27.3 million, reflecting vacancies, rent concessions, and higher non-reimbursable property expenses.
- Knotel filed for bankruptcy in January 2021, terminating leases at 123 William Street and 9 Times Square. Replacement leasing at 123 William Street partly offset the impact, while 9 Times Square occupancy declined to 59.3% from 78.7%.
- Occupancy at 8713 Fifth Avenue declined to 68.6% from 100.0% after a lease termination; a replacement tenant was expected to occupy the space in the second quarter of 2022.
- The original garage tenants at 400 E. 67th Street and 200 Riverside Boulevard were terminated in October 2021. The company received $1.4 million of termination fees and entered into six-month license agreements with a new operator.
- The company recorded a $1.5 million impairment charge on the vacant 421 W. 54th Street property and continued evaluating a potential sale.
- The company sold 466,651 Class A shares through its ATM program for gross proceeds of $5.3 million, while cash declined substantially because operating cash flow was negative, dividends were paid, and restricted cash increased.
- All remaining Class B common stock converted into Class A common stock during 2021. Year-end shares issued and outstanding totaled 13.3 million.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected office usage and leasing trends to improve during 2022 as New York City continued reopening, but stated that the timing and extent of recovery remained uncertain.
- Fourth-quarter original cash rent collections were 96% overall, including 97% from office tenants, 94% from retail tenants, and 98% from the top ten tenants. Management cautioned that these collection levels may not continue.
- Operating cash flow was insufficient to fund operating expenses and other cash requirements in 2021. Management expected to rely on cash on hand, ATM equity proceeds, potential dispositions, and up to $3.0 million of advisory fees reinvested in company shares.
- The company paid $5.2 million of common-stock dividends in 2021, despite using $7.9 million of cash in operating activities. The dividends were funded from available cash rather than current-period operating cash flow. All 2021 dividends, totaling $0.40 per share, were characterized for federal income tax purposes as return of capital.
- Four mortgage loans totaling approximately $214 million were subject to covenant breaches at year-end, involving 1140 Avenue of the Americas, 9 Times Square, the Laurel/Riverside properties, and 8713 Fifth Avenue. These breaches generally triggered cash traps or excess cash-flow sweeps rather than immediate defaults.
- Restricted cash included approximately $4.3 million related to 9 Times Square, $4.5 million related to 1140 Avenue of the Americas, and $1.4 million related to the Laurel/Riverside properties. This cash was unavailable for general corporate purposes while the breaches remained unresolved.
- In March 2022, the company obtained a waiver for the 9 Times Square loan and repaid $5.5 million of principal using trapped cash. The company expected to remain in breach and subject to a cash trap in the near term and could face additional repayment or collateral requirements after third-quarter 2022 results.
- Debt maturities included $49.5 million in 2024, $99.0 million in 2026, $140.0 million in 2027, $60.0 million in 2028, and $51.0 million in 2029. The filing states there were no scheduled 2022 principal payments at year-end, but the March 2022 repayment subsequently changed this position.
- Approximately 11% of annualized straight-line rent was scheduled to expire in 2022, and 73.9% was scheduled to expire during 2022 through 2031.
- Inflation exceeded contractual rent escalations: approximately 87% of leases contained escalations averaging 1.84% annually, while 2021 CPI inflation was reported at 7.0%.
- The company is externally managed under an advisory agreement with an initial term through July 2030 and potential termination fees. Related-party asset and property management fees were $7.6 million in 2021, and professional-fee and other reimbursements were $4.1 million.
- The filing identifies COVID-19 impacts, tenant defaults and bankruptcies, concentrated New York City exposure, interest rates, refinancing risk, covenant breaches, liquidity constraints, related-party conflicts, and REIT qualification as material risks.
- Management concluded that internal control over financial reporting was effective as of December 31, 2021. The independent auditor did not provide an internal-control attestation because the company remained a non-accelerated filer.
Most Important Facts for Investors to Verify
- Confirm the correct issuer: the supplied filing is for New York City REIT, Inc., whereas the request identifies American Strategic Investment Co.
- Review the company’s ability to cure or refinance the mortgage covenant breaches and the potential for accelerated debt repayment or foreclosure.
- Assess liquidity after the decline in unrestricted cash to $11.7 million and the increase in restricted cash to $16.8 million.
- Evaluate whether occupancy, rent collections, and leasing at 9 Times Square, 1140 Avenue of the Americas, and 8713 Fifth Avenue improve as projected.
- Determine whether dividends remain sustainable given negative operating cash flow and reliance on cash reserves and equity issuance.
- Separate recurring operating revenue from unusual items, including $7.9 million of accelerated below-market lease amortization and $1.5 million of termination fees.
- Review the valuation assumptions supporting the $1.5 million impairment charge and the potential disposition of 421 W. 54th Street.
- Consider dilution and governance implications from the ATM program, advisory fee reinvestment, LTIP Units, related-party arrangements, and the advisory agreement’s potential termination fee.