Business Context and Reporting Period
The filing is New York City REIT, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2020. The request metadata identifies American Strategic Investment Co., but the filing registrant is New York City REIT, Inc. The company owns eight New York City properties totaling approximately 1.16 million rentable square feet, primarily office assets, with an aggregate acquisition cost of $790.7 million.
The portfolio was 88.6% occupied at June 30, 2020, compared with 94.7% at June 30, 2019, and had a weighted-average remaining lease term of 6.6 years. The company operates as a REIT and conducts substantially all business through New York City Operating Partnership, L.P.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue from tenants | $18.6 million vs. $16.5 million | $36.0 million vs. $33.6 million |
| Operating loss | $(0.9) million vs. $(2.1) million | $(3.0) million vs. $(3.2) million |
| Net loss | $(5.3) million vs. $(5.8) million | $(12.1) million vs. $(10.4) million |
| Net loss per share | $(0.41) vs. $(0.46) | $(0.95) vs. $(0.82) |
| FFO | $2.6 million vs. $1.7 million | $3.4 million vs. $4.6 million |
| MFFO | $0.6 million vs. $(0.2) million | $0.3 million vs. $0.8 million |
| Cash NOI | $8.7 million vs. $7.3 million | $17.1 million vs. $15.2 million |
Operating expenses were $19.5 million in the second quarter and $39.0 million for the six-month period. Interest expense increased to $5.0 million for the quarter and $9.8 million year to date. Other income included approximately $0.6 million from a forfeited deposit related to the terminated potential sale of the Hit Factory property.
At June 30, 2020, total assets were $887.7 million, including $734.9 million of net real estate investments. Cash and cash equivalents were $44.7 million, with restricted cash of $8.1 million. Total liabilities were $481.8 million and stockholders’ equity was $405.9 million.
Gross mortgage debt was $405.0 million, or approximately 46% of total assets, with a weighted-average effective interest rate of 4.35%. No principal payments were scheduled for the remainder of 2020 through 2023; $55.0 million matures in 2024 and $350.0 million thereafter. The company was in compliance with its debt covenants at June 30, 2020.
Net cash used in operating activities was $4.1 million for the first six months of 2020, compared with $1.3 million of cash provided in the prior-year period. Investing cash outflows were $1.5 million, primarily for capital expenditures, and there was no financing cash flow. Cash, cash equivalents and restricted cash totaled $52.7 million at June 30, 2020, compared with $100.2 million at June 30, 2019.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased $2.1 million, primarily from the July 2019 acquisition of 196 Orchard Street and a $1.5 million write-off of below-market lease amortization related to a lease termination.
- Six-month revenue increased $2.4 million, but lower leasing activity and the absence of prior-year lease termination fees partially offset acquisition-related growth.
- Quarterly net loss improved by $0.5 million, while six-month net loss increased by $1.7 million, primarily because of higher interest expense, general and administrative costs and property operating expenses.
- Interest expense increased $0.9 million for the quarter and $2.2 million year to date, reflecting debt associated with 9 Times Square and 196 Orchard Street.
- General and administrative expense increased $0.6 million for the quarter and $0.7 million year to date, driven primarily by COVID-19 lease negotiations and costs associated with the planned NYSE listing.
- Occupancy declined from 94.7% at June 30, 2019 and 89.6% at December 31, 2019 to 88.6% at June 30, 2020. The Hit Factory property remained unoccupied.
- The company funded $1.5 million of capital expenditures in the first six months of 2020, compared with $2.8 million in the prior-year period, which also included a $4.4 million acquisition deposit.
Guidance, Outlook, Risks and Unusual Items
COVID-19 adversely affected New York City tenants, rent collections and liquidity. Management reported collection of 85% of second-quarter cash rent due as of July 31, 2020, including 88% from office tenants, 64% from retail tenants and 88% from the top 20 tenants. Approximately 10% of second-quarter cash rent was subject to approved deferral agreements, with $1.1 million expected to be deferred under agreements executed or approved during 2020, including $0.6 million through June 30.
Management expects rent deferrals and other pandemic effects may require the company to fund a portion of operating costs through at least the first quarter of 2021. Management stated that it believes available cash flow will be sufficient to meet operating needs over the next year, but future liquidity depends on rent collections, capital markets, asset dispositions and access to debt or equity financing.
Distributions had been suspended since March 2018. In connection with the planned NYSE listing, the board intended to reinstate distributions at an annualized $0.40 per share, with a potential initial partial-quarter payment in October 2020. The amount and timing were not assured and remained subject to board authorization.
On August 5, 2020, after the reporting date, the company completed a 9.72-to-1 reverse stock split, renamed the post-split shares Class A common stock and issued three shares of Class B common stock for each Class A share. The company planned to list Class A common stock on the NYSE under the symbol “NYC,” with trading anticipated around August 18, 2020, although timing and trading price were not assured. Class B shares were to convert into listed Class A shares in three tranches over 360 days.
The company authorized consideration of up to $100 million of Class A share repurchases after listing, subject to board approval and available resources. The prior share repurchase program remained suspended and was expected to terminate upon listing.
Key risks include prolonged COVID-19 effects, tenant defaults or bankruptcies, lower office and retail demand, declining occupancy and rental rates, increased operating and re-leasing costs, refinancing and covenant risk, limited portfolio diversification, related-party conflicts and fees, reliance on the Advisor and Property Manager, potential volatility after listing, and the ability to maintain REIT qualification.
The Hit Factory sale agreement terminated in April 2020; the company retained a $0.7 million security deposit and continued to own the vacant property. No material legal proceedings were pending, no impairment losses were recorded, and no material off-balance-sheet arrangements were reported.
Investor Verification Checklist
- Confirm the correct registrant and filing identity: the supplied filing is for New York City REIT, Inc., not American Strategic Investment Co.
- Verify post-quarter-end NYSE listing status, actual commencement date, trading price and the Class A/Class B conversion schedule.
- Track subsequent rent collections, deferrals, abatements, tenant bankruptcies and the collectability of deferred 2020 rent.
- Assess occupancy, lease expirations, re-leasing costs and demand for New York City office and retail space.
- Review liquidity relative to operating cash burn, planned distributions, potential share repurchases and capital expenditures.
- Monitor the $55.0 million 2024 debt maturity, remaining debt maturities, covenant compliance and interest-rate derivative liability.
- Evaluate the vacant Hit Factory property, including disposition prospects, carrying costs and any potential impairment.
- Review related-party advisory, property management and reimbursement arrangements, including potential listing, performance and termination payments.
- Reconcile non-GAAP FFO, MFFO and Cash NOI to GAAP results and avoid treating them as measures of liquidity or dividend capacity.