Business Context and Reporting Period
This unaudited Form 10-Q covers the three and nine months ended September 30, 2019. The filing identifies the registrant as New York City REIT, Inc., formerly American Realty Capital New York City REIT, Inc.; it changed its name in March 2019. The provided request metadata identifies American Strategic Investment Co., which does not match the registrant named in the filing.
The company is a non-listed Maryland REIT focused on properties in New York City, particularly Manhattan. At September 30, 2019, it owned eight properties totaling approximately 1.16 million rentable square feet, with 92.4% portfolio occupancy and a 6.9-year weighted-average remaining lease term.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Comparable 2018 Period |
|---|---|---|---|
| Revenue from tenants | $18.6 million | $52.2 million | $15.7 million and $46.2 million |
| Operating loss | $(0.3) million | $(3.6) million | $(2.5) million and $(9.5) million |
| Net loss | $(4.8) million | $(15.2) million | $(5.9) million and $(19.0) million |
| Net loss per share | $(0.16) | $(0.49) | $(0.19) and $(0.61) |
| Cash flow from operating activities | Not separately reported | $(0.5) million | $(4.2) million |
| Cash flow from investing activities | Not separately reported | $(43.8) million | $(6.1) million |
| Cash flow from financing activities | Not separately reported | $51.1 million | $32.9 million |
Cash Net Operating Income, a non-GAAP measure, was $8.8 million for the quarter and $24.0 million for the nine months, compared with $6.7 million and $20.5 million, respectively, in the comparable 2018 periods. FFO was $3.0 million for the quarter and $7.6 million for the nine months; MFFO was $1.2 million and $2.0 million, respectively.
At September 30, 2019, total assets were $909.3 million, including net real estate investments of $755.5 million. Cash and cash equivalents were $53.8 million, and restricted cash was $7.7 million. Total stockholders’ equity was $426.6 million.
Gross mortgage debt was $405.0 million, or $394.6 million net of deferred financing costs, with a weighted-average effective interest rate of 4.35%. All scheduled principal payments occur after 2023. The company reported compliance with its debt covenants. A $55.0 million loan is secured by 9 Times Square and a $51.0 million loan financed the 196 Orchard Street acquisition.
The company recorded a $55.6 million operating lease right-of-use asset and a $54.9 million operating lease liability upon adoption of the new lease accounting standard. It also reported a $1.9 million derivative liability related to an interest-rate swap.
Material Changes Versus the Prior Comparable Period
- Revenue increased 18.4% for the quarter and 13.1% for the nine months, primarily from improved leasing activity and the acquisitions of 8713 Fifth Avenue and 196 Orchard Street.
- Operating loss narrowed by $2.1 million for the quarter and $5.9 million for the nine months, primarily due to higher revenue and lower general and administrative expenses.
- Net loss improved by $1.1 million for the quarter and $3.8 million for the nine months, despite higher interest expense.
- Interest expense rose to $4.7 million for the quarter and $12.3 million for the nine months, compared with $3.5 million and $9.7 million, respectively, due to additional borrowings.
- General and administrative expense declined to $1.2 million for the quarter and $5.0 million for the nine months, compared with $2.3 million and $7.8 million, respectively.
- Occupancy increased to 92.4% from 90.3% year over year, but declined from 94.7% at June 30, 2019 due to lease terminations during the quarter.
- Investing cash outflows increased substantially because of the $38.3 million cash component of the 196 Orchard Street acquisition and $5.6 million of capital expenditures.
- No common-stock distributions were paid in 2019. The distribution suspension, effective March 1, 2018, remained in effect, and the share repurchase program remained suspended.
Outlook, Commentary, Risks, and Unusual Items
Management expects available cash and operating cash flows to fund operating needs over the next year, while acknowledging that additional financing may be difficult or unavailable on favorable terms. Management does not currently anticipate additional indebtedness secured by existing properties.
The company continues leasing and repositioning efforts, particularly at 9 Times Square, 1140 Avenue of the Americas, and 123 William Street. Non-binding letters of intent were under negotiation, but management provided no assurance that they would result in executed leases. Subsequent to quarter-end, the company received non-binding proposals averaging $6.3 million for the vacant 421 W. 54th Street property; negotiations remained incomplete.
Distributions have been suspended since March 1, 2018, and management stated there is no assurance they will resume. The company expects a tax loss for 2019 and therefore does not expect the lack of distributions in 2019 to impair REIT qualification, subject to continued compliance with REIT requirements.
- The portfolio is concentrated in eight New York City properties, including an unoccupied 421 W. 54th Street property.
- Revenue depends on tenant financial condition, lease renewals, occupancy, rental rates, and the New York City real estate market.
- Debt is interest-only with substantial balloon principal payments after 2023, including $405.0 million thereafter.
- The company has no public market for its shares, and the share repurchase program is suspended, limiting stockholder liquidity.
- The company is economically dependent on its external Advisor and Property Manager, which are affiliated with AR Global and receive fees and reimbursements.
- A potential change of control could trigger a termination fee to the Advisor, including a $15 million base amount plus additional amounts based on subject fees.
- The interest-rate swap had a $1.9 million fair-value liability and contractual provisions that could require settlement of approximately $2.0 million upon certain defaults.
- The filing reports no material pending legal or environmental proceedings and no material off-balance-sheet arrangements.
Most Important Facts for Investors to Verify
- Confirm the correct issuer identity, because the filing is for New York City REIT, Inc., not American Strategic Investment Co.
- Reconcile occupancy trends, lease expirations, terminated leases, and the status of non-binding leasing proposals.
- Review debt maturities, covenant requirements, collateral restrictions, interest-rate swap terms, and refinancing exposure.
- Assess whether operating cash flow, which was negative for the first nine months, can support capital expenditures, tenant improvements, debt service, and future acquisitions.
- Verify the basis and continued applicability of the $20.26 estimated NAV per share as of June 30, 2019.
- Monitor whether distributions and the share repurchase program resume and whether the company maintains REIT qualification.
- Evaluate related-party fees, the long-term advisory agreement, and potential termination payments.