Business Context and Reporting Period
This Form 10-K was filed by New York City REIT, Inc., formerly American Realty Capital New York City REIT, Inc.; the provided metadata identifies American Strategic Investment Co., which does not match the registrant named in the filing. The report covers the fiscal year ended December 31, 2019, rather than a standalone 2019 fourth quarter.
The company is a non-listed Maryland REIT focused primarily on office and related commercial properties in New York City, particularly Manhattan. It conducts substantially all operations through New York City Operating Partnership, L.P., has no employees, and relies on its external advisor and affiliated property manager.
- Portfolio: 8 properties, 1,163,061 rentable square feet, acquired for an aggregate purchase price of $790.7 million.
- Portfolio occupancy: 89.6%; weighted-average remaining lease term: 6.8 years.
- The two largest properties, 123 William Street and 1140 Avenue of the Americas, represented approximately 68% of rentable square footage and 63% of annualized straight-line rent.
Financial Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue from tenants | $70.5 million | $62.4 million | +$8.1 million |
| Total operating expenses | $76.1 million | $73.7 million | +$2.4 million |
| Operating loss | $(5.6) million | $(11.3) million | Improved by $5.7 million |
| Interest expense | $17.2 million | $13.3 million | +$3.9 million |
| Net loss | $(21.9) million | $(24.1) million | Improved by $2.2 million |
| Net loss per share | $(0.71) | $(0.77) | Improved by $0.06 |
| Cash flow from operations | $(1.6) million | $(7.1) million | Improved by $5.5 million |
| Cash flow used in investing | $(46.0) million | $(14.9) million | Increased use of $31.0 million |
| Cash flow from financing | $51.1 million | $29.6 million | +$21.5 million |
| Cash and cash equivalents | $51.2 million | $48.0 million | +$3.2 million |
| Total assets | $901.4 million | $773.7 million | +$127.6 million |
| Mortgage notes payable, net | $395.0 million | $291.7 million | +$103.4 million |
| Total stockholders’ equity | $420.5 million | $443.7 million | $(23.1) million |
Operating margin was approximately negative 7.9% in 2019, compared with negative 18.0% in 2018. FFO was $9.3 million, compared with $5.6 million, while MFFO was $2.6 million, compared with negative $0.5 million. These are non-GAAP measures and are not substitutes for net income or operating cash flow.
Gross mortgage debt was $405.0 million at year-end, with a weighted-average effective interest rate of 4.35%. All outstanding mortgage debt was fixed-rate or fixed through an interest-rate swap, and no scheduled principal payments were due before April 2024. The fair value of the debt was approximately $427.0 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased 13.0%, primarily from the 196 Orchard Street acquisition, the full-year contribution of 8713 Fifth Avenue, and leasing activity at 9 Times Square and 123 William Street.
- Occupancy declined from 93.7% to 89.6%, mainly because of lease expirations and early terminations at 123 William Street and 1140 Avenue of the Americas. Occupancy at 9 Times Square improved from 84.3% to 90.1%.
- The company acquired 196 Orchard Street in July 2019 for a contract price of approximately $88.8 million, funded partly with a $51.0 million mortgage and partly with cash.
- Interest expense increased because of additional borrowings, including a $55.0 million loan secured by 9 Times Square and a $51.0 million loan secured by 196 Orchard Street.
- Capital expenditures were $7.7 million, primarily for building and tenant improvements, compared with $9.0 million in 2018.
- Distributions remained suspended throughout 2019. The company paid no distributions in 2019, compared with $0.25 per share declared in 2018 before the suspension.
- The share repurchase program remained suspended, and no shares were repurchased in 2019.
- The company adopted ASC 842 lease accounting, recording a $55.6 million operating lease right-of-use asset and a $54.9 million operating lease liability, primarily related to the ground lease at 1140 Avenue of the Americas.
Guidance, Outlook, Risks and Unusual Items
Management stated that it expected to have sufficient cash flow to meet operating needs over the following year, but acknowledged that additional financing may not be available on favorable terms or at all. Management expected 2020 capital expenditures, including contractual tenant-improvement and leasing costs, to be no greater than and potentially lower than 2018 and 2019 levels.
- The board approved an estimated per-share NAV of $20.26 as of June 30, 2019. The NAV is appraisal-based, determined annually, and may not reflect realizable sale value.
- The company has not paid distributions since March 1, 2018 and provided no assurance regarding whether or when distributions will resume.
- The share repurchase program is suspended until the company announces a resumption of regular distributions and offers very limited liquidity even if reactivated.
- Subsequent to year-end, the company entered into an agreement to sell the vacant 421 W. 54th Street property for $7.1 million. Completion and terms were not assured.
- Future contractual obligations included $405.0 million of mortgage principal, $125.7 million of mortgage interest, and $231.0 million of ground lease payments. The largest mortgage principal maturity is $55.0 million in 2024, with the remaining $350.0 million due thereafter.
- Key risks include geographic and asset concentration, declining occupancy, tenant credit exposure, refinancing and interest-rate risk, illiquidity of the common stock, conflicts with the external advisor and affiliates, related-party fees, REIT qualification requirements, and dependence on New York City commercial real estate conditions.
- Major tenant concentrations included City National Bank at 6.9%, Knotel at 6.3%, and Planned Parenthood at 5.3% of annualized straight-line rent.
- The filing discusses the COVID-19 pandemic as a potentially material risk because it could adversely affect tenants, retail properties, occupancy, financing markets and property values. The filing was signed March 19, 2020, and the ultimate effects were uncertain.
- No material legal or regulatory proceedings were pending, no impairment charges were recognized in 2019, and management reported effective disclosure controls and internal control over financial reporting. The independent auditor did not audit internal control effectiveness because the company was a non-accelerated filer.
Important Facts for Investors to Verify
- Confirm the intended registrant: the supplied filing is for New York City REIT, Inc., not American Strategic Investment Co.
- Review the audited financial statements and reconciliation of cash flow, FFO and MFFO, particularly because GAAP net loss remained substantial and operating cash flow was negative.
- Assess the sustainability of liquidity without distributions, including $51.2 million of unrestricted cash, restricted cash, tenant-improvement requirements and debt-service obligations.
- Examine lease expirations, especially the 2022–2025 periods, when approximately 31.8% of annualized portfolio rent is scheduled to expire based on the filing’s table.
- Evaluate refinancing exposure beginning in 2024 and the effect of interest-only debt and balloon maturities.
- Verify the status and proceeds of the proposed 421 W. 54th Street sale and whether any subsequent events affected property values or liquidity.
- Review related-party compensation, the long-term advisory agreement, potential change-of-control termination fees, and conflicts of interest.
- Consider the limitations of the $20.26 estimated NAV, the absence of a public trading market, and the suspended share repurchase program.