Business Context and Reporting Period
American Strategic Investment Co. is an externally managed commercial real estate company focused primarily on office properties and related retail, amenities and parking assets in New York City. As of September 30, 2023, it owned eight properties totaling approximately 1.2 million rentable square feet, with 85.1% occupancy and a 6.6-year weighted-average remaining lease term.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. The company terminated its REIT election effective January 1, 2023, completed a 1-for-8 reverse stock split in January 2023, changed its name from New York City REIT, Inc. and completed a $5.0 million gross rights offering in February 2023.
Financial Performance and Position
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue from tenants | $16.0 million | $15.9 million | $47.3 million | $47.8 million |
| Operating loss | $(4.7) million | $(6.3) million | $(18.0) million | $(21.6) million |
| Net loss attributable to common stockholders | $(9.4) million | $(11.1) million | $(32.0) million | $(35.8) million |
| Net loss per share | $(4.10) | $(6.40) | $(14.53) | $(21.22) |
| Cash flow from operating activities | Not separately provided | Not separately provided | $(3.9) million | $3.3 million |
| Capital expenditures | Not separately provided | Not separately provided | $3.2 million | $4.9 million |
- Q3 operating margin was approximately (29.1%) and net margin was approximately (58.6%). For the first nine months, operating margin was approximately (38.0%) and net margin was approximately (67.7%).
- Cash and cash equivalents were $5.1 million at September 30, 2023, down from $9.2 million at December 31, 2022. Restricted cash was $7.9 million, resulting in total cash, cash equivalents and restricted cash of $13.0 million.
- Total assets were $770.2 million and stockholders’ equity was $298.9 million at September 30, 2023. Net real estate investments were $651.6 million.
- Mortgage notes payable were $399.5 million gross, or $395.3 million net of deferred financing costs, with a weighted-average effective interest rate of 4.35%. The debt is fixed-rate or effectively fixed-rate through an interest-rate swap.
- Cash NOI was $6.5 million in Q3 2023 versus $6.2 million in Q3 2022, and $21.0 million for the first nine months versus $18.9 million in the prior-year period. Core FFO remained negative at $(1.1) million in Q3 and $(5.4) million for the first nine months; these are non-GAAP measures.
Material Changes Versus Prior Comparable Period
- Q3 revenue increased modestly, primarily due to higher occupancy. Nine-month revenue declined because percentage-rent arrangements expired and real estate tax reimbursement billings decreased.
- Net loss improved by $1.7 million in Q3 and $3.7 million for the first nine months, driven largely by lower equity-based compensation, general and administrative expenses and depreciation and amortization.
- General and administrative expense declined by $3.0 million for the first nine months, primarily because 2022 included approximately $2.5 million of proxy contest costs.
- Equity-based compensation declined to $1.2 million in Q3 and $5.7 million for the first nine months, compared with $2.3 million and $6.6 million, respectively. The 2020 outperformance award ended August 18, 2023; none of the 501,605 LTIP Units were earned and they were forfeited.
- Operating cash flow changed from $3.3 million provided in the first nine months of 2022 to $3.9 million used in 2023, despite the lower net loss, primarily due to working-capital movements.
- Portfolio occupancy increased from 82.7% at December 31, 2022 and 84.5% at September 30, 2022 to 85.1% at September 30, 2023. Occupancy improved at 9 Times Square, 123 William Street, 1140 Avenue of the Americas and 8713 Fifth Avenue.
Guidance, Outlook, Risks and Unusual Items
- Management states that it expects available cash and cash generated from operations not subject to cash traps to fund operating and capital requirements over the next 12 months. No formal earnings or revenue guidance was provided.
- The $49.5 million 9 Times Square mortgage matures in April 2024. The company is evaluating extension, refinancing or repayment alternatives and does not currently have a financing commitment. A replacement loan may carry a higher interest rate and could require partial repayment.
- The company remained in covenant breach on the $99.0 million 1140 Avenue of the Americas loan and the $10.0 million 8713 Fifth Avenue loan. These breaches were not events of default but restricted access to excess property cash flows and resulted in cash-trap or cash-sweep provisions. Approximately $3.6 million related to 1140 Avenue of the Americas was restricted at quarter-end.
- The company collected 100% of original cash rent due during Q3 and the first nine months, but warns that future collections, leasing activity and covenant cures are not assured. New York City office-market weakness, work-from-home trends, tenant terminations and lease-up costs remain material risks.
- The company classified the vacant Hit Factory property as held for sale, recorded a $0.5 million impairment for the first nine months and sold it on October 12, 2023 for $4.5 million, generating approximately $4.2 million of net proceeds. The sale eliminates approximately $0.3 million of annual carrying costs.
- Bellevue Capital Partners, an affiliate of the Advisor, completed a tender offer after quarter-end, accepting 223,460 shares at $10.25 per share and increasing its ownership to approximately 45.1% as of October 30, 2023.
- Dividends have been suspended since the quarter ended June 30, 2022. The filing provides no assurance that dividends will resume.
- The company may be at risk of NYSE delisting if it cannot maintain the required 30-trading-day average market capitalization of $15 million.
- The company is externally managed and economically dependent on the Advisor and related parties. Related-party asset and property management fees were $1.9 million in Q3 and $5.8 million for the first nine months.
Most Important Facts for Investors to Verify
- Refinancing, extension or repayment progress for the $49.5 million loan maturing in April 2024.
- Status of the 1140 Avenue of the Americas and 8713 Fifth Avenue covenant breaches, restricted cash and potential lender remedies.
- Sustainability of liquidity after considering $5.1 million of unrestricted cash, negative year-to-date operating cash flow and upcoming debt obligations.
- Progress in leasing vacant space, particularly at 9 Times Square, 1140 Avenue of the Americas and 8713 Fifth Avenue, and the effect on covenant compliance.
- Impact of the REIT-election termination on future taxes, distributions and the company’s planned expansion into non-REIT operating businesses.
- Future dividend policy, related-party fees and the implications of Bellevue’s approximately 45.1% ownership position.
- Compliance with NYSE market-capitalization requirements and the potential effect of delisting on liquidity and access to capital.