Form 10-Q Summary: New York City REIT, Inc.
Reporting period: Quarter and nine months ended September 30, 2020. The supplied filing identifies the registrant as New York City REIT, Inc., not American Strategic Investment Co.; this entity-name discrepancy should be verified.
Business Context
The company is a New York City-focused REIT owning eight commercial properties totaling approximately 1.2 million rentable square feet, primarily in Manhattan. Portfolio occupancy was 88.6% at September 30, 2020, with a weighted-average remaining lease term of 7.5 years. The company completed its NYSE listing under the symbol NYC on August 18, 2020, following a 9.72-to-1 reverse stock split and the creation of Class A and Class B common stock.
Financial Results and Position
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue from tenants | $17.0 million | $18.6 million | $53.0 million | $52.2 million |
| Operating loss | $(7.2) million | $(0.3) million | $(10.2) million | $(3.6) million |
| Net loss attributable to common stockholders | $(12.3) million | $(4.8) million | $(24.4) million | $(15.2) million |
| Net loss per share | $(0.96) | $(0.38) | $(1.91) | $(1.19) |
| Core FFO | $0.5 million | $3.0 million | $3.9 million | $7.6 million |
| Cash NOI | $6.1 million | $8.8 million | $23.2 million | $24.0 million |
Q3 revenue declined approximately 8.8% year over year, while the net loss widened materially. Nine-month revenue increased approximately 1.6%, primarily due to the July 2019 acquisition of 196 Orchard Street and lease-intangible write-offs, but operating performance weakened. Q3 and nine-month net loss margins were approximately 72% and 46%, respectively, based on reported revenue; these margins were affected by depreciation, listing costs, equity compensation and other unusual items.
- Cash flow: Net cash used in operating activities was $6.0 million for the nine months ended September 30, 2020, compared with $0.5 million used in the prior-year period.
- Investing cash flow: $3.2 million used, primarily for capital expenditures, compared with $43.8 million used in 2019, which included the 196 Orchard Street acquisition.
- Liquidity: Cash and cash equivalents were $39.1 million at September 30, 2020, down from $51.2 million at December 31, 2019. Including restricted cash, total cash, cash equivalents and restricted cash was $48.8 million.
- Debt: Mortgage debt was $405.0 million gross, or $396.2 million net of deferred financing costs, with a weighted-average effective interest rate of 4.35%. No significant principal repayments are scheduled until $55.0 million in 2024; $350.0 million is scheduled thereafter.
- Equity: Total equity was $396.4 million, including $1.9 million of non-controlling interests, compared with $420.5 million at December 31, 2019.
Material Changes Versus Prior Comparable Period
- Q3 revenue decreased $1.6 million, primarily from lease terminations, a COVID-19-related rent abatement and lower reimbursable operating expenses.
- Occupancy declined from 92.4% at September 30, 2019 and 89.6% at December 31, 2019 to 88.6% at September 30, 2020.
- Q3 operating expenses increased $5.2 million, driven by $1.3 million of listing expenses, $1.2 million of non-cash Class B Unit vesting and conversion expense, $1.7 million of equity-based compensation and higher depreciation.
- The company recorded $1.7 million of Q3 equity-based compensation related primarily to the Advisor’s 2020 multi-year outperformance award. The award had a total fair value of $25.8 million, with $24.1 million of unrecognized expense remaining at September 30, 2020.
- Cash NOI declined 31.2% in Q3 and 3.3% for the nine-month period, while Core FFO declined 83.0% in Q3 and 48.7% for the nine-month period.
- The company had no real estate acquisitions in 2020 through September 30, compared with the 196 Orchard Street acquisition in 2019.
Guidance, Outlook, Risks and Unusual Items
Management stated that cash generated by property operations was insufficient in some recent periods, including Q3 2020, to fund operating expenses and other capital needs. Because of rent deferrals and COVID-19 effects, management expected to use cash on hand to fund a portion of these needs at least through the first quarter of 2021. Management believed available cash flow would be sufficient for operating needs over the following year, but stated that future dividends and capital funding remain uncertain.
- Third-quarter cash rent collections were 85% for the portfolio, including 91% from office tenants and 61% from retail tenants. Approximately 8% of third-quarter cash rent was covered by approved deferral or abatement agreements, with another 6% under negotiation.
- Through September 30, 2020, the company had 15 approved agreements involving 11 tenants. Rent deferrals totaled $1.2 million for the nine months, and rent abatements totaled $0.7 million.
- The company was in breach of debt-service-coverage and reserve-fund provisions on the 1140 Avenue of the Americas mortgage. The breaches were not events of default, but required excess cash to be held as additional collateral until the covenants are cured.
- The company declared and paid a dividend of $0.04889 per share in October 2020, covering the period from the NYSE listing date through September 30, based on an intended annual rate of $0.40 per share. Future dividends are not assured.
- On October 1, 2020, the company established a Class A common-stock ATM program of up to $250.0 million, subject to a potential $18.7 million limitation while public float remains below $75.0 million. No shares had been sold under the program as of the filing.
- The company authorized consideration of up to $100.0 million of Class A share repurchases, but had made no such repurchases as of September 30, other than the $0.3 million redemption of fractional shares related to the reverse split.
- The unoccupied Hit Factory property generated no offsetting revenue and a potential $7.1 million sale terminated in 2020; the company retained a $0.7 million deposit and continued evaluating strategic alternatives.
- Key risks include tenant defaults and bankruptcies, prolonged or renewed COVID-19 restrictions, reduced demand for office and retail space, limited portfolio diversification, access to capital, debt covenant compliance, related-party conflicts and the risk that REIT qualification or dividend payments may not continue.
Most Important Facts to Verify
- Confirm that the filing belongs to New York City REIT, Inc. rather than American Strategic Investment Co.
- Verify the status and cure requirements for the 1140 Avenue of the Americas debt-covenant breaches and related cash trap.
- Assess current rent collections, tenant deferrals, abatements, lease expirations and occupancy after September 30, 2020.
- Evaluate liquidity after the October dividend and any subsequent equity issuance under the ATM program.
- Review the economic effect and dilution potential of the 4.0 million LTIP Units and the Advisor’s related-party compensation arrangements.
- Confirm the timing and terms of Class B common-stock conversions and their potential effect on Class A trading price and dilution.