Business Context and Reporting Period
The filing is an unaudited Form 10-Q for the three months ended March 31, 2019. The filing entity is New York City REIT, Inc., which changed its name from American Realty Capital New York City REIT, Inc. in March 2019; this differs from the requested company name, American Strategic Investment Co.
The company is a non-listed Maryland REIT focused on New York City real estate, particularly Manhattan. At March 31, 2019, it owned seven properties totaling approximately 1.1 million rentable square feet, acquired for an aggregate purchase price of $702.0 million. Portfolio occupancy was 94.6%, with a weighted-average remaining lease term of 6.1 years.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 / Comparative |
|---|---|---|
| Revenue from tenants | $17.1 million | $15.2 million |
| Operating loss | $(1.2) million | $(3.8) million |
| Net loss | $(4.6) million | $(6.6) million |
| Comprehensive loss | $(4.7) million | $(6.6) million |
| Basic and diluted loss per share | $(0.15) | $(0.21) |
| Cash flow from operating activities | $2.4 million provided | $2.3 million used |
| Capital expenditures | $0.7 million | $0.1 million |
| FFO | $2.8 million | $1.1 million |
| MFFO | $1.0 million | $(0.6) million |
| Cash NOI | $7.9 million | $6.7 million |
At March 31, 2019, total assets were $822.3 million, including $676.5 million of net real estate investments. Cash and cash equivalents were $48.6 million, and cash, cash equivalents and restricted cash totaled $56.5 million.
Gross mortgage debt was $299.0 million, or $291.9 million net of deferred financing costs, with a weighted-average effective interest rate of 4.54%. The debt was fixed-rate and had no scheduled principal payments during the remainder of 2019 or 2020; all scheduled principal payments were thereafter. The company was in compliance with its debt covenants.
The company adopted ASC 842 effective January 1, 2019. This resulted in recognition of a $55.7 million operating lease right-of-use asset and a $54.9 million operating lease liability related primarily to the ground lease at 1140 Avenue of the Americas.
Material Changes Versus the Prior Comparable Period
- Revenue increased $1.9 million, primarily from leasing activity and $0.3 million attributable to the October 2018 acquisition of 8713 Fifth Avenue.
- Portfolio occupancy increased to 94.6% from 88.0% one year earlier and 93.7% at December 31, 2018.
- Operating loss narrowed by $2.7 million, primarily because general and administrative expenses decreased $1.1 million and revenue increased.
- Net loss improved by $2.0 million despite a $0.8 million increase in interest expense following the April 2018 $50.0 million loan.
- Property operating expenses increased $0.4 million, while depreciation and amortization decreased $0.3 million.
- Operating cash flow improved from $2.3 million used to $2.4 million provided, partly because the prior-year period included significant distributions and working-capital outflows.
- No distributions were declared or paid in Q1 2019. Distributions had been suspended effective March 1, 2018.
- The share repurchase program remained suspended, and no shares were repurchased during Q1 2019.
Outlook, Commentary, Risks and Unusual Items
Management stated that retained cash from the distribution suspension is expected to support operations, capital expenditures, tenant improvements, leasing commissions and potential acquisitions. Management believed available cash flow would be sufficient for operating needs over the following year, but noted that additional financing may not be available on favorable terms or at all.
The company plans to increase leverage over time toward approximately 40% to 50% of the fair market value of its assets. It continued repositioning and leasing efforts, particularly at 9 Times Square, and was seeking a replacement tenant for 421 West 54th Street after the former tenant terminated its lease early and vacated the property.
Subsequent to quarter-end, the company entered into a $55.0 million Capital One term loan secured by 9 Times Square. The loan was fixed at 3.6725% through an interest-rate swap, matures April 26, 2024, and requires interest-only payments. The related guaranty requires minimum net worth of more than $175.0 million and minimum liquid assets of $10.0 million.
Also subsequent to quarter-end, the company signed an agreement to acquire a New York property for approximately $88.8 million. It paid a $4.4 million deposit, which is generally nonrefundable except if specified seller covenants are not met. Completion of the acquisition was not assured.
- Key risks include tenant credit and leasing risk, New York City market concentration, limited diversification, illiquidity of the common stock, the suspended share repurchase program and uncertainty regarding resumption of distributions.
- The company is economically dependent on its external advisor and affiliates, which receive management fees and expense reimbursements and may have conflicts of interest.
- The company had no material pending legal or regulatory proceedings and reported no material changes to previously disclosed risk factors.
- The company must maintain REIT qualification and generally distribute at least 90% of REIT taxable income, although a tax loss may reduce or eliminate the need for current distributions.
- Interest-rate derivatives introduced valuation and counterparty risks; the March 31, 2019 derivative liability was $70,000, with a $55.0 million notional interest-rate swap.
Investor Verification Priorities
- Verify the correct issuer identity, because the filing identifies New York City REIT, Inc., while the request identifies American Strategic Investment Co.
- Assess whether the improved occupancy and revenue trends are sustainable, particularly at 9 Times Square and 421 West 54th Street.
- Review liquidity after the $55.0 million post-quarter-end loan, the proposed $88.8 million acquisition and related deposits and financing requirements.
- Monitor leverage, covenant compliance, minimum liquidity requirements and the concentration of debt maturities after 2023.
- Confirm whether and when cash distributions or the share repurchase program will resume; the filing provides no commitment to resume either.
- Distinguish GAAP net loss from FFO, MFFO and Cash NOI, which are non-GAAP measures and are not substitutes for operating cash flow or available cash.