American Strategic Investment Co. quarterly report, Q2 FY2019

American Strategic Investment Co. — 2019 Q2 Form 10-Q Summary

Filing entity and period: The provided filing is for New York City REIT, Inc., which changed its name from American Realty Capital New York City REIT, Inc. in March 2019. The report covers the three and six months ended June 30, 2019, and was filed August 14, 2019. The company owned seven New York City properties totaling approximately 1.1 million rentable square feet at quarter-end.

Financial performance and position

Metric	Q2 2019	Q2 2018	Six months 2019	Six months 2018
Revenue from tenants	$16.5 million	$15.2 million	$33.6 million	$30.4 million
Operating loss	$(2.1) million	$(3.2) million	$(3.2) million	$(7.1) million
Net loss	$(5.8) million	$(6.5) million	$(10.4) million	$(13.1) million
Net loss per share	$(0.19)	$(0.21)	$(0.34)	$(0.42)
Cash flow from operations	Not provided for quarter	Not provided for quarter	$1.3 million	$(2.9) million
Cash NOI	$7.3 million	$7.1 million	$15.2 million	$13.8 million

Q2 operating margin was approximately negative 12.5%; net margin was approximately negative 35.3%. Six-month operating margin was approximately negative 9.7%; net margin was approximately negative 31.0%.
Occupancy was 94.7% at June 30, 2019, compared with 89.8% a year earlier and 93.7% at December 31, 2018. The weighted-average remaining lease term was 6.1 years.
Total assets were $867.3 million, compared with $773.7 million at December 31, 2018. Net real estate investments were $672.5 million.
Cash and cash equivalents were $93.9 million, compared with $48.0 million at year-end; cash, cash equivalents and restricted cash totaled $100.2 million.
Gross mortgage debt was $354.0 million, net mortgage debt was $344.5 million, and the weighted-average effective interest rate was 4.41%. All scheduled principal payments were due after 2023, with no principal maturities during the remainder of 2019 or 2020.
Cash NOI increased 2.3% in Q2 and 9.9% for the six-month period. FFO was $1.7 million in Q2 and $4.6 million for six months; MFFO was $(0.2) million in Q2 and $0.8 million for six months. These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.

Material changes versus the prior comparable period

Revenue increased $1.3 million in Q2 and $3.2 million for six months, reflecting improved leasing activity, higher occupancy and the October 2018 acquisition of 8713 Fifth Avenue.
General and administrative expense declined $0.7 million in Q2 and $1.8 million for six months, primarily due to lower legal, proxy and advisor reimbursement costs.
Property operating expense increased $0.6 million in Q2 and $1.1 million for six months due to the additional property, new lease commencements, real estate taxes, utilities, repairs and maintenance.
Interest expense increased $0.7 million in Q2 and $1.4 million for six months, primarily because of additional borrowings entered into in April 2018 and April 2019.
The company borrowed $55.0 million in April 2019 against 9 Times Square. The loan has a fixed rate of 3.6725% through an interest-rate swap and matures in April 2024.
Cash from operations improved from a $2.9 million use in the first half of 2018 to $1.3 million provided in the first half of 2019. Investing cash outflows increased to $7.2 million, including $4.4 million deposited for a future acquisition and $2.8 million of capital expenditures.
Adoption of ASC 842 resulted in recognition of a $55.7 million operating lease right-of-use asset and a $54.9 million operating lease liability for the ground lease at 1140 Avenue of the Americas.
The company recorded a $1.3 million accumulated other comprehensive loss related to the interest-rate swap, including a $1.3 million derivative liability at June 30, 2019.

Outlook, commentary, risks and unusual items

Distributions to common stockholders have been suspended since March 1, 2018. Management stated there is no assurance that distributions will resume or that they will return to the prior level.
The share repurchase program has been suspended since September 25, 2018, and no shares were repurchased during the first half of 2019. The company has no public trading market for its common stock, creating significant liquidity risk for stockholders.
Management expects to fund operations, capital expenditures, leasing costs and potential acquisitions through property cash flow, retained cash and additional secured financing. Management stated that it expects sufficient cash flow to meet operating needs over the next year, but additional financing may not be available on favorable terms or at all.
Management is continuing repositioning and leasing efforts, particularly at 9 Times Square, and is seeking replacement tenants for the vacant 421 W. 54th Street property. There is no assurance that lease-up or repositioning efforts will succeed.
Subsequent to quarter-end, the company acquired three condominium units at 196 Orchard Street for approximately $88.8 million. The purchase was funded with $51.0 million of a new fixed-rate loan at 3.85% maturing August 1, 2029, and $37.8 million of cash.
Key risks include tenant concentration and credit risk, New York City real estate market conditions, limited portfolio diversification, leverage and refinancing risk, conflicts of interest with the external advisor and property manager, dependence on related parties, REIT qualification requirements and the illiquidity of the common stock.
The company reported no material pending legal or regulatory proceedings, no material changes to previously disclosed risk factors, and no material off-balance-sheet arrangements.

Investor verification checklist

Verify the reporting entity’s current corporate name and whether the requested American Strategic Investment Co. reference corresponds to this New York City REIT filing.
Review occupancy, lease expirations, tenant credit quality and leasing costs, especially for 9 Times Square and 421 W. 54th Street.
Reconcile gross debt of $354.0 million with property collateral, debt covenants, interest-rate swap terms and future refinancing requirements.
Assess liquidity after the July 2019 acquisition, including the use of $37.8 million of cash and the additional $51.0 million of debt.
Confirm the status of distributions and the share repurchase program, neither of which was active at quarter-end.
Evaluate related-party fees, reimbursements and the long-term advisory agreement, including potential termination-fee obligations.
Consider the impact of the ground lease, its 47.5-year weighted-average remaining term and $54.9 million present-value liability.