Business Context and Reporting Period
The filing is an unaudited Form 10-Q for New York City REIT, Inc. for the three months ended March 31, 2020. The source text identifies the registrant as New York City REIT, Inc., formerly American Realty Capital New York City REIT, Inc.; it does not identify the registrant as American Strategic Investment Co.
The company owns eight New York City properties totaling approximately 1.16 million rentable square feet, focused primarily on office properties. Portfolio occupancy was 89.0%, with a weighted-average remaining lease term of 6.8 years. The company is externally managed by related parties and has no employees.
Financial Condition and Results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue from tenants | $17.5 million | $17.1 million | Up $0.4 million |
| Operating loss | $(2.1) million | $(1.2) million | Loss increased $0.9 million |
| Net loss | $(6.8) million | $(4.6) million | Loss increased $2.2 million |
| Net loss per share | $(0.22) | $(0.15) | More loss per share |
| Cash flow from operations | $4.4 million | $2.4 million | Up $2.0 million |
| Capital expenditures | $1.0 million | $0.7 million | Up $0.3 million |
| Cash, cash equivalents and restricted cash | $61.7 million | $56.5 million | Up $5.2 million |
| Cash and cash equivalents at period end | $53.2 million | $48.6 million | Up $4.7 million |
| Cash NOI | $8.4 million | $7.9 million | Up $0.6 million |
| Modified FFO | $(0.3) million | $1.0 million | Declined $1.3 million |
Revenue increased primarily because the July 2019 acquisition of 196 Orchard Street contributed approximately $1.7 million, partly offset by approximately $1.3 million from lease expirations at 1140 Avenue of the Americas and 123 William Street. Operating margin was approximately negative 11.9% in Q1 2020 versus negative 6.9% in Q1 2019; net margin was approximately negative 38.8% versus negative 26.9%.
Operating expenses rose to $19.6 million from $18.2 million. Asset and property management fees to related parties increased to $2.0 million from $1.5 million, property operating expenses increased to $8.0 million from $7.3 million, and depreciation and amortization increased to $7.5 million from $7.4 million.
Debt, Liquidity and Capital Structure
- Gross mortgage debt was $405.0 million, or $395.4 million net of deferred financing costs, at March 31, 2020, compared with $299.0 million of weighted-average debt outstanding in Q1 2019.
- The weighted-average effective interest rate was 4.35%, compared with 4.54% in Q1 2019. Interest expense increased to $4.8 million from $3.6 million, principally due to additional borrowings supporting 9 Times Square and 196 Orchard Street.
- Scheduled principal repayments were $55.0 million in 2024 and $350.0 million thereafter; no principal payments were scheduled for the remainder of 2020 or 2021.
- The company reported compliance with its property-level debt covenants as of March 31, 2020. It had no material off-balance-sheet arrangements.
- Total assets were $897.2 million and stockholders’ equity was $411.2 million. The company had 30.995 million common shares outstanding.
- An interest-rate swap liability increased to $3.9 million from $1.3 million, producing a $2.6 million other comprehensive loss during the quarter.
Material Changes, Outlook and Unusual Items
- COVID-19 materially increased uncertainty around rent collections, tenant financial health, occupancy, property operating costs, financing access, covenant compliance and asset values. New York City properties remained accessible, but tenants operated under applicable restrictions.
- As of April 30, 2020, the company had collected 73% of April cash rent due across the portfolio, including 77% from office tenants and 39% from retail tenants. Sixteen percent was subject to deferral negotiations and 9% was covered by approved deferral agreements.
- Typical approved deferrals allowed tenants to defer approximately 30% of monthly cash rent for April through June 2020 until the first half of 2021. Future collection of deferred or subsequently due rent was uncertain.
- The company elected COVID-19 lease accounting relief under which many deferrals are treated as variable lease payments; management did not expect a significant immediate impact on rental revenue or NAREIT FFO from those deferrals.
- Distributions have been suspended since March 1, 2018, and the share repurchase program has been suspended since September 25, 2018. No distributions or repurchases occurred during Q1 2020.
- The company entered into an agreement to sell the unoccupied 421 W. 54th Street property for $7.1 million, but the buyer terminated the transaction after quarter-end. The company retained a $0.7 million security deposit and may not be able to sell or re-lease the property on favorable terms.
- Management stated that it expected sufficient cash flow to meet operating needs over the next year, but provided no quantitative earnings, occupancy or distribution guidance. Capital expenditures for 2020 were expected to be below 2019 levels, subject to pandemic-related changes.
- No material legal or regulatory proceedings were pending, and management reported effective disclosure controls and no material change in internal control over financial reporting.
Most Important Facts for Investors to Verify
- Confirm the registrant’s identity and corporate relationship because the supplied metadata names American Strategic Investment Co., while the filing identifies New York City REIT, Inc.
- Track rent collections, deferral agreements, tenant defaults and potential reserves as the pandemic develops.
- Assess refinancing and covenant risks ahead of the $55.0 million 2024 maturity and the $350.0 million of later maturities.
- Evaluate the effect of 89.0% occupancy, the vacant 421 W. 54th Street property and lease expirations on recurring revenue and cash NOI.
- Confirm whether the company can resume distributions or the share repurchase program; the filing provides no timetable or assurance.
- Review the valuation of real estate and derivative liabilities given pandemic-related market volatility and the $3.9 million swap liability.
- Consider related-party fees, economic dependence on the external advisor and property manager, conflicts of interest, and the potential termination fee under the advisory agreement.