New York City REIT, Inc. (NYSE:NYC) Q3 2023 Earnings Call Transcript November 12, 2023
Operator: Good morning, and welcome to the American Strategic Investment Company’s Third Quarter Earnings Call. [Operator Instructions] Thank you. I would now turn today’s call over to Curtis Parker, Senior Vice President. Please go ahead.
Curtis Parker: Thank you. Good morning, everyone and thank you for joining us for our third quarter 2023 earnings call. This event is also being webcast in the Investor Relations section of our website. Joining me today on the call to discuss the quarter’s results are Michael Anderson, American Strategic Investment Company’s Chief Executive officer and Joe Marnikovic, the Chief Financial Officer. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. We refer all of you to our SEC filings, including the Form 10-K filed for the year ended December 31, 2022, filed on March 16, 2023, and all subsequent SEC filings for a more detailed discussion of the risk factors that could cause these differences.
Any forward-looking statements provided during this conference call are only made as of the date of this call. As stated in our SEC filings, the company disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. Also, during today’s call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company’s financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release, which is posted on our website at www.americanstrategicinvestment.com. Please also refer to our earnings release for more detailed information about what we consider to be implied investment-grade tenants, a term we will use throughout today’s call.
I will now turn the call over to Michael Anderson, Chief Executive Officer. Please go ahead, Mike.
Michael Anderson: Thanks, Curtis. Good morning and thank you all for joining us today. Joe and I are very happy to be hosting our first American Strategic Investment Co. earnings call this morning to discuss the third quarter results. Across our portfolio, we continue to realize the benefits of our ongoing leasing and tenant retention initiatives. Through the end of the third quarter, we have completed 10 new leases this year that have contributed to a 2.4% increase in occupancy to 85.1% across our portfolio, up from 82.7% at the end of 2022. In addition to the leases we have completed, we have a forward leasing pipeline totaling almost 60,000 square feet rent. If all leases are executed on their contemplated terms would generate $2.5 million in straight-line rent.
This forward leasing pipeline will also increase portfolio occupancy to 86.3% net of terminations, representing a 3.6% increase in occupancy since December 31, 2022. Our successful leasing volume, combined with ongoing expense management resulted in year-over-year increases in revenue, NOI and adjusted EBITDA and improvements over the second quarter of 2023. We are beginning to see the benefit of our long-term focus on leasing through improved leasing spreads across the company and believe this will continue into 2024. Our portfolio weighted average remaining lease term was 6.6 years as over 40% of our leases extend beyond the year 2030 based on annualized straight-line rent, which we believe enhances the stability of the real estate we have.
Of our top 10 tenants, 79% are investment grade or implied investment grade, showing the quality of our tenant roster. These tenants had a remaining lease term of 8.9 years, providing further stability in our portfolio. Our continued proactive asset management approach contributes to the long-term strength of our $828 million, 1.2 million square foot portfolio of New York City real estate. At the end of the third quarter, our portfolio consisted of 8 office and retail assets, all located in New York City, primarily in Manhattan. We have built a New York City-centric portfolio, featuring a number of large investment-grade tenants, including Weill Cornell Medical, CVS and government agencies. We continue to focus our leasing efforts of securing tenants in resilient industries such as well-capitalized financial services companies and medical institutions.
Our core office properties are located in desirable submarkets with close proximity to major transportation hubs. As we continue to see a return to office, we believe we are well situated for continued leasing growth as a result of our close proximity to major transportation. The recent addition of service for the Long Island Railroad in Grand Central makes the Midtown South submarket a very desirable area for office leasing, which we believe will continue the positive momentum we are experiencing in leasing at 200 West 41st Street and 1140 Avenue of the Americas. We also continue to proactively monetize our portfolio by selling non-core properties. To that point, subsequent to quarter end, we disposed of Hit factory, a small unoccupied asset for which we have long been exploring strategic options.
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Not only did this sale generate $4.2 million in cash proceeds for the company, but importantly, it eliminated annual carrying costs of approximately $300,000 associated with owning a vacant property. While this asset was small in terms of our overall portfolio, our team was able to find a sutical buyer and was able to consummate this transaction in a challenging New York City commercial real estate market, illustrating our relentless effort when pursuing transactions that we believe will strategically benefit the company and its shareholders. Touching on the quarterly results before Joe discusses them in more detail, the efforts of our asset and property management teams resulted in an 18% increase in adjusted EBITDA and cash NOI growth of 4.9% compared to the prior year.
The growth was achieved through a reduction in G&A and operating expenses, coupled with our ongoing leasing success. Compared to the second quarter, adjusted EBITDA grew by 14% and core FFO increased by $0.26 per share. Our third quarter results once again demonstrated the effectiveness of our consistent focus on portfolio management. Our leasing success this year has driven consistent incremental improvement in many of our key metrics. As a result of this leasing momentum and our continued focus on proactive expense management, we expect losses to narrow again in the fourth quarter and core FFO to turn positive in 2024 as pipeline leases commence and momentum continues. We are committed to strengthening our existing portfolio of real estate assets as we explore additional income-generating investments.
In recent years, we have taken advantage of opportunities to invest in the long-term future of our portfolio, and we believe that expanding the scope of our assets is the next step forward for the company. With that, I’ll turn it over to Joe Marnikovic to go over the third quarter results. Joe?
Joe Marnikovic: Thank you, Michael. Third quarter 2023 revenue was $16 million, compared to $15.9 million in the third quarter of 2022. The company’s third quarter GAAP net loss attributable to common stockholders was $9.4 million, compared to a net loss of $11.1 million in the third quarter of 2022, representing a year-over-year improvement of $1.7 million. GAAP net loss also improved compared to the second quarter of 2023, which was $10.9 million. For the third quarter of 2023, adjusted EBITDA increased by $0.5 million or 18% to $3.4 million, compared to $2.9 million in 2022 and up 14% compared to second quarter 2023’s adjusted EBITDA of $3 million. Cash net operating income increased by $0.3 million or 4.9% to $6.5 million compared to $6.2 million in the third quarter of 2022.
While we are no longer a REIT, our portfolio remains unchanged, and we will, therefore, continue to provide comparable FFO metrics for the time being. Our FFO attributable to common stockholders was a negative $2.5 million, compared to a negative $4.1 million in the third quarter of 2022 and negative $4 million in the second quarter of this year. Core FFO improved to negative $1.1 million or negative $0.48 per share, compared to negative $1.12 in the third quarter of 2022 and negative $0.74 in the second quarter of 2023. As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release and quarterly supplemental and on our website. At quarter end, we had a relatively conservative balance sheet based on our net leverage of 42%, a weighted average interest rate of 4.4% and 3.4 years of weighted average debt maturity, not maturing this year.
As we’ve previously discussed, all of our debt is fixed rate or swapped to fixed rate after we locked in interest rates while they were broadly at historic lows. I’ll now turn the call back to Michael for some closing remarks.
Michael Anderson: Thanks, Joe, and thank you all for joining us on our first ASIC earnings call. The adjusted EBITDA and cash NOI growth we accomplished this quarter can be attributed to our ongoing commitment to portfolio management and our focus on maximizing the value of the properties that we have. As we look to 2024 and the year of positive performance, we continue to focus on the proactive asset management of our portfolio that has grown our occupancy by 2.4% this year, while also looking towards the growth of ASIC through expanded investment opportunities that we believe will be accretive. Operator, please open the line for questions.
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Q&A Session
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Operator: Thank you. [Operator Instructions] Our first question comes from Bryan Maher with B. Riley Securities. Please go ahead.
Bryan Maher: Great. Thank you. And welcome, Michael and Joseph. Look forward to working with you on this name. Just a few for me this morning. I think, Michael, you talked about the forward leasing pipeline and the incremental $2.5 million of SLR. Can you give us any indication as to what the timing of that is? I mean, is it lumpy all going to come in at once? Or do you expect that to happen over the next two or three quarters?
Michael Anderson: Bryan, thanks for joining us this morning. I’m happy to be speaking with you and with our investors for the first time this quarter. As it relates to the forward leasing pipeline, I believe that is made up of five separate transactions, all of which are in active negotiations for definitive leases and license agreements. So we would expect those to be executed likely this year and start to see those come online over the following months.
Bryan Maher: Okay. And then it doesn’t seem like you really did anything in the third quarter. Is that a fair characterization? Or did you actually have some tenancy, small – may it be come in and come out or was just no movement in the third quarter.
Michael Anderson: I believe it was a quiet quarter in terms of new leases. We had one new lease signed. It was a former subtenant that went direct in a new space at one of our properties, 123 William Street and then another license agreement was signed during the quarter. But we do – we saw a lot of uptick in traffic and interest in the quarter, which is what has led to the current leasing pipeline.
Bryan Maher: Okay. And then from a modeling standpoint, and I think, Joseph, you touched upon this, eventually converting over to an EPS and adjusted EPS number or maybe adding that, do you have any thoughts on the timing of when we might see that additional disclosure?
Joe Marnikovic: If we do – when we do, Brian, if it would be in 2024 that we did mention that even though we’re no longer a REIT that we will still – we still feel the core FFO metrics are important for the valuation of the company and certainly for the rest of 2023. We’ll maintain those metrics.
Bryan Maher: Okay. And just two more for me. G&A came in, I think it was around $2 million. We have been looking for like $2.5 million. Is $2 million the new run rate? Or was there some anomaly there in the quarter?
Joe Marnikovic: We did experience some savings there, Brian, and it’s really related to the changeover in REIT to a C-Corp, where the potential tax impact from converting to a C-Corp appears to have less bearings on earnings than initially thought.
Bryan Maher: Okay. And just last for me, maybe for Michael. You did not speak much about in your prepared comments, the potential to buy assets outside of New York or maybe in a different sector. Has there been any change in thought process there? Or what are the thoughts on what you buy and where you buy it, should you make acquisitions?
Michael Anderson: Sure, Brian. We do actively monitor acquisition opportunities. We are looking at some opportunities within our own portfolio in terms of leasing and growth there. And I think that that’s going to continue to be our immediate focus. But as we continue to grow and maximize value within the assets already owned, and we will begin looking at other acquisition opportunities, and we’ll be able to share more as those opportunities present themselves.
