American Strategic Investment (NYC) - 2019 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements and detailed notes for New York City REIT, Inc. for the periods ended June 30, 2019 and December 31, 2018 Consolidated Balance Sheets Presents consolidated balance sheets, detailing assets, liabilities, and equity as of June 30, 2019, and December 31, 2018 Consolidated Balance Sheet Summary (In thousands) | Metric | June 30, 2019 | December 31, 2018 | | :--------------------------------- | :-------------- | :---------------- | | ASSETS | | | | Total real estate investments, net | $672,510 | $684,259 | | Cash and cash equivalents | $93,876 | $47,952 | | Total assets | $867,297 | $773,742 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Mortgage notes payable, net | $344,517 | $291,653 | | Total liabilities | $435,318 | $330,062 | | Total stockholders' equity | $431,979 | $443,680 | | Total liabilities and stockholders' equity | $867,297 | $773,742 | Consolidated Statements of Operations and Comprehensive Loss Details consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2019 and 2018 Consolidated Statements of Operations and Comprehensive Loss (In thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue from tenants | $16,525 | $15,196 | $33,576 | $30,425 | | Total operating expenses | $18,594 | $18,409 | $36,823 | $37,483 | | Operating loss | $(2,069) | $(3,213) | $(3,247) | $(7,058) | | Interest expense | $(4,069) | $(3,380) | $(7,629) | $(6,183) | | Net loss | $(5,827) | $(6,529) | $(10,411) | $(13,113) | | Comprehensive loss | $(7,087) | $(6,529) | $(11,741) | $(13,113) | | Net loss per share (Basic and Diluted) | $(0.19) | $(0.21) | $(0.34) | $(0.42) | Consolidated Statements of Changes in Equity Outlines consolidated statements of changes in equity for the six months ended June 30, 2019 and 2018, including stock and capital adjustments Consolidated Statements of Changes in Equity (Six Months Ended June 30, 2019, In thousands) | Metric | Common Stock (Number of Shares) | Common Stock (Par Value) | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Distributions in excess of accumulated earnings | Total Stockholders' Equity | | :-------------------------- | :------------------------------ | :----------------------- | :------------------------- | :----------------------------------- | :-------------------------------------------- | :------------------------- | | Balance, December 31, 2018 | 30,990,448 | $310 | $685,758 | $— | $(242,388) | $443,680 | | Share-based compensation | 4,443 | $— | $40 | $— | $— | $40 | | Net loss | — | $— | $— | $— | $(10,411) | $(10,411) | | Other comprehensive loss | — | $— | $— | $(1,330) | $— | $(1,330) | | Balance, June 30, 2019 | 30,994,891 | $310 | $685,798 | $(1,330) | $(252,799) | $431,979 | Consolidated Statements of Changes in Equity (Six Months Ended June 30, 2018, In thousands) | Metric | Common Stock (Number of Shares) | Common Stock (Par Value) | Additional Paid-in Capital | Distributions in excess of accumulated earnings | Total Stockholders' Equity | | :-------------------------- | :------------------------------ | :----------------------- | :------------------------- | :-------------------------------------------- | :------------------------- | | Balance, December 31, 2017 | 31,382,120 | $314 | $691,775 | $(210,605) | $481,484 | | Common stock issued through distribution reinvestment plan | 208,836 | $1 | $4,230 | $— | $4,231 | | Common stock repurchases | (249,307) | $(2) | $(4,598) | $— | $(4,600) | | Share-based compensation | 4,440 | $— | $33 | $— | $33 | | Distributions declared | — | $— | $— | $(7,672) | $(7,672) | | Net loss | — | $— | $— | $(13,113) | $(13,113) | | Balance, June 30, 2018 | 31,346,089 | $313 | $691,440 | $(231,390) | $460,363 | Consolidated Statements of Cash Flows Provides consolidated statements of cash flows, categorizing activities for the six months ended June 30, 2019 and 2018 Consolidated Statements of Cash Flows (Six Months Ended June 30, In thousands) | Cash Flow Activity | 2019 | 2018 | | :------------------------------------ | :----- | :----- | | Net cash provided by (used in) operating activities | $1,329 | $(2,861) | | Net cash used in investing activities | $(7,212) | $(2,258) | | Net cash provided by financing activities | $51,253 | $35,592 | | Net change in cash, cash equivalents and restricted cash | $45,370 | $30,473 | | Cash, cash equivalents and restricted cash, end of period | $100,171 | $77,689 | Note 1 — Organization Describes the Company's organization, investment focus in New York City, REIT status, and reliance on external management - New York City REIT, Inc. invests in properties within New York City, primarily Manhattan, owning seven properties totaling 1.1 million rentable square feet acquired for $702.0 million as of June 30, 2019, with an additional property acquired for $88.8 million subsequently[22][186][187] - The Company operates as a REIT since December 31, 2014, conducting business through New York City Operating Partnership L.P. (OP)[22][185] - The Company has no employees, relying on New York City Advisors, LLC and New York City Properties, LLC for management services, both under common control with AR Global Investments, LLC[25][188] Note 2 — Summary of Significant Accounting Policies Summarizes significant accounting policies, including GAAP compliance, lease accounting adoption, and revenue recognition from tenants - Financial statements are prepared in accordance with GAAP for interim financial information, with ASU No. 2016-02 (Leases) adopted on January 1, 2019, resulting in a right-of-use (ROU) asset and lease liability of $54.9 million for its ground lease[29][48][52][53][55] - Revenue from tenants is recognized on a straight-line basis over the lease term, with leases accounted for on a cash basis if collectability is not probable[40][45] Future Base Rent Payments (In thousands) | Year | As of June 30, 2019 | As of December 31, 2018 | | :--- | :------------------ | :---------------------- | | 2019 (remainder) / 2019 | $27,533 | $53,347 | | 2020 | $53,669 | $51,404 | | 2021 | $49,587 | $47,237 | | 2022 | $46,786 | $44,018 | | 2023 | $38,709 | $35,920 | | Thereafter | $164,456 | $150,226 | | Total | $380,740 | $382,152 | Note 3 — Real Estate Investments Details real estate investments, including amortization expenses, revenue adjustments, and tenant concentration analysis - No real estate assets were acquired or liabilities assumed during the three and six months ended June 30, 2019 or 2018[64] Amortization Expense and Revenue Adjustments (In thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization of in-place leases and other intangibles | $2,519 | $3,014 | $5,056 | $6,278 | | Amortization and (accretion) of above- and below market leases, net | $(438) | $(476) | $(917) | $(1,098) | | Amortization of below-market ground lease | $12 | $13 | $24 | $25 | - As of June 30, 2019 and December 31, 2018, no single tenant represented greater than 10% of total annualized rental income[66] Note 4 — Mortgage Notes Payable, Net Provides details on mortgage notes payable, including gross amounts, financing costs, interest rates, and collateral pledges Mortgage Notes Payable, Net (In thousands) | Metric | June 30, 2019 | December 31, 2018 | | :-------------------------- | :-------------- | :---------------- | | Mortgage notes payable, gross | $354,000 | $299,000 | | Less: deferred financing costs, net | $(9,483) | $(7,347) | | Mortgage notes payable, net | $344,517 | $291,653 | | Weighted-average effective interest rate | 4.41% | N/A (not provided for Dec 31, 2018 in this table) | - On April 26, 2019, the Company secured a new $55.0 million loan with Capital One, fixed at 3.6725% interest, maturing April 26, 2024, secured by the 9 Times Square property[72][225] - On April 13, 2018, the Company secured a $50.0 million loan with Société Générale, fixed at 4.516% interest, maturing May 1, 2028, secured by two properties[73][226] - As of June 30, 2019, real estate assets and intangible assets totaling $738.5 million (at cost, net of below-market lease liabilities) were pledged as collateral for mortgage notes payable[77] Scheduled Aggregate Principal Payments (In thousands) | Year | Future Minimum Principal Payments | | :---------------- | :------------------------------ | | 2019 (remainder) | $— | | 2020 | $— | | 2021 | $— | | 2022 | $— | | 2023 | $— | | Thereafter | $354,000 | | Total | $354,000 | Note 5 — Fair Value of Financial Instruments Explains fair value hierarchy for financial instruments and presents their fair values as of June 30, 2019 and December 31, 2018 - The Company uses a three-level hierarchy for fair value measurements: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[80] Financial Instruments Carried at Fair Value (June 30, 2019, In thousands) | Instrument | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :------ | :------ | :------ | | Interest rate "Pay - Fixed" swaps - liabilities | $— | $(1,330) | $— | $(1,330) | Financial Instruments Not Carried at Fair Value (In thousands) | Mortgage Note Payable | June 30, 2019 (Gross Principal Balance) | June 30, 2019 (Fair Value) | December 31, 2018 (Gross Principal Balance) | December 31, 2018 (Fair Value) | | :-------------------------------------------------------------------- | :-------------------------------------- | :------------------------- | :---------------------------------------- | :----------------------------- | | 123 William Street | $140,000 | $151,474 | $140,000 | $142,874 | | 1140 Avenue of the Americas | $99,000 | $103,192 | $99,000 | $97,448 | | 400 E. 67th Street - Laurel Condominium / 200 Riverside Boulevard - ICON Garage | $50,000 | $53,857 | $50,000 | $50,424 | | 8713 Fifth Avenue | $10,000 | $11,038 | $10,000 | $10,446 | | 9 Times Square | $55,000 | $54,771 | $— | $— | Note 6 — Derivatives and Hedging Activities Discusses the Company's use of derivative financial instruments for hedging interest rate risk and their fair value - The Company uses derivative financial instruments, specifically an interest rate swap, to hedge interest rate risk on borrowings, aiming to minimize risks and costs, not for speculative purposes[85] - On March 28, 2019, the Company entered into a forward starting five-year interest rate swap, effective May 1, 2019, to fix the floating interest rate on its 9 Times Square property term loan[86] Fair Value of Derivative Financial Instruments (In thousands) | Derivative | Balance Sheet Location | June 30, 2019 | December 31, 2018 | | :-------------------------- | :----------------------- | :-------------- | :---------------- | | Interest Rate "Pay-fixed" Swap | Derivative liability, at fair value | $1,330 | $— | - The Company estimates $0.2 million will be reclassified from accumulated other comprehensive income as an increase to interest expense over the next 12 months due to cash flow hedges[92] Note 7 — Common Stock Details common stock outstanding, distribution suspension, estimated NAV, and the status of the Share Repurchase Program - As of June 30, 2019, the Company had 31.0 million shares of common stock outstanding, with distributions to common stockholders suspended effective March 1, 2018[102][103] - The Company's board of directors approved an Estimated Per-Share NAV of $20.26 as of June 30, 2018, published on October 25, 2018[104][187] - The Share Repurchase Program (SRP) was suspended effective September 25, 2018, with no repurchases made through the SRP for the three and six months ended June 30, 2019[108][110][256] Cumulative Share Repurchases | Period | Numbers of Shares Repurchased | Weighted-Average Price per Share | | :-------------------------------- | :---------------------------- | :----------------------------- | | Cumulative as of December 31, 2018 | 1,259,734 | $22.03 | | Six months ended June 30, 2019 | — | — | | Cumulative as of June 30, 2019 | 1,259,734 | $22.03 | Note 8 — Commitments and Contingencies Outlines commitments and contingencies, including ground lease liabilities, and confirms no material legal or environmental issues - As of June 30, 2019, the Company's balance sheet includes an ROU asset of $55.7 million and a lease liability of $54.9 million related to a ground lease for 1140 Avenue of the Americas, with a weighted-average remaining lease term of 47.5 years[116][117] Ground Lease Rent Payments (In thousands) | Year | Future Base Rent Payments (June 30, 2019) | Future Base Rent Payments (December 31, 2018) | | :---------------- | :-------------------------------------- | :---------------------------------------- | | 2019 (remainder) / 2019 | $2,373 | $4,746 | | 2020 | $4,746 | $4,746 | | 2021 | $4,746 | $4,746 | | 2022 | $4,746 | $4,746 | | 2023 | $4,746 | $4,746 | | Thereafter | $211,992 | $211,992 | | Total | $233,349 | $235,722 | | Less: Effects of discounting | $(178,461) | N/A | | Total present value of lease payments | $54,888 | N/A | - The Company is not a party to any material pending legal or regulatory proceedings and is not aware of any environmental conditions that would materially adversely affect operations[121][122] Note 9 — Related Party Transactions and Arrangements Describes transactions and arrangements with related parties, including advisory agreements, fees, and subordinated distributions - AR Global, through a wholly-owned entity, owned 8,888 shares of the Company's common stock as of June 30, 2019 and December 31, 2018[123] - The Second Advisory Agreement, effective November 16, 2018, eliminated acquisition fees and financing coordination fees payable to the Advisor, with no acquisition fees incurred after this date and financing coordination fees of $0.4 million incurred for the three and six months ended June 30, 2018[126][127][131] - The base asset management fee calculation changed to a fixed amount of $0.5 million monthly plus a variable amount based on equity proceeds, with the Advisor also entitled to a variable management fee based on Core Earnings Per Adjusted Share[134][135] Related Party Operation Fees and Reimbursements (In thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Acquisition fees and related cost reimbursements | $— | $— | $— | $— | | Financing coordination fees and leasing commissions | $— | $375 | $6 | $375 | | Asset and property management fees to related parties | $1,872 | $1,618 | $3,420 | $3,101 | | Professional fees and other reimbursements | $922 | $1,264 | $1,955 | $2,425 | | Distributions on Class B units | $— | $— | $— | $39 | | Total related party operation fees and reimbursements | $2,794 | $3,257 | $5,381 | $5,940 | - The Second Advisory Agreement eliminated annual subordinated performance fees and brokerage commissions to the Advisor after November 16, 2018[156][157] - The Special Limited Partner (a subsidiary of AR Global) is entitled to a subordinated distribution of 15.0% of remaining net sale proceeds upon liquidation or sale of assets, after investors receive capital contributions plus a 6.0% cumulative annual return[160] Note 10 — Economic Dependency Highlights the Company's economic dependence on its Advisor and affiliates for essential management and operational services - The Company is economically dependent on its Advisor and affiliates for essential services including asset management, property management, acquisitions, and administrative responsibilities[168][169] Note 11 — Share-Based Compensation Explains the Restricted Share Plan, details award activity, and reports unrecognized compensation costs for unvested shares - The Restricted Share Plan (RSP) provides for automatic grants of restricted shares to directors, vesting annually over five years (20% per annum), with total shares granted not exceeding 5.0% of outstanding common stock or 1.5 million shares[170][171] Restricted Share Award Activity (Six Months Ended June 30, 2019) | Metric | Number of Restricted Shares | Weighted-Average Issue Price | | :------------------------ | :-------------------------- | :-------------------------- | | Unvested, December 31, 2018 | 12,626 | $21.48 | | Granted | 4,443 | $20.26 | | Vested | (2,221) | $21.60 | | Forfeited | — | — | | Unvested, June 30, 2019 | 14,848 | $21.10 | - As of June 30, 2019, unrecognized compensation cost related to unvested restricted share awards was $0.2 million, expected to be recognized over a weighted-average period of 3.0 years[175] Note 12 — Net Loss Per Share Presents the computation of basic and diluted net loss per share, including anti-dilutive common share equivalents Net Loss Per Share Computation | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss (in thousands) | $(5,827) | $(6,529) | $(10,411) | $(13,113) | | Basic and diluted weighted average shares outstanding | 30,978,662 | 31,330,799 | 30,978,310 | 31,380,899 | | Basic and diluted net loss per share | $(0.19) | $(0.21) | $(0.34) | $(0.42) | Weighted-Average Anti-Dilutive Common Share Equivalents | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Unvested restricted shares | 14,848 | 14,272 | 14,848 | 14,272 | | OP units | 90 | 90 | 90 | 90 | | Class B units | 159,159 | 159,159 | 159,159 | 159,159 | | Total weighted-average anti-dilutive common share equivalents | 174,097 | 173,521 | 174,097 | 173,521 | Note 13 — Subsequent Events Reports significant events occurring after June 30, 2019, including a property acquisition and related new loan financing - Subsequent to June 30, 2019, the Company acquired three condominium units at 196 Orchard Street, New York, NY, for approximately $88.8 million, funded by a new $51.0 million loan and $37.8 million from cash on hand[178][234] - A new $51.0 million loan with Nationwide Life Insurance Company was secured on July 17, 2019, bearing a fixed interest rate of 3.85% and maturing on August 1, 2029, to fund the 196 Orchard Street acquisition[179][229] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, liquidity, capital, and non-GAAP measures for periods ended June 30, 2019 and 2018 Forward-Looking Statements Highlights forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially - The report contains forward-looking statements regarding the Company's intent, belief, or current expectations, which are subject to risks and uncertainties that could cause actual results to differ materially[184] Overview Provides an overview of the Company's formation, REIT status, investment focus, property portfolio, and estimated per-share NAV - New York City REIT, Inc. was incorporated on December 19, 2013, and elected REIT taxation status effective December 31, 2014, focusing on investing in properties in New York City, particularly Manhattan[185][186] - As of June 30, 2019, the Company owned seven properties with 1.1 million rentable square feet, acquired for $702.0 million, with an additional property acquired post-June 30, 2019, for $88.8 million[186][187] - The Company's Estimated Per-Share NAV as of June 30, 2018, was $20.26, published on October 25, 2018[187] Significant Accounting Estimates and Critical Accounting Policies States no material changes to significant accounting estimates or critical accounting policies, except for new pronouncements - There have been no material changes to significant accounting estimates and critical accounting policies, except for those required by new accounting pronouncements, since the 2018 Annual Report on Form 10-K[190] Recently Issued Accounting Pronouncements Refers to Note 2 for a detailed discussion of recently issued accounting pronouncements and their impact - Refer to Note 2 – Summary of Significant Accounting Policies for a detailed discussion of recently issued accounting pronouncements[191] Properties Presents a summary of investment properties, including acquisition dates, square footage, occupancy, and remaining lease terms Investment Properties as of June 30, 2019 | Portfolio | Acquisition Date | Number of Properties | Rentable Square Feet | Occupancy | Remaining Lease Term (Years) | | :------------------------------------------ | :--------------- | :------------------- | :------------------- | :-------- | :--------------------------- | | 421 W. 54th Street - Hit Factory | Jun. 2014 | 1 | 12,327 | —% | 0 | | 400 E. 67th Street - Laurel Condominium | Sept. 2014 | 1 | 58,750 | 100.0% | 6.9 | | 200 Riverside Boulevard - ICON Garage | Sept. 2014 | 1 | 61,475 | 100.0% | 18.3 | | 9 Times Square | Nov. 2014 | 1 | 167,390 | 92.3% | 7.7 | | 123 William Street | Mar. 2015 | 1 | 542,676 | 97.7% | 6.7 | | 1140 Avenue of the Americas | Jun. 2016 | 1 | 242,466 | 91.4% | 3.8 | | 8713 Fifth Avenue | Oct. 2018 | 1 | 17,500 | 100.0% | 6.0 | | Total/Weighted Average | | 7 | 1,102,584 | 94.7% | 6.1 | Results of Operations Analyzes the Company's financial performance, comparing revenues, expenses, and net loss for the periods presented - Overall portfolio occupancy increased to 94.7% as of June 30, 2019, from 89.8% as of June 30, 2018[194] Quarterly Leasing Activity Summary | Leasing Activity | Q1 2019 | Q2 2019 | | :------------------------------------------ | :------ | :------ | | New leases commenced | 4 | 5 | | Total square feet leased (New leases) | 28,612 | 35,121 | | Annualized straight-line rent per square foot (New leases) | $57.79 | $70.27 | | Weighted-average lease term (years) (New leases) | 8.3 | 8 | | Replacement leases commenced | 3 | 4 | | Square feet (Replacement leases) | 22,962 | 26,621 | | Annualized straight-line rent per square foot (Replacement leases) | $47.72 | $49.31 | | Weighted-average lease term (years) (Replacement leases) | 7.0 | 6.5 | | Number of leases terminated | 2 | 4 | | Square feet (Terminated leases) | 5,581 | 21,747 | | Annualized straight-line rent per square foot (Terminated leases) | $282.10 | $60.85 | | Tenant improvements on replacement leases per square foot | $21.61 | $30.36 | | Leasing commissions on replacement leases per square foot | $19.35 | $24.55 | Comparison of Three Months Ended June 30, 2019 and 2018 Compares financial performance for the three months ended June 30, 2019 and 2018, detailing changes in revenue and expenses - Revenue from tenants increased by $1.3 million to $16.5 million, driven by the acquisition of 8713 Fifth Avenue and changes in leasing activity[198] - Asset and property management fees to related parties increased by $0.3 million to $1.9 million[199] - Property operating expenses increased by $0.6 million to $7.3 million, mainly due to the 8713 Fifth Avenue acquisition, new leases, and higher maintenance costs[200] - General and administrative expenses decreased by $0.6 million to $1.9 million, primarily due to lower legal, proxy, and professional fees[203] - Interest expense increased by $0.7 million to $4.1 million, due to new loans in April 2018 and April 2019[205] Comparison of Six Months Ended June 30, 2019 and 2018 Compares financial performance for the six months ended June 30, 2019 and 2018, detailing changes in revenue and expenses - Revenue from tenants increased by $3.2 million to $33.6 million, primarily due to increased occupancy[207] - Asset and property management fees to related parties increased by $0.3 million to $3.4 million[208] - Property operating expenses increased by $1.1 million to $14.6 million, mainly due to new lease commencements and higher property maintenance costs[209] - General and administrative expenses decreased by $1.7 million to $3.8 million, primarily due to lower legal, proxy, and professional fees[211] - Interest expense increased by $1.4 million to $7.6 million, due to new loans in April 2018 and April 2019[213] Cash Flows from Operating Activities Analyzes net cash from operating activities, highlighting key drivers for the six months ended June 30, 2019 and 2018 - Net cash provided by operating activities was $1.3 million for the six months ended June 30, 2019, a significant improvement from net cash used of $2.9 million in the prior year period[215][216] - The 2019 operating cash flow was primarily driven by a net loss of $10.4 million offset by $11.8 million in non-cash depreciation and amortization, and a $2.5 million decrease in prepaid expenses[215] Cash Flows from Investing Activities Examines net cash used in investing activities, primarily for capital expenditures and acquisition deposits, for the periods presented - Net cash used in investing activities was $7.2 million for the six months ended June 30, 2019, primarily for capital expenditures ($2.8 million) and a $4.4 million deposit for an acquisition[217] - In the prior year, net cash used in investing activities was $2.3 million, mainly for capital expenditures at 9 Times Square, 123 William Street, and 1140 Avenue of the Americas[218] Cash Flows from Financing Activities Reviews net cash provided by financing activities, including mortgage note proceeds, financing costs, and distributions - Net cash provided by financing activities was $51.3 million for the six months ended June 30, 2019, primarily from $55.0 million in mortgage note proceeds, offset by $3.8 million in financing costs[219] - In the prior year, net cash provided by financing activities was $35.6 million, mainly from $50.0 million in mortgage note proceeds, partially offset by $7.5 million in distributions paid and $4.6 million in common stock repurchases[220] Liquidity and Capital Resources Discusses the Company's liquidity position, cash and equivalents, distribution policy, and funding strategy for future operations - Cash and cash equivalents increased to $93.9 million as of June 30, 2019, from $48.0 million as of December 31, 2018, primarily due to proceeds from the April 2019 loan[221] - The Company suspended distributions effective March 1, 2018, to enhance its ability to fund future acquisitions and execute repositioning/leasing efforts[221] - The Company expects to fund future acquisitions and operations through property operations and financings, believing it has sufficient cash flow for the next year[223] Mortgage Loans Details gross aggregate borrowings, weighted-average interest rates, and future principal payment schedules for mortgage loans - As of June 30, 2019, gross aggregate borrowings were $354.0 million with a weighted-average effective interest rate of 4.41%, aiming for aggregate borrowings closer to 40% to 50% of the aggregate fair market value of its assets[227] - Subsequent to June 30, 2019, borrowings increased by an additional $51.0 million for a new property acquisition, with no additional indebtedness secured by existing properties currently anticipated[227] - No future scheduled principal payments on mortgage notes payable for the remainder of 2019 or for the year ended December 31, 2020[228] Repositioning and Leasing Initiatives Outlines efforts to increase portfolio occupancy and property value through repositioning and leasing initiatives - Portfolio occupancy increased to 94.7% as of June 30, 2019, from 93.7% as of December 31, 2018, with 9 Times Square occupancy rising to 92.3% from 84.3%[231] - Repositioning efforts at 9 Times Square, including retail frontage, new lobby, and pre-built office suites, are intended to drive occupancy and property value[232] - The Company is evaluating strategic alternatives for its 421 W. 54th Street property, which became vacant in Q2 2018[233] Acquisitions Reports on property acquisitions, including the 196 Orchard Street condominium units, and their funding sources - Subsequent to June 30, 2019, the Company acquired three condominium units at 196 Orchard Street for approximately $88.8 million, funded by a new loan and cash on hand[234] Capital Expenditures Summarizes capital expenditures for property improvements during the six months ended June 30, 2019 and 2018 - Capital expenditures for the six months ended June 30, 2019, totaled $2.8 million, primarily for improvements at 123 William Street and 9 Times Square[235] - Capital expenditures for the six months ended June 30, 2018, were $2.3 million, mainly for 9 Times Square, 123 William Street, and 1140 Avenue of the Americas[235] Non-GAAP Financial Measures Explains the use of non-GAAP financial measures like FFO, MFFO, and Cash NOI to assess the Company's performance - The Company uses non-GAAP financial measures including Funds from Operations (FFO), Modified Funds from Operations (MFFO), and Cash Net Operating Income (Cash NOI) to provide a more complete understanding of performance[237][239][243][250] FFO and MFFO Reconciliation (In thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss (in accordance with GAAP) | $(5,827) | $(6,529) | $(10,411) | $(13,113) | | Depreciation and amortization | $7,553 | $7,562 | $14,967 | $15,293 | | FFO (As defined by NAREIT) | $1,726 | $1,033 | $4,556 | $2,180 | | Acquisition and transaction related | $18 | $1 | $18 | $1 | | Accretion of below- and amortization of above-market lease liabilities and assets, net | $(426) | $(463) | $(893) | $(1,073) | | Straight-line rent (revenues as lessor) | $(1,529) | $(929) | $(2,940) | $(2,055) | | Straight-line ground rent (expenses as lessee) | $27 | $27 | $54 | $54 | | MFFO | $(184) | $(331) | $795 | $(893) | Cash NOI Reconciliation (In thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss (in accordance with GAAP) | $(5,827) | $(6,529) | $(10,411) | $(13,113) | | Other income | $(311) | $(64) | $(465) | $(128) | | General and administrative | $1,862 | $2,540 | $3,793 | $5,544 | | Asset and property management fees to related parties | $1,872 | $1,618 | $3,420 | $3,101 | | Acquisition and transaction related | $18 | $1 | $18 | $1 | | Depreciation and amortization | $7,553 | $7,562 | $14,967 | $15,293 | | Interest expense | $4,069 | $3,380 | $7,629 | $6,183 | | Accretion of below- and amortization of above-market lease liabilities and assets, net | $(426) | $(463) | $(893) | $(1,073) | | Straight-line rent (revenue as a lessor) | $(1,529) | $(929) | $(2,940) | $(2,055) | | Straight-line ground rent (expense as lessee) | $27 | $27 | $54 | $54 | | Cash NOI | $7,308 | $7,143 | $15,172 | $13,807 | Distributions Discusses the suspension of common stock distributions and REIT distribution requirements in light of expected tax loss - The Company suspended monthly distributions to common stockholders effective March 1, 2018, to support future growth and acquisitions[254][255] - REITs are required to distribute at least 90% of their taxable income annually, with a tax loss in 2019 expected to eliminate the need for distributions to meet this requirement[254][260] Share Repurchase Program Provides an update on the Share Repurchase Program, its suspension, and cumulative repurchase data - The Share Repurchase Program (SRP) has been suspended since September 25, 2018, and will remain suspended until regular cash distributions resume[256] Cumulative Share Repurchases | Period | Numbers of Shares Repurchased | Weighted-Average Price per Share | | :-------------------------------- | :---------------------------- | :----------------------------- | | Cumulative as of December 31, 2018 | 1,259,734 | $22.03 | | Six months ended June 30, 2019 | — | — | | Cumulative as of June 30, 2019 | 1,259,734 | $22.03 | Contractual Obligations States no material changes to contractual obligations compared to the 2018 Annual Report on Form 10-K, except for a new loan - No material changes to contractual obligations as of June 30, 2019, compared to the 2018 Annual Report on Form 10-K, other than the new loan for 9 Times Square[258] Election as a REIT Confirms the Company's REIT election and intent to maintain qualification, noting a tax loss may waive distribution requirements - The Company elected to be taxed as a REIT effective December 31, 2014, and intends to maintain this qualification, with a tax loss in 2019 expected to prevent the need for distributions to meet the 90% distribution requirement[259][260] Inflation Explains how lease provisions, such as fixed increases and tenant-covered expenses, mitigate the impact of inflation - Many leases include provisions for fixed or indexed rental rate increases to mitigate inflation's impact, and net leases require tenants to cover operating expenses, further reducing inflation exposure[261] Related-Party Transactions and Agreements Refers to Note 9 for a detailed discussion of related-party transactions and arrangements - Refer to Note 9 – Related Party Transactions and Arrangements for a detailed discussion of related-party transactions[262] Off-Balance Sheet Arrangements Confirms the absence of material off-balance sheet arrangements impacting the Company's financial condition or results - The Company has no off-balance sheet arrangements that are material to its financial condition or results of operations[263] Item 3. Quantitative and Qualitative Disclosures About Market Risk Reports no material change in market risk exposure during the six months ended June 30, 2019, referring to the Annual Report on Form 10-K - No material change in market risk exposure during the six months ended June 30, 2019[264] Item 4. Controls and Procedures Management confirmed effective disclosure controls and procedures as of June 30, 2019, with no material changes to internal controls - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2019[265] - No material changes occurred in internal control over financial reporting during the three months ended June 30, 2019[266] PART II - OTHER INFORMATION Presents other information including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The Company is not involved in any material pending legal proceedings as of the reporting period - The Company is not involved in any material pending legal proceedings[268] Item 1A. Risk Factors Reports no material changes to risk factors previously disclosed in the 2018 Annual Report on Form 10-K - No material changes to risk factors since the 2018 Annual Report on Form 10-K[269] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities Reports no unregistered equity sales, no use of registered security proceeds, and no equity purchases by the issuer or affiliates - No unregistered sales of equity securities[270] - No use of proceeds from sales of registered securities[271] - No purchases of equity securities by the issuer or affiliated purchasers[272] Item 3. Defaults Upon Senior Securities The Company reports no defaults upon senior securities during the reporting period - No defaults upon senior securities[273] Item 4. Mine Safety Disclosures This item is not applicable to the Company's operations - Not applicable[274] Item 5. Other Information The Company reports no other information required for disclosure under this item - No other information to report[275] Item 6. Exhibits Indicates that exhibits listed in the Exhibit Index are included or incorporated by reference in this Quarterly Report on Form 10-Q - Exhibits listed in the Exhibit Index are included or incorporated by reference[276] Signatures Details the executive officers who signed the report and the date of signing - The report is signed by Edward M. Weil, Jr., Executive Chairman, Chief Executive Officer, President and Secretary, and Katie P. Kurtz, Chief Financial Officer, Treasurer and Secretary, on August 14, 2019[280] EXHIBITS INDEX Lists various documents included or incorporated by reference in the Quarterly Report on Form 10-Q - The Exhibit Index lists various documents included or incorporated by reference in the Quarterly Report on Form 10-Q, such as Articles of Amendment, Bylaws, Term Loan Agreements, Guaranties, and Certifications[282][283]