American Strategic Investment (NYC) - 2019 Q4 - Annual Report

Part I Business Overview New York City REIT, Inc. is a Maryland REIT focused on acquiring and managing office properties in NYC, with a portfolio of eight properties totaling 1.16 million square feet as of December 31, 2019, and is externally managed - The company primarily invests in office properties within New York City's five boroughs, focusing on Manhattan14 Portfolio Overview as of December 31, 2019 | Metric | Value | | :--- | :--- | | Number of Properties | 8 | | Rentable Square Feet | 1,163,061 | | Aggregate Purchase Price | $790.7 million | - The board approved an Estimated Per-Share NAV of $20.26 as of June 30, 201915 - The company is externally managed by New York City Advisors, LLC, with the Advisor and its affiliates receiving fees and expense reimbursements16 38 - Key investment goals include NYC focus, acquiring properties with over 80% occupancy, limiting leverage to 40-50%, and diversifying tenants, with distributions suspended since March 1, 201818 - As of year-end 2019 and 2018, no single tenant accounted for more than 10% of total annualized rental income23 Risk Factors The company faces material risks including high geographic and asset concentration in NYC, illiquid stock, suspended distributions, and significant conflicts of interest with its external Advisor, alongside general real estate and debt financing risks Risks Related to an Investment in New York City REIT, Inc. Significant investment risks stem from the portfolio's exclusive NYC location, limited stockholder liquidity due to non-traded stock and suspended SRP, halted distributions, high asset and tenant concentration, and potential impacts from a pandemic - All company properties are located in the New York MSA, leading to high dependency on the local economy and lack of geographic diversification43 - The common stock is not traded on a national exchange, and the Share Repurchase Program (SRP) is suspended, severely limiting stockholder liquidity46 - The company is not currently paying distributions, with no assurance of resumption47 - The two largest assets, 123 William Street and 1140 Avenue of the Americas, represent approximately 68% of total rentable square footage and 63% of annualized straight-line rent, posing significant asset concentration risk57 Major Tenant Concentration (as of Dec 31, 2019) | Tenant | % of Annualized Straight-Line Rent | | :--- | :--- | | City National Bank | 6.9% | | Knotel | 6.3% | | Planned Parenthood | 5.3% | - A pandemic, such as the novel coronavirus, is a cited risk that could adversely affect company operations and tenants64 65 Risks Related to Conflicts of Interest Significant conflicts of interest arise from the external management structure, as the Advisor and its affiliates manage other programs, creating competition for opportunities and potentially incentivizing riskier investments through performance-based fees - The Advisor and its affiliates face conflicts of interest in allocating investment opportunities between the company and other AR Global-advised programs83 - Executive officers hold positions across the Advisor, Property Manager, and other affiliated entities, leading to conflicting duties and competing demands on their time87 88 - The Advisor's compensation structure, including performance-based distributions upon a liquidity event, may incentivize riskier or more speculative investments90 Risks Related to Our Corporate Structure The company's corporate structure, including a 9.8% share ownership limit, Maryland anti-takeover statutes, and a classified board, could deter potential acquisitions and delay a change in control - The company's charter limits individual stock ownership to 9.8%, potentially delaying or preventing a change in control92 - Maryland law prohibits certain business combinations with interested stockholders for five years, potentially hindering acquisitions97 98 - The classified board of directors, divided into three classes, may delay or prevent a change in control99 General Risks Related to Investments in Real Estate The company faces general real estate risks including economic downturns, illiquid assets, tenant bankruptcies, uninsured losses from catastrophic events, climate change impacts, reduced office demand from telecommuting, and challenges in the retail sector - Operating results are subject to general real estate risks, including economic conditions, vacancies, and interest rate fluctuations107 - Financing agreements may contain lock-out provisions restricting property sales or refinancing for years110 - The company faces risks from uninsured losses, particularly from terrorism, as TRIA is set to expire120 121 - Trends like increased telecommuting and flexible work schedules could erode overall office space demand129 - Properties with retail tenants, accounting for 15.9% of annualized straight-line rental income as of December 31, 2019, are subject to retail sector risks130 Risks Associated with Debt Financing The company's approximately $395.0 million debt as of year-end 2019 poses significant risks, including operational limitations, vulnerability to economic downturns, potential impacts from LIBOR discontinuation, and increased default risk due to interest-only mortgage debt - As of December 31, 2019, total outstanding indebtedness was approximately $395.0 million, potentially hindering market adjustments and capital access137 - The planned discontinuation of LIBOR after 2021 creates uncertainty and could increase future variable-rate borrowing costs143 144 - As of December 31, 2019, all outstanding mortgage indebtedness was interest-only, increasing default risk due to principal or balloon payments at maturity148 U.S. Federal Income Tax Risks Risks to maintaining REIT status include potential corporate income tax, reduced distributable earnings, forced borrowing or asset sales to meet the 90% distribution requirement, and a 100% prohibited transaction tax on certain property sales - Failure to maintain REIT qualification would subject the company to U.S. federal corporate income tax, reducing net earnings and eliminating distribution requirements151 152 - To qualify as a REIT, the company must annually distribute at least 90% of its REIT taxable income, potentially forcing unfavorable borrowing or asset sales155 - Sales of properties deemed dealer properties could be subject to a 100% prohibited transaction tax156 - To maintain REIT status, five or fewer individuals may not own more than 50% of outstanding stock value, and at least 100 persons must be beneficial owners169 Properties As of December 31, 2019, the company's portfolio included eight properties totaling 1.16 million rentable square feet with 89.6% occupancy, $450.2 million in future minimum lease payments, and $405.0 million in gross mortgage debt, with four properties identified as significant Portfolio Summary (as of Dec 31, 2019) | Property | Rentable Square Feet | Occupancy | Remaining Lease Term (Years) | | :--- | :--- | :--- | :--- | | Total/Weighted Avg. | 1,163,061 | 89.6% | 6.8 | Future Minimum Base Rent Payments | Year | Amount (in thousands) | | :--- | :--- | | 2020 | $59,793 | | 2021 | $57,465 | | 2022 | $53,679 | | 2023 | $45,639 | | 2024 | $41,162 | | Thereafter | $54,194 | | Total | $450,152 | - Four properties are significant, each representing over 10% of the portfolio's rentable square feet or annualized rental income: 123 William Street, 9 Times Square, 1140 Avenue of the Americas, and 196 Orchard Street183 Property Financing Summary (as of Dec 31, 2019) | Metric | Value | | :--- | :--- | | Encumbered Properties | 7 | | Outstanding Loan Amount | $405.0 million | | Weighted-Average Effective Interest Rate | 4.35% | Legal Proceedings The company reports no material legal proceedings - The company had no legal proceedings to report191 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities No established public market exists for the company's common stock, limiting liquidity, with both the Share Repurchase Program and Distribution Reinvestment Plan currently suspended, and an Estimated Per-Share NAV of $20.26 as of June 30, 2019 - No established public market exists for the company's common stock, with no current plans for national exchange listing195 - The board approved an Estimated Per-Share NAV of $20.26 as of June 30, 2019, determined with assistance from Duff & Phelps196 203 - Distributions to common stockholders were suspended effective March 1, 2018, rendering the Distribution Reinvestment Plan (DRIP) inactive195 205 - The Share Repurchase Program (SRP) is currently suspended, with no shares repurchased during the year ended December 31, 2019212 214 Selected Financial Data This section summarizes five years of financial data (2015-2019), showing increasing assets and liabilities, consistent net losses, declining stockholders' equity, and no distributions declared in 2019 Selected Financial Data (2017-2019) | (In thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total revenues | $70,530 | $62,399 | $58,384 | | Net loss | $(21,890) | $(24,112) | $(23,073) | | Total assets | $901,356 | $773,742 | $760,450 | | Mortgage notes payable, net | $395,031 | $291,653 | $233,517 | | Total stockholders' equity | $420,549 | $443,680 | $481,484 | Selected Per Share Data (2017-2019) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Basic and diluted net loss per common share | $(0.71) | $(0.77) | $(0.74) | | Distributions declared per common share | $— | $0.25 | $1.51 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2019 financial performance, highlighting revenue growth from acquisitions and leasing, a net loss of $21.9 million, decreased occupancy to 89.6%, and strategic cash preservation through suspended distributions and share repurchases, supplemented by non-GAAP measures like FFO and MFFO Results of Operations For 2019, revenue from tenants increased by $8.1 million to $70.5 million due to acquisitions and leasing, while property operating expenses rose by $2.8 million, general and administrative expenses decreased by $2.6 million, interest expense increased by $3.9 million, and portfolio occupancy declined to 89.6% - Overall portfolio occupancy decreased to 89.6% as of December 31, 2019, from 93.7% in 2018256 - Revenue from tenants increased by $8.1 million to $70.5 million in 2019, driven by property acquisitions and leasing activity261 - General and administrative expenses decreased by $2.6 million in 2019, primarily due to lower reimbursed fees to the Advisor264 - Interest expense increased by $3.9 million to $17.2 million in 2019, due to new debt for acquisitions and general corporate purposes267 Liquidity and Capital Resources As of December 31, 2019, the company held $51.2 million in cash, with distributions and the SRP suspended to preserve capital for acquisitions and improvements, and aggregate borrowings at $405.0 million, with future funding expected from cash flow and new financing - The company held $51.2 million in cash and cash equivalents as of December 31, 2019276 - The suspension of distributions and the SRP is a strategic decision to enhance funding for future acquisitions and property repositioning276 277 - In July 2019, the company secured a $51.0 million loan to partially fund the 196 Orchard Street acquisition280 - In April 2019, a $55.0 million loan secured by 9 Times Square was obtained for general corporate purposes, including funding a portion of the 196 Orchard Street acquisition282 - Capital expenditures for 2019 totaled $7.7 million, primarily for tenant improvements at three key properties287 Non-GAAP Financial Measures The company uses non-GAAP measures like FFO, MFFO, and Cash NOI for supplemental performance insight, reporting 2019 FFO of $9.3 million, MFFO of $2.6 million, and Cash NOI of $32.7 million, all showing improvement over 2018 FFO and MFFO Reconciliation (2018-2019) | (In thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net loss (in accordance with GAAP) | $(21,890) | $(24,112) | | Depreciation and amortization | 31,161 | 29,690 | | FFO | $9,271 | $5,578 | | Adjustments for MFFO | (6,659) | (6,072) | | MFFO | $2,612 | $(494) | Cash NOI Reconciliation (2018-2019) | (In thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net loss (in accordance with GAAP) | $(21,890) | $(24,112) | | Adjustments | 54,571 | 51,654 | | Cash NOI | $32,681 | $27,542 | Contractual Obligations As of December 31, 2019, total contractual obligations were $761.6 million, primarily comprising $405.0 million in mortgage principal, $125.7 million in interest, and $231.0 million in ground lease payments, with most due after 2024 Summary of Contractual Obligations | (In thousands) | Total | 2020 | 2021-2022 | 2023-2024 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Mortgage notes payable (Principal) | $405,000 | $— | $— | $55,000 | $350,000 | | Mortgage notes payable (Interest) | $125,656 | $17,595 | $35,104 | $33,750 | $39,207 | | Ground lease payments | $230,976 | $4,746 | $9,492 | $9,492 | $207,246 | | Total | $761,632 | $22,341 | $44,596 | $98,242 | $596,453 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate changes, mitigated by $405.0 million in fixed-rate or swapped debt as of December 31, 2019, with a 100 basis point interest rate increase projected to decrease fixed-rate debt fair value by $22.9 million - The company's main market risk stems from adverse changes in interest rates316 - As of December 31, 2019, all debt, with an aggregate carrying value of $405.0 million, consisted of fixed-rate or swapped to fixed-rate secured mortgage notes317 - A hypothetical 100 basis point increase in market interest rates would decrease the fair value of fixed-rate debt by $22.9 million, while a decrease would increase it by $24.9 million317 Controls and Procedures Management, including the CEO and CFO, concluded that both disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes reported for the fourth quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2019322 - Management assessed internal control over financial reporting using the COSO framework, concluding it was effective as of December 31, 2019325 - No material changes were made to internal control over financial reporting during the fourth quarter of 2019327 Part III Items 10 through 14, covering directors, executive compensation, security ownership, related party transactions, and principal accounting fees, are incorporated by reference from the company's definitive 2020 proxy statement Items 10-14 Information for Items 10 through 14, including directors, executive compensation, security ownership, related party transactions, and accounting fees, is incorporated by reference from the company's definitive 2020 proxy statement - Disclosures for Items 10 through 14 are incorporated by reference from the definitive proxy statement to be filed within 120 days of fiscal year-end331 332 333 Part IV Exhibits and Financial Statement Schedules This section lists financial statements, Schedule III – Real Estate and Accumulated Depreciation, and all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and Sarbanes-Oxley Act certifications - This item includes the Index to Consolidated Financial Statements and Schedule III – Real Estate and Accumulated Depreciation337 - An extensive list of exhibits is provided, including the Second Amended and Restated Advisory Agreement, various loan agreements, and required CEO/CFO certifications340 342 Financial Statements and Supplementary Data Consolidated Financial Statements The consolidated financial statements present the company's financial position, operations, and cash flows for 2017-2019, reporting 2019 total assets of $901.4 million, liabilities of $480.8 million, and a net loss of $21.9 million, reflecting the adoption of ASC 842 Consolidated Balance Sheet Summary (as of Dec 31, 2019) | (In thousands) | Amount | | :--- | :--- | | Total real estate investments, net | $748,286 | | Total assets | $901,356 | | Mortgage notes payable, net | $395,031 | | Total liabilities | $480,807 | | Total stockholders' equity | $420,549 | Consolidated Statement of Operations Summary (Year Ended Dec 31, 2019) | (In thousands) | Amount | | :--- | :--- | | Revenue from tenants | $70,530 | | Total operating expenses | $76,110 | | Operating loss | $(5,580) | | Net loss | $(21,890) | | Basic and diluted net loss per share | $(0.71) | Notes to Consolidated Financial Statements The notes supplement financial statements with details on new accounting standards (ASC 842), 2019 property acquisition, mortgage debt, suspended Share Repurchase Program, related-party transactions, commitments, and equity-based compensation Note 2 — Summary of Significant Accounting Policies This note outlines key accounting policies, including straight-line revenue recognition, asset acquisition treatment for real estate, impairment testing, and the adoption of ASU 2016-02 (Leases) on January 1, 2019, which led to the recognition of a right-of-use asset and lease liability - The company adopted ASU 2016-02 (Topic 842) on January 1, 2019, resulting in a $54.9 million right-of-use asset and lease liability for its ground lease447 455 - The company elected a practical expedient to account for lease and non-lease components as a single lease component, simplifying revenue recognition448 - The company adopted ASU 2017-01, leading to property acquisitions in 2019 and 2018 being treated as asset acquisitions and capitalization of transaction costs444 Note 4 — Mortgage Notes Payable, Net As of December 31, 2019, the company had $405.0 million in gross mortgage notes payable secured by seven properties, including new $51.0 million and $55.0 million loans in 2019, all of which are interest-only with no principal payments until 2024 Mortgage Notes Payable Summary (as of Dec 31, 2019) | Metric | Value | | :--- | :--- | | Gross Mortgage Notes Payable | $405.0 million | | Deferred financing costs, net | $(9.97) million | | Mortgage notes payable, net | $395.03 million | | Weighted-Average Effective Interest Rate | 4.35% | - In July 2019, the company obtained a $51.0 million loan with a fixed rate of 3.85% to partially fund the 196 Orchard Street acquisition471 - In April 2019, the company entered into a $55.0 million loan with an interest rate fixed at 3.67% via a swap agreement, secured by the 9 Times Square property475 - No principal payments are scheduled on any mortgage notes until 2024479 Note 9 — Related Party Transactions and Arrangements This note details fee arrangements with the Advisor and affiliates, including a new advisory agreement effective November 16, 2018, which eliminated certain fees, established a new base asset management fee, set limits on expense reimbursements, and resulted in $7.3 million in asset/property management fees and $3.2 million in other reimbursements for 2019 - A new advisory agreement effective November 16, 2018, eliminated acquisition and financing coordination fees535 537 540 - The new agreement established a fixed base asset management fee of $0.5 million per month, plus a variable component tied to future equity proceeds546 - The agreement introduced specific annual caps on administrative/overhead expenses (e.g., $0.4 million) and personnel costs (e.g., $2.6 million) reimbursed to the Advisor557 567 Related Party Fees Incurred (Year Ended Dec 31, 2019) | (In thousands) | Amount Incurred | | :--- | :--- | | Asset and property management fees | $7,328 | | Professional fees and other reimbursements | $3,210 | | Total | $10,538 | - Upon a change of control, the Advisor is entitled to a termination fee of $15.0 million plus a multiple of certain prior fees575 Schedule III - Real Estate and Accumulated Depreciation This schedule provides a property-by-property breakdown of real estate costs and accumulated depreciation as of December 31, 2019, showing total gross real estate assets of $759.5 million and accumulated depreciation of $72.7 million, along with reconciliation of changes during 2019 Real Estate Portfolio Cost Summary (as of Dec 31, 2019) | (In thousands) | Amount | | :--- | :--- | | Initial & Subsequent Costs (Land, Building & Improvements) | $759,487 | | Accumulated Depreciation | $(72,656) | | Net Book Value (excluding intangibles) | $686,831 | Reconciliation of Real Estate Investments, at Cost (2019) | (In thousands) | Amount | | :--- | :--- | | Balance at beginning of year | $671,210 | | Additions - acquisitions | $79,872 | | Capital expenditures | $8,405 | | Balance at end of year | $759,487 |