American Strategic Investment (NYC) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risks, and internal controls Item 1. Financial Statements. This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes Consolidated Balance Sheets The consolidated balance sheets show the company's financial position as of June 30, 2022, and December 31, 2021, indicating a decrease in total assets and stockholders' equity over the period | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total real estate investments, net | $682,886 | $694,774 | | Cash and cash equivalents | $8,097 | $11,674 | | Restricted cash | $12,444 | $16,754 | | Total assets | $805,941 | $823,051 | | Mortgage notes payable, net | $393,388 | $398,117 | | Total liabilities | $470,798 | $471,915 | | Total stockholders' equity | $318,813 | $338,989 | | Total equity | $335,143 | $351,136 | Consolidated Statements of Operations and Comprehensive Loss The consolidated statements of operations and comprehensive loss detail the company's financial performance for the three and six months ended June 30, 2022, and 2021, reporting net losses for both periods | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue from tenants | $16,231 | $14,977 | $31,877 | $30,163 | | Total operating expenses | $22,803 | $21,297 | $44,802 | $45,313 | | Operating loss | $(6,572) | $(6,320) | $(12,925) | $(15,150) | | Interest expense | $(4,703) | $(4,763) | $(9,418) | $(9,476) | | Net loss | $(11,273) | $(11,052) | $(22,378) | $(24,587) | | Comprehensive loss | $(10,651) | $(10,819) | $(20,006) | $(23,765) | | Net loss per share (Basic & Diluted) | $(0.84) | $(0.87) | $(1.68) | $(1.93) | Consolidated Statements of Changes in Equity The consolidated statements of changes in equity illustrate the movements in stockholders' equity for the three and six months ended June 30, 2022, and 2021, reflecting common stock issuances, equity-based compensation, dividends, and net losses | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Total Equity (Dec 31 Balance) | $351,136 | $381,567 | | Common stock issued to Advisor | $2,321 | — | | Equity-based compensation | $4,321 | $4,235 | | Dividends declared on common stock | $(2,670) | $(2,562) | | Net loss | $(22,378) | $(24,587) | | Other comprehensive income | $2,372 | $822 | | Total Equity (June 30 Balance) | $335,143 | $362,055 | Consolidated Statements of Cash Flows The consolidated statements of cash flows provide a summary of cash generated from or used in operating, investing, and financing activities for the six months ended June 30, 2022, and 2021, showing a net decrease in cash and cash equivalents for both periods | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $1,737 | $(5,397) | | Net cash used in investing activities | $(1,374) | $(1,114) | | Net cash (used in) provided by financing activities | $(8,250) | $527 | | Net change in cash, cash equivalents and restricted cash | $(7,887) | $(5,984) | | Cash, cash equivalents and restricted cash, end of period | $20,541 | $34,010 | Notes to Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the consolidated financial statements, covering the company's structure, significant accounting policies, real estate portfolio, debt obligations, derivative instruments, equity changes, and related party transactions Note 1 — Organization New York City REIT, Inc. is an externally managed REIT primarily investing in office properties within New York City, owning eight properties totaling 1.2 million rentable square feet as of June 30, 2022. Its day-to-day operations are managed by related parties, the Advisor and Property Manager - The Company is an externally managed REIT focused on office properties in New York City, primarily Manhattan[23] - As of June 30, 2022, the Company owned eight properties with 1.2 million rentable square feet, acquired for an aggregate purchase price of $790.7 million[23] - The Company's day-to-day business is managed by New York City Advisors, LLC (the "Advisor") and New York City Properties, LLC (the "Property Manager"), both under common control with AR Global Investments, LLC[24] Note 2 — Summary of Significant Accounting Policies This note outlines the company's accounting principles, including GAAP compliance for interim reporting, consolidation methods, use of estimates, and treatment of non-controlling interests. It also details the significant impacts of the COVID-19 pandemic on operations, revenue recognition policies, and accounting for leases, along with recently adopted and pending accounting pronouncements Basis of Accounting Interim financial statements are prepared in accordance with GAAP, omitting some annual statement details - Interim financial statements are prepared in accordance with GAAP and do not include all information required for complete annual statements[25] Principles of Consolidation Consolidated financial statements include the Company, its Operating Partnership, and subsidiaries, eliminating inter-company transactions - Consolidated financial statements include the Company, its Operating Partnership (OP), and subsidiaries, with inter-company transactions eliminated[27] - The OP is determined to be a variable interest entity (VIE) for which the Company is the primary beneficiary[27] Use of Estimates Significant estimates are made for revenue recognition, real estate purchase price allocations, and fair value measurements - Significant estimates are made for revenue recognition, purchase price allocations for real estate investments, and fair value measurements[28] Non-controlling Interests Non-controlling interests represent equity in the Operating Partnership not owned by the Company, presented separately - Non-controlling interests represent the portion of equity in the OP not owned by the Company and are presented separately on the balance sheet[29] - LTIP Units issued under the multi-year outperformance agreement with the Advisor are reflected as part of non-controlling interest[32] Impacts of the COVID-19 Pandemic COVID-19 impacted operations, leading to tenant bankruptcies, lease terminations, and debt covenant breaches - COVID-19 significantly impacted New York City, affecting tenant operations and willingness for in-person commerce[33] - Knotel, a tenant at 123 William Street and 9 Times Square, declared bankruptcy in early 2021, leading to lease terminations[35] - Lease terminations and financial difficulties of tenants in 2020-2021 led to breaches of debt covenants and cash trap events on mortgages for 9 Times Square, 1140 Avenue of the Americas, Laurel/Riverside, and 8713 Fifth Avenue properties[39] - The Company did not enter into any new rent deferral or abatement agreements in the first half of 2022, and only one tenant was on a cash basis as of June 30, 2022[38][36] Revenue Recognition Revenues are primarily from lease contracts, recognized on a straight-line basis, with continuous assessment of collectability - Revenues are primarily derived from lease contracts and reported on a straight-line basis over the initial lease term[43] - Collectability of lease payments is continuously assessed based on tenant's payment history, financial condition, and economic conditions[45] Accounting for Leases As a lessor, the Company accounts for lease and non-lease components as a single operating lease - As a lessor, the Company accounts for lease and non-lease components as a single operating lease[47] - As a lessee, the Company recognizes a right-of-use asset and lease liability for all leases with a term greater than 12 months[48] Recently Issued Accounting Pronouncements This section details the adoption of ASU 2020-06 and the application of hedge accounting expedients under ASU 2020-04 - ASU 2020-06 (Debt with Conversion and Other Options) was adopted on January 1, 2021, with no material impact[49] - The Company elected to apply hedge accounting expedients under ASU 2020-04 (Reference Rate Reform) for LIBOR-indexed cash flows[50] Note 3 — Real Estate Investments This note confirms no real estate acquisitions or dispositions in H1 2022 or 2021 and highlights the evaluation of strategic options for the 421 W. 54th Street - Hit Factory property. It also details the absence of significant tenants and the write-off of deferred leasing commissions due to Knotel's bankruptcy - No real estate assets were acquired or disposed of during the three or six months ended June 30, 2022, or 2021[53] - The Company is evaluating options, including marketing for sale, its 421 W. 54th Street - Hit Factory property, which is not yet classified as held for sale[53] Significant Tenants No tenant's annualized rental income exceeded 10% of total annualized rental income as of June 30, 2022 - No tenant's annualized rental income exceeded 10% of total annualized rental income as of June 30, 2022, and December 31, 2021[54] Write-off of Deferred Leasing Commissions $1.3 million of deferred leasing costs were written off in Q1 2021 due to Knotel's bankruptcy and lease terminations - $1.3 million of deferred leasing costs were written off in Q1 2021 due to Knotel's bankruptcy and lease terminations[56][58] Note 4 — Mortgage Notes Payable, Net This note details the company's mortgage notes payable, which decreased to $393.4 million as of June 30, 2022. It outlines collateral pledges, scheduled principal payments, and significant debt covenant breaches on properties like 9 Times Square, 1140 Avenue of the Americas, and 8713 Fifth Avenue, leading to cash trap events. It also notes the curing of breaches for Laurel/Riverside and the transition from LIBOR to SOFR for the 9 Times Square loan | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Mortgage notes payable, gross | $399,500 | $405,000 | | Less: deferred financing costs, net | $(6,112) | $(6,883) | | Mortgage notes payable, net | $393,388 | $398,117 | - As of June 30, 2022, $7.7 million is held in restricted cash due to cash trap events from covenant breaches on certain properties[59] - A $5.5 million principal payment was made in March 2022 on the 9 Times Square property loan[59] - The Company was in breach of covenants for 9 Times Square, 1140 Avenue of the Americas, and 8713 Fifth Avenue as of June 30, 2022[64][71][75] - The debt service coverage covenant for Laurel/Riverside was satisfied for two consecutive quarters (Dec 31, 2021, and Mar 31, 2022), ending the cash management period[74] Collateral and Principal Payments Real estate assets and intangible assets of $835.9 million are pledged as collateral for mortgage notes payable - Real estate assets and intangible assets of $835.9 million are pledged as collateral for mortgage notes payable[60] Future Minimum Principal Payments | Year | Future Minimum Principal Payments (in thousands) | | :--- | :--------------------------------------------- | | 2022 (remainder) | $— | | 2023 | $— | | 2024 | $49,500 | | 2025 | $— | | 2026 | $99,000 | | Thereafter | $251,000 | | Total | $399,500 | Debt Covenants This section details debt covenant breaches and cash trap events for specific properties 9 Times Square Breached debt service coverage and debt yield covenants, triggering a cash management period and a $5.5 million principal payment - Breached debt service coverage and debt yield covenants from 2020 through 2021, triggering a cash management period[64] - A waiver and amendment in March 2022 required a $5.5 million principal payment (funded from restricted cash) and revised covenant calculations (e.g., reduced hypothetical interest rate, lower debt yield covenant to 7.5%, inclusion of free rent periods)[65][66] - As of June 30, 2022, $2.5 million remained in a cash management account. The Company expects to not be in breach by Q3 2022 and request to exit the cash trap[67] 1140 Avenue of the Americas Breached debt service coverage and reserve fund provisions for eight consecutive quarters, resulting in $5.2 million in restricted cash - Breached debt service coverage and reserve fund provisions for eight consecutive quarters ended June 30, 2022[71] - $5.2 million in cash is retained by the lender in restricted cash due to these breaches, which are not events of default[71] 400 E. 67th Street - Laurel Condominium/200 Riverside Boulevard - Icon Garage Debt service coverage covenant breaches in 2021 were cured, ending the cash management period, with new leases commencing in July 2022 - Breached debt service coverage covenant in Q1-Q3 2021, but cured by satisfying the covenant in Q4 2021, Q1 2022, and Q2 2022[72][74] - A $1.4 million lease termination fee received in Q4 2021 was reclassified from restricted cash to cash and cash equivalents in Q1 2022 after the cash trap ended[73][74] - New leases for the garage properties commenced in July 2022, expiring in June 2037, replacing previous six-month license agreements[73] 8713 Fifth Avenue Breached debt service coverage ratio covenant for five consecutive quarters, triggering an excess cash flow sweep - Breached debt service coverage ratio covenant for five consecutive quarters (Q2 2021 - Q2 2022)[75] - The breach triggers an excess cash flow sweep, which can be avoided by funding a $125,000 reserve quarterly[75] - A new tenant is expected to occupy the space in Q3 2022, bringing occupancy back to 100%[77] Other Debt Covenants The Company was in compliance with remaining covenants under other mortgage notes payable as of June 30, 2022 - The Company was in compliance with remaining covenants under other mortgage notes payable as of June 30, 2022[78] LIBOR Transition The 9 Times Square mortgage loan and related interest swap transitioned from LIBOR to SOFR in March 2022 - The 9 Times Square mortgage loan and related "pay-fixed" interest swap transitioned from LIBOR to SOFR in March 2022[79] Note 5 — Fair Value of Financial Instruments This note describes the company's approach to fair value measurements, categorizing financial instruments into a three-level hierarchy. Derivative instruments are measured at fair value on a recurring basis and classified as Level 2, while fixed-rate mortgage notes payable are not reported at fair value on the balance sheet but their fair values are disclosed using Level 3 inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[81] Financial Instruments Measured at Fair Value on a Recurring Basis Derivative instruments are measured at fair value on a recurring basis, classified as Level 2 in the fair value hierarchy - Derivative instruments are measured at fair value on a recurring basis, primarily using discounted cash flow analysis[84] - Derivatives are classified as Level 2 in the fair value hierarchy, as Level 3 credit valuation adjustments are not significant[83] Financial Instruments that are not Reported at Fair Value Fair value of short-term financial instruments approximates carrying value - Fair value of short-term financial instruments (cash, restricted cash, payables) approximates their carrying value[86] - Fixed-rate mortgage notes payable are not reported at fair value on the balance sheet but their fair values are disclosed using Level 3 inputs[89] Note 6 — Derivatives and Hedging Activities This note details the company's use of derivative financial instruments, primarily "pay-fixed" interest rate swaps, to hedge interest rate risk and stabilize interest expense. It outlines the accounting for cash flow hedges, including the termination and replacement of a LIBOR-based swap with a SOFR-based swap in March 2022, and discusses credit-risk-related contingent features - The Company uses interest rate derivatives (e.g., interest rate swaps) to hedge interest rate risk and stabilize interest expense, not for speculative purposes[90] - Counterparty risk is mitigated by engaging with major financial institutions with high credit ratings[90] Risk Management Objective of Using Derivatives The Company uses interest rate derivatives to hedge interest rate risk and stabilize interest expense Cash Flow Hedges of Interest Rate Risk Changes in fair value of cash flow hedges are recorded in AOCI and reclassified to interest expense - Changes in fair value of cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and reclassified to interest expense[95] - The existing $55.0 million notional, LIBOR-based "pay-fixed" interest rate swap was terminated and replaced with a new $49.5 million notional, SOFR-based swap in March 2022[95] - A charge of approximately $38,338 was reflected in Other Income (Expense) for the six months ended June 30, 2022, due to the termination/replacement of the swap[95] Offsetting Derivatives Derivatives are presented on a gross basis, with no offsetting on the balance sheet - Derivatives are presented on a gross basis, with no offsetting on the balance sheet[100][101] Credit-risk-related Contingent Features Derivative agreements include provisions where indebtedness default could lead to derivative obligations default - Derivative agreements include provisions where a default on indebtedness could lead to a default on derivative obligations[102] - As of June 30, 2022, the net asset position of derivatives was $0.7 million, with no collateral posted and no breaches of agreement provisions[103] Note 7 — Stockholders' Equity This note details the company's stockholders' equity, including 13.6 million shares of common stock outstanding as of June 30, 2022. It highlights the suspension of dividends starting Q2 2022 and the Advisor's reinvestment of $2.5 million in base management fees for Class A common stock in H1 2022. It also covers equity offerings, a repurchase program, a tender offer, the stockholder rights plan, and the distribution reinvestment plan - As of June 30, 2022, 13.6 million shares of common stock were outstanding[104] - The Company suspended its dividend policy on Class A common stock, effective for the quarter ended June 30, 2022[105] - The Advisor reinvested $2.5 million in base management fees for Class A common stock in H1 2022, issuing 215,306 shares[106][15] Equity Offerings The Company has a Common Stock ATM Program for up to $250.0 million in Class A common stock - The Company has a Common Stock ATM Program to sell up to $250.0 million in Class A common stock[110] - No shares were sold through the Common Stock ATM Program during the three or six months ended June 30, 2022, or 2021[111] Repurchase Program The board authorized consideration of repurchases up to $100.0 million of Class A common stock - The board authorized consideration of repurchases up to $100 million of Class A common stock[112] - No repurchases have been authorized since the initial resolution[112] Tender Offer In January 2021, the Company purchased 26,236 shares of Class B common stock for approximately $0.2 million - In January 2021, the Company purchased 26,236 shares of Class B common stock for approximately $0.2 million through a tender offer[113] Stockholder Rights Plan A stockholder rights plan was adopted in May 2020, with its expiration date extended to August 18, 2025 - A stockholder rights plan was adopted in May 2020 and amended in August 2020[114] - The expiration date of the rights was extended from August 16, 2022, to August 18, 2025[114] Distribution Reinvestment Plan The A&R DRIP allows stockholders to reinvest dividends in additional Class A common stock - The A&R DRIP allows stockholders to reinvest dividends in additional Class A common stock[117] - During H1 2022, DRIP transactions were settled via open market purchases, and no new shares were issued by the Company[118] Note 8 — Commitments and Contingencies This note details the company's commitments, including an operating ground lease for 1140 Avenue of the Americas with a 44.5-year remaining term. It also confirms no material legal or regulatory proceedings and no significant environmental conditions Lessee Arrangement - Ground Lease The Company has an operating ground lease for 1140 Avenue of the Americas with a 44.5-year remaining term - The Company has an operating ground lease for 1140 Avenue of the Americas with a weighted-average remaining lease term of 44.5 years and a discount rate of 8.6%[120] ROU Asset and Operating Lease Liability | Metric (in thousands) | June 30, 2022 | | :-------------------- | :------------ | | ROU asset | $55,061 | | Operating lease liability | $54,744 | Litigation and Regulatory Matters No material legal or regulatory proceedings are pending or known to be contemplated against the Company - No material legal or regulatory proceedings are pending or known to be contemplated against the Company[123] Environmental Matters The Company is not aware of any environmental conditions that would materially adversely affect its results of operations - The Company is not aware of any environmental conditions that would have a material adverse effect on its results of operations[124] Note 9 — Related Party Transactions and Arrangements This note details the company's extensive related party transactions, including significant ownership by AR Global entities. It covers the cash management plan, various fees paid to the Advisor and Property Manager (asset management, variable management, property management, professional fees, and reimbursements), and the Listing Note arrangement. It also outlines the termination fees payable to the Advisor under specific conditions - Entities wholly owned by AR Global owned 215,306 shares of the Company's common stock as of June 30, 2022[125] Cash Management Plan Bellevue Capital Partners, LLC expressed a desire to invest additional capital, leading to amended ownership limits - Bellevue Capital Partners, LLC (controlling the Advisor) expressed a desire to invest additional capital in the Company[126] - The Company amended Waiver Agreements and lowered the ownership limit for other stockholders to facilitate potential investments by AR Parties[126] Fees and Participations Incurred in Connection with the Operations of the Company This section details various fees paid to the Advisor and Property Manager Summary of Advisory Agreement The Advisory Agreement with the Advisor has an initial term ending July 2030 and automatically renews - The Advisory Agreement with the Advisor has an initial term ending July 2030 and automatically renews for successive five-year terms[127] Asset Management Fees and Variable Management/Incentive Fees The Advisor receives monthly base asset management fees and quarterly incentive variable management fees - The Advisor receives a monthly base asset management fee and a quarterly incentive variable management fee[128][129] - No incentive variable management fees were earned during the three months ended June 30, 2022, or 2021[131] - A Side Letter (Feb 2022 - Aug 2022) required the Advisor to invest up to $3.0 million of fees in Class A common stock at a minimum price of $10.55 per share[132] Property Management Fees Property management fees are 3.25% of gross revenues for non-hotel properties - Property management fees are 3.25% of gross revenues for non-hotel properties, and 4.0% for 400 E. 67th Street - Laurel Condominium and 200 Riverside Boulevard properties[135][138] - The Company incurred approximately $0.5 million and $0.9 million in property management fees during the three and six months ended June 30, 2022, respectively[139] Professional Fees and Other Reimbursements Reimbursements for administrative and overhead expenses are capped at $0.4 million annually - Reimbursements for administrative and overhead expenses are capped at $0.4 million annually, and for salaries, wages, and benefits at $2.6 million annually[140][143] - As of June 30, 2022, the annual limit of $0.4 million for administrative and overhead reimbursements was reached[141] Summary of Fees, Expenses and Related Payables This section summarizes asset and property management fees, professional fees, and other reimbursements | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Asset and property management fees | $1,785 | $1,847 | $3,707 | $3,754 | | Professional fees and other reimbursements | $1,223 | $975 | $2,739 | $2,367 | | Total related party operation fees and reimbursements | $3,008 | $2,822 | $6,446 | $6,121 | Listing Arrangements The Listing Amount, an obligation to the Special Limited Partner, was calculated as zero - The Listing Amount, an obligation to the Special Limited Partner, was calculated as zero based on the market value during the measurement period (Feb 9 - Mar 23, 2022)[146] Termination Fees Payable to the Advisor A termination fee is payable to the Advisor if the Advisory Agreement is terminated due to a change of control - A termination fee is payable to the Advisor if the Advisory Agreement is terminated due to a change of control[147] - The termination fee is $15 million plus four times the "Subject Fees" (annualized base and variable management fees)[147][149] Note 10 — Economic Dependency The company is economically dependent on its Advisor and affiliates for essential services, including asset management, property management, and administrative responsibilities - The Company is dependent on its Advisor and affiliates for essential services such as asset management, property management, and administrative responsibilities[151] Note 11 — Equity-Based Compensation This note details the company's equity-based compensation, including the transition from the Restricted Share Plan (RSP) to the 2020 Equity Plan. It covers director compensation, restricted share grants (109,875 shares to Advisor employees in Q2 2022), and the Multi-Year Outperformance Award of 4,012,841 LTIP Units to the Advisor, with a fair value of $25.8 million being expensed over 3.07 years. It also outlines the performance measures for LTIP Units and other share-based compensation Equity Plans This section details the transition from the Restricted Share Plan to the 2020 Equity Plan Restricted Share Plan The RSP, which provided for automatic restricted share grants, was replaced by the 2020 Equity Plan at the Listing - The RSP, which provided for automatic restricted share grants, was replaced by the 2020 Equity Plan at the Listing[155] 2020 Equity Plan The 2020 Equity Plan allows for various equity awards, including restricted stock units, stock options, and LTIP Units - The 2020 Equity Plan (Advisor Plan and Individual Plan) allows for various equity awards, including restricted stock units, stock options, and LTIP Units[157] - The plan has a 10-year term, expiring August 18, 2030, and limits total shares issued to 20.0% of outstanding common stock on a fully diluted basis[157] Director Compensation Annual restricted share awards to independent directors increased from $30,000 to $65,000 - Annual restricted share awards to independent directors increased from $30,000 to $65,000, effective on the Listing Date[158] Restricted Shares Restricted share awards entitle recipients to common stock, vesting over time - Restricted share awards entitle recipients to common stock, vesting over time, with holders receiving cash dividends[159] - In Q2 2022, 109,875 restricted shares were granted to Advisor employees, vesting in 25% increments over four years[162] - As of June 30, 2022, $0.4 million of unrecognized compensation cost related to restricted shares is expected to be recognized over 4.2 years[165] Multi-Year Outperformance Award The 2020 OPP granted 4,012,841 LTIP Units to the Advisor, with a fixed fair value of $25.8 million - The 2020 OPP granted 4,012,841 LTIP Units to the Advisor, with a fixed fair value of $25.8 million as of September 30, 2020[167][168] - The $25.8 million fair value is being expensed over a 3.07-year service period, ending August 18, 2023[168] LTIP Units/Distributions/Redemption LTIP Unit holders receive distributions equal to 10% of Class A Unit distributions until earned - LTIP Unit holders receive distributions equal to 10% of Class A Unit distributions until earned[169] - Earned LTIP Units can convert to Class A Units, which are redeemable for Class A common stock or cash[169] - Dividends on Class A common stock were suspended starting Q2 2022, impacting LTIP Unit distributions[169] Performance Measures Half of LTIP Units are earned based on absolute TSR, and the other half on relative TSR compared to a peer group - Half of LTIP Units are earned based on absolute TSR, with thresholds at 12%, 18%, and 24%[170][172] - The other half of LTIP Units are earned based on relative TSR compared to a peer group, with thresholds at -600, 0, and +600 basis points[173][174] Other Terms For Change of Control or termination without Cause, earned LTIP Units are based on actual performance - For Change of Control or termination without Cause, earned LTIP Units are based on actual performance with prorated TSR hurdles, but not prorated LTIP Units[175] - For termination for Cause, both TSR hurdles and the number of LTIP Units are prorated[176] Other Share-Based Compensation The Company issues common stock to independent directors in lieu of cash for board fees - The Company issues common stock to independent directors in lieu of cash for board fees[180] - In H1 2022, 10,043 shares of Class A common stock were issued to independent directors for services rendered in Q4 2021 and Q1 2022[15][109][180] Note 12 — Net Loss Per Share This note presents basic and diluted net loss per share for H1 2022, applying the two-class method, with common share equivalents being anti-dilutive | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss attributable to common stockholders | $(11,273) | $(11,052) | $(22,378) | $(24,587) | | Weighted-average shares outstanding | 13,433,690 | 12,799,703 | 13,367,040 | 12,789,919 | | Net loss per share (Basic & Diluted) | $(0.84) | $(0.87) | $(1.68) | $(1.93) | - The two-class method is used for EPS calculation, including unvested restricted shares, Class A Units, and unearned LTIP Units as participating securities[181] - Common share equivalents (unvested restricted shares, Class A Units, LTIP Units) were excluded from diluted EPS calculation as their effect would have been anti-dilutive due to net loss[182][185] Note 13 — Subsequent Events This note reports key events occurring after June 30, 2022, including the suspension of quarterly dividends, the Advisor's completion of its $3.0 million fee reinvestment, the issuance of shares for August 2022 management fees, new long-term leases for parking garages, and amendments to the cash management plan and stockholder rights plan Quarterly Dividend The Company suspended its Class A common stock dividend policy on July 1, 2022 - The Company suspended its Class A common stock dividend policy on July 1, 2022, for the quarter ended June 30, 2022[186] Side Letter to the Advisory Agreement In July 2022, the Advisor reinvested $0.5 million in base management fees, fulfilling the $3.0 million commitment - In July 2022, the Advisor reinvested $0.5 million in base management fees for 47,393 shares of Class A common stock, fulfilling the $3.0 million commitment under the Side Letter[187] August 2022 Asset Management Fees In August 2022, 124,685 shares of Class A common stock were issued to the Advisor for August management fees - In August 2022, 124,685 shares of Class A common stock were issued to the Advisor in lieu of cash for August management fees[188] New Leases - 400 E. 67th Street - Laurel Condominium/200 Riverside Boulevard New leases for the parking garages at 400 E. 67th Street - Laurel Condominium/200 Riverside Boulevard commenced in July 2022 - New leases for the parking garages at 400 E. 67th Street - Laurel Condominium/200 Riverside Boulevard properties commenced in July 2022, expiring in June 2037[189] Cash Management Plan Bellevue and the Advisor may invest additional capital, with amended ownership limits for AR Parties - Bellevue and the Advisor may invest additional capital by purchasing Class A common stock or accepting shares for fees[190] - The Company amended Charter Ownership Limit Waiver Agreements to increase the limit for AR Parties to 21% (potentially 25%) and reduced the limit for other stockholders to 6%[191][193] Stockholder Rights Plan Amendment The expiration date of the stockholder rights plan was extended to August 18, 2025 - The expiration date of the stockholder rights plan was extended to August 18, 2025[325] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section provides management's analysis of financial condition and operational results, covering business overview, COVID-19 impacts, property portfolio, liquidity, and non-GAAP measures Forward-Looking Statements This section 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 Overview New York City REIT is an externally managed REIT focused on office properties in NYC, owning eight properties (1.2 million sq ft) as of June 30, 2022. Its operations are managed by related parties, the Advisor and Property Manager - The Company is an externally managed REIT investing primarily in office properties within the five boroughs of New York City[199] - As of June 30, 2022, the Company owned eight properties totaling 1.2 million rentable square feet[199] - The Advisor and Property Manager, under common control with AR Global, manage day-to-day business and receive compensation and expense reimbursements[200] Management Update on the Impacts of the COVID-19 Pandemic The COVID-19 pandemic continued to impact operations in New York City, leading to tenant bankruptcies (Knotel), lease terminations, and increased non-reimbursable expenses. However, rent collections improved to 98% in Q2 2022, and new leases are being secured, though cash trap events persist on some mortgages - New York City properties remained accessible, but not all tenants resumed full operations, and some vacated or did not renew leases[201] - Knotel's bankruptcy in January 2021 led to lease terminations at 123 William Street and 9 Times Square, with new leases for replacement space having lower annualized straight-line rent[202] - The Company collected 98% of original cash rent due across its portfolio for Q2 2022, including 100% from its top ten tenants, a trend consistent with Q4 2021 and Q1 2022[206] - The Company did not enter into any new rent deferral or abatement agreements in Q1 or Q2 2022[205] Significant Accounting Estimates and Critical Accounting Policies No material changes to significant accounting estimates and critical accounting policies were reported, except for those required by new accounting pronouncements - No material changes to significant accounting estimates and critical accounting policies, except for new accounting pronouncements[210][211] Recently Issued Accounting Pronouncements This section refers to Note 2 for further discussion on recently issued accounting pronouncements - Refer to Note 2 for details on recently issued accounting pronouncements[212] Properties As of June 30, 2022, the Company owned eight properties with an overall portfolio occupancy of 84.6%. Occupancy increased at 9 Times Square (to 64.3%) and 123 William Street (to 92.3%) due to new leases Property Portfolio Overview | Property | Acquisition Date | Rentable Square Feet | Occupancy (June 30, 2022) | Remaining Lease Term (Years) | | :------------------------------------------------ | :--------------- | :------------------- | :-------------------------- | :--------------------------- | | 421 W. 54th Street - Hit Factory | Jun. 2014 | 12,327 | — % | — | | 400 E. 67th Street - Laurel Condominium | Sept. 2014 | 58,750 | 100.0 % | 5.0 | | 200 Riverside Boulevard - ICON Garage | Sept. 2014 | 61,475 | 100.0 % | 15.0 | | 9 Times Square | Nov. 2014 | 167,390 | 64.3 % | 6.7 | | 123 William Street | Mar. 2015 | 542,676 | 92.3 % | 6.2 | | 1140 Avenue of the Americas | Jun. 2016 | 242,646 | 76.1 % | 6.1 | | 8713 Fifth Avenue | Oct. 2018 | 17,500 | 57.1 % | 8.6 | | 196 Orchard Street | Jul. 2019 | 60,297 | 100.0 % | 12.9 | | Total Portfolio | | 1,163,061 | 84.6 % | 7.1 | - Overall portfolio occupancy was 84.6% as of June 30, 2022, up from 82.9% at December 31, 2021[214][274] - Occupancy at 9 Times Square increased to 64.3% (from 59.3%) and at 123 William Street to 92.3% (from 90.8%) due to new leases in H1 2022[274] Results of Operations The Company's results for H1 2022 showed increased revenue from tenants due to higher occupancy, while operating expenses remained relatively stable or increased due to specific factors like proxy contest costs. Net loss improved slightly - Overall portfolio occupancy was 84.6% as of June 30, 2022, compared to 84.5% as of June 30, 2021[214] Leasing Activity | Leasing Activity | Q1 2022 | Q2 2022 | | :--------------- | :------ | :------ | | New leases commenced | 1 | 1 | | Total square feet leased | 3,940 | 3,416 | | Annualized straight-line rent per square foot | $52.72 | $48.02 | | Weighted-average lease term (years) | 5.3 | 3 | | Terminated or expired leases (Number) | — | 2 | | Terminated or expired leases (Square feet) | — | 10,293 | | Annualized straight-line rent per square foot (Terminated/Expired) | $— | $60.34 | Comparison of Three Months Ended June 30, 2022 and 2021 For the three months ended June 30, 2022, revenue from tenants increased by $1.3 million due to new leasing activity and Innovate NYC. Operating expenses saw increases in equity-based compensation and general & administrative costs (due to proxy contest and labor), while property operating expenses and depreciation remained consistent. Interest expense slightly declined - Revenue from Tenants: Increased by $1.3 million to $16.2 million (from $15.0 million), driven by increased leasing activity (8713 Fifth Ave, 9 Times Square) and $0.2 million from Innovate NYC[218] - Asset and Property Management Fees to Related Parties: Remained consistent at $1.8 million. The Advisor reinvested $1.5 million in base management fees for Class A common stock[219] - Property Operating Expenses: Remained consistent at $8.3 million[220] - Equity-Based Compensation: Increased by $0.1 million to $2.2 million, primarily due to additional restricted share grants in 2022[221] - General and Administrative Expenses: Increased to $3.5 million (from $2.0 million) due to costs for the annual meeting/proxy contest and higher labor costs[222] - Depreciation and Amortization: Remained consistent at $7.0 million[224] - Interest Expense: Decreased by $0.1 million to $4.7 million due to a partial pay-down of the 9 Times Square loan[225] Comparison of Six Months Ended June 30, 2022 and 2021 For the six months ended June 30, 2022, revenue from tenants increased by $1.7 million due to higher occupancy and Innovate NYC. General and administrative expenses rose due to proxy contest costs, while depreciation and amortization decreased due to prior impairments/write-offs. Net loss improved - Revenue from Tenants: Increased by $1.7 million to $31.9 million (from $30.2 million), driven by increased occupancy (8713 Fifth Ave, 9 Times Square) and $0.4 million from Innovate NYC[227] - Asset and Property Management Fees to Related Parties: Decreased slightly to $3.7 million (from $3.8 million). The Advisor reinvested $1.5 million in base management fees for Class A common stock[228] - Property Operating Expenses: Decreased by $0.2 million to $16.8 million, mainly due to lower legal fees, partially offset by increased non-reimbursable real estate taxes[230] - Equity-Based Compensation: Remained consistent at $4.3 million, primarily from the 2020 OPP amortization[231] - General and Administrative Expenses: Increased by $1.2 million to $5.9 million (from $4.7 million) due to $0.6 million in proxy contest costs and higher reimbursements to the Advisor[232] - Depreciation and Amortization: Decreased by $1.5 million to $14.0 million due to a lower depreciable/amortizable asset base from prior impairments and write-offs[234] - Interest Expense: Decreased by $0.1 million to $9.4 million due to the partial pay-down of the 9 Times Square loan[235] Cash Flows from Operating Activities Net cash provided by operating activities was $1.7 million in H1 2022, a significant improvement from a $5.4 million use in H1 2021, primarily due to adjustments for non-cash items and changes in working capital | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $1,737 | $(5,397) | | Net loss | $(22,378) | $(24,587) | | Depreciation and amortization | $14,022 | $15,549 | | Equity-based compensation | $4,321 | $4,235 | | Management fees reinvested by Advisor | $2,321 | $— | | Changes in accounts payable, accrued expenses | $6,862 | $(356) | Cash Flows from Investing Activities Net cash used in investing activities was $1.4 million in H1 2022, primarily for capital expenditures at 123 William Street and 1140 Avenue of the Americas | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash used in investing activities | $(1,374) | $(1,114) | | Capital expenditures | $(1,374) | $(1,114) | - Capital expenditures were primarily for tenant and building improvements at 123 William Street and 1140 Avenue of the Americas[240][241] Cash Flows from Financing Activities Net cash used in financing activities was $8.3 million in H1 2022, mainly due to mortgage principal payments and common stock dividends. This contrasts with H1 2021, which saw net cash provided by financing activities due to common stock issuance proceeds | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by financing activities | $(8,250) | $527 | | Payments on mortgage note payable | $(5,500) | $— | | Common stock issuance proceeds | $— | $3,352 | | Dividends paid on common stock | $(2,670) | $(2,562) | Liquidity and Capital Resources The Company suspended dividends to conserve cash for leasing and tenant improvements. It faces cash trap events on three mortgages ($164.0 million principal) due to covenant breaches, restricting access to excess cash flow. The Company expects to fund future capital needs through cash on hand, ATM program, dispositions, and Advisor reinvestments - Dividends on Class A common stock were suspended effective Q2 2022 to generate additional working capital for future leasing and tenant improvement costs[245] - As of June 30, 2022, cash and cash equivalents were $8.1 million, and restricted cash was $12.4 million[246][247] - The Company is required to maintain minimum liquid assets of $10.0 million and a minimum net worth of $175.0 million[246] - Cash trap events are active on three mortgages (9 Times Square, 1140 Avenue of the Americas, 8713 Fifth Avenue), aggregating $164.0 million in principal, restricting access to excess cash flow[203][251][252] - The Advisor reinvested $2.5 million in base management fees in H1 2022, with an additional $0.5 million expected in July 2022[250] Mortgage Loans Six mortgage loans secured by seven properties totaled $399.5 million as of June 30, 2022 - Six mortgage loans secured by seven properties totaled $399.5 million as of June 30, 2022, with a 4.35% weighted-average effective interest rate[255] - All mortgage loans bear fixed interest rates, except one variable loan effectively converted to fixed via an interest rate swap[255] 9 Times Square Breached debt service coverage and debt yield covenants, resulting in a cash trap with $2.5 million restricted cash - Breached debt service coverage and debt yield covenants, resulting in a cash trap with $2.5 million restricted cash as of June 30, 2022[258] - A March 2022 waiver and amendment required a $5.5 million principal payment and revised covenant calculations, including a lower debt yield covenant (7.5%) and SOFR transition[259][260] - The Company expects to cure breaches by Q3 2022 to request exiting the cash trap[262] 1140 Avenue of the Americas Breached debt service coverage and reserve fund provisions for eight consecutive quarters, leading to $5.2 million in restricted cash - Breached debt service coverage and reserve fund provisions for eight consecutive quarters, leading to $5.2 million in restricted cash[264] - These breaches are not events of default and can persist through loan maturity without further penalty[264] 400 E. 67th Street - Laurel Condominium/200 Riverside Boulevard - Icon Garage Debt service coverage covenant breaches in 2021 were cured, ending the cash management period - Debt service coverage covenant breaches in 2021 were cured by satisfying the covenant for two consecutive quarters (Q4 2021 and Q1 2022), ending the cash management period[265][267] - $1.4 million previously in restricted cash was reclassified to cash and cash equivalents in Q1 2022[267] - New leases for the garage properties commenced in July 2022, expiring in June 2037[266] 8713 Fifth Avenue Breached debt service coverage ratio covenant for five consecutive quarters, triggering an excess cash flow sweep - Breached debt service coverage ratio covenant for five consecutive quarters, triggering an excess cash flow sweep[268] - The sweep can be avoided by funding a $125,000 additional collateral reserve quarterly[268] - Occupancy is expected to return to 100% in Q3 2022 with a new tenant[268] Other Information The Company focuses on increasing occupancy and rental income through new leasing activity and market tenant incentives - The Company is focused on increasing occupancy and rental income through new leasing activity and market tenant incentives[269][253] - Cash restricted by covenant breaches is not available for other corporate purposes, and there is no assurance these breaches will be cured[270] Common Stock ATM Program The Company has a Common Stock ATM Program for up to $250.0 million in Class A common stock - The Company has a Common Stock ATM Program for up to $250.0 million in Class A common stock[271] - No shares were sold under the program during the six months ended June 30, 2022[271] Repurchase Program The board authorized consideration of repurchases up to $100.0 million of Class A common stock - The board authorized consideration of repurchases up to $100.0 million of Class A common stock[272] - No repurchases have been authorized since the initial resolution[272] Tender Offer In January 2021, the Company purchased 26,236 shares of Class B common stock for approximately $0.2 million - In January 2021, the Company purchased 26,236 shares of Class B common stock for approximately $0.2 million through a tender offer[273] Leasing Activity/Occupancy Overall portfolio occupancy increased to 84.6% as of June 30, 2022, from 82.9% at December 31, 2021, driven by new leases at 9 Times Square and 123 William Street - Overall portfolio occupancy increased to **84.