American Strategic Investment Co. (NYC) Q4 2023 Earnings Report, Transcript and Summary

Good morning and welcome to the American Strategic Investment Company's Fourth Quarter and Year-End 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the conference over to Curtis Parker, Senior Vice President. Please go ahead.

Thank you, Operator. Good morning, everyone and thank you for joining us for ASIC's fourth quarter and year-end earnings call. This event is also being webcast in the Investor Relations section of our website. Joining me today on the call to discuss the quarter's results are Michael Anderson, American Strategic Investment Company's Chief Executive officer and Joe Marnikovic, the Chief Financial Officer. The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. Please review the forward-looking and cautionary statements section at the end of our fourth quarter 2023 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. We refer all of you to our SEC filings, including the Form 10-K filed for the year ended December 31, 2023, filed on April 1st, 2024 for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. As stated in our SEC filings, the ASIC disclaims any intent or obligation to update or revise these forward-looking statements, except as required to do so by law. Please note that all fourth quarter 2023 financial information is unaudited. Also, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial and operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release, which is posted on our website. Please also refer to our earnings release for more detailed information about what we consider to be implied investment-grade tenants, a term we will use throughout today's call. I will now turn the call over to Michael Anderson, Chief Executive Officer. Please go ahead, Michael.

Thanks, Curtis. Good morning and thank you for joining us. Today we will discuss our results for the fourth quarter and full year 2023. Two of the most important initiatives for ASIC in 2023 were leasing and controlling costs. Through the end of the fourth quarter, we completed 15 new leases, which contributed to a 400 basis point growth in occupancy within our real estate portfolio to 86.7% from 82.7% at the end of 2022. As part of our expense reduction efforts, early in the fourth quarter we sold the Hit Factory, a small unoccupied asset for which we had been exploring strategic options. The sale generated $4.2 million in cash proceeds and eliminated annual carrying costs of approximately $300,000. Our existing portfolio consists of seven real estate assets throughout New York City, primarily in Manhattan. At year-end, our $725.1 million, 1.2 million square foot portfolio [Technical Difficulty] weighted average remaining lease term of 6.5 years. Our New York City centric portfolio features a mix of large investment grade tenants of whom the top 10 tenants are 79% investment grade or implied investment grade based on straight line rent with a weighted average remaining lease term of 8.6 years. Investment grade tenants in our portfolio include Weill Cornell Medical, CVS, and government agencies. We continue to focus our leasing efforts on securing tenants in resilient industries such as well-capitalized financial service companies and medical institutions. Our core office properties are located in submarkets with close proximity to major transportation hubs. One such submarket in particular, Midtown South, remains a desirable area for office leasing, which we believe will enable us to build on the positive momentum we have produced at 200 West 41st Street and 1140 Avenue of the Americas. These two properties saw us increase occupancy by 900 basis points and 600 basis points respectively since the fourth quarter of 2022. Our strong leasing results are led by our asset management team, who has worked closely with existing tenants and the brokerage community to sign new and renewal leases, including tenant expansions. In 2023, we completed 15 new leases totaling over 100,000 square feet and $4.6 million of straight line rent, including five in the fourth quarter that totaled almost 48,000 square feet and $1.6 million of straight line rent. As we look ahead, the commencement of leases currently in our pipeline would further increase portfolio occupancy to 87.9%. We remain committed to strengthening our existing portfolio of real estate assets as we explore additional income-generating investments. In recent years, we have taken advantage of opportunities to invest in the long-term future of our portfolio and will continue to pursue transactions that we believe will be accretive to shareholders. With that I'll turn it over to Joe Marnikovic to go over the fourth quarter and full year 2023 results. Joe?

Thanks, Michael. Revenue was $62.7 million for the year ended December 31st, 2023, compared to $64 million in 2022. Revenue for the fourth quarter 2023 was $15.4 million, compared to $16.2 million in the fourth quarter of 2022. The company's full-year gap net loss attributable to common stockholders was $105.9 million compared to a net loss of $45.9 million in 2022. Net loss for the quarter was $73.9 million compared to $10.1 million for the fourth quarter 2022. Net loss for the quarter was primarily impacted by a $66.1 million non-cash impairment on one of the company's office properties in Midtown, Manhattan. This non-cash impairment resulted from the ongoing pressures being experienced by the industry as it relates to office leasing and specifically to a reduction in the fair value of this investment due to, among other factors, a reduced anticipated hold period for the property. Excluding the non-cash impairments, the net loss for 2023 would have been approximately $39.4 million or a $6.5 million improvement over 2022. Adjusted EBITDA for 2023 was $11.9 million and was $3.4 million for the fourth quarter. Cash NOI for the full year was $27.3 million and was $6.3 million in the fourth quarter. For the fourth quarter of 2023, our FFO attributable to common stockholders was negative $1.5 million compared to negative $2.4 million last year. Core FFO was negative $1.2 million in the fourth quarter or negative $0.52 per share compared to negative $0.2 million or negative $0.11 per share in the fourth quarter of 2022. As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release, supplemental and Form 10-K. NYC maintains a relatively conservative balance sheet with 100% fixed rate debt and improving net leverage of 47%. We ended the fourth quarter with net debt of $394.2 million at a weighted average effective interest rate of 4.4% and a weighted average remaining debt term of 3.2 years. As we have previously discussed, all of our debt is fixed rate or swapped to fixed rate after we locked in interest rates while they were broadly at historic lows. With that, I'll turn the call back to Michael for some closing remarks.

Great. Thank you, Joe. Before we conclude, I want to thank you on behalf of the entire team for your many contributions as our CFO. We wish you well in your retirement. At the same time, we welcome Michael LeSanto as our new CFO. Mike joined us in 2020, as Senior Portfolio Controller, then served as the company's Chief Accounting Officer from 2021 through 2024. Mike and I are looking forward to the year ahead and to building on the solid foundation of our portfolio. Let me end by reiterating a few of our accomplishments from last year. We expanded our investment strategy and change in the name of the company at the beginning of the year. And followed that with the rights offering to shareholders. Leasing activity throughout the year culminated in occupancy growth of 4% year-over-year. Our current leasing pipeline is expected to increase occupancy to 87.9% and would add approximately $800,000 of additional straight-line rent. We believe we are positioned well to build on our progress in 2024, which we look forward to sharing with you. Thank you for joining us today. And operator please open the line for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Bryan Maher of B. Riley Securities. Your line is open.

Thank you and good afternoon Michael and Joseph. Not too many questions today. I mean it was helpful getting the 10-K, 20 hours before the earnings call. So a lot of questions already answered in that. But I do have a question regarding specifically 1140 and the impairment that you took there. And tell me if I was reading this right in the 10-K, is the new value on the property, something like 69 million and the debt's 99 million? And if that's the case, I mean, how do you solve for X there without ultimately handing back that property or trying to sell it for above the value? It seems like it's going to be hard to get new debt on that.

Thanks, Bryan, and good to speak with you this afternoon. That is correct as it relates to the new impaired value, the focus on that property is certainly on leasing. We do still have available space in the building. We've seen in the last four or five month, an increase in both leasing activity and foot traffic through the building, as well as leasing rates on deals that we've been executing on as well as term sheet. So the focus as we think about a refinance about 2.5 years out is going to be on continued leasing efforts there at higher market rates that we're seeing now and expect those rates to continue. And certainly, we'll work with the tenants to expand their footprint, stay in the building and also work with both the existing lender as well as the lending community at large to find the right refi opportunity for that property.

Okay. And can you give us a little bit more color or maybe for Chris, I don't know on what's going on with 9 Times Square. How is that property continuing to lease up? What's the pipeline there? It's well situated relative to traffic in the city. Can you just give us a little more color on how we should think about 9 Times Square this year?

Sure. And I'll let Chris chime in as well. But I think our similar to 1140, both buildings are relatively close to each other, 9 Times Square, obviously, has become a very attractive submarket, as it relates to various transportation options. It's kind of equidistant from Grand Central Penn Station. It's right down the block from Port Authority. And so as we've seen people move out of the city, but beginning to return to work with more frequency. We do believe that, that market is very desirable, and we're starting to see leasing rates increase there, as we have at 1140 and saw a 2% increase in occupancy at that building over the third quarter. And I think similar to 1140, I would say that both 9 Times Square and 1140 are where we see a lot of increased interest and pricing elasticity from the landlord type things.

Okay. And maybe last for me. I mean it's a tough stock to cover, right? I mean if you look at the balance sheet and the equity, which is nearly $100 a share, trading at $7, clearly, there is some embedded value in some of these assets in the portfolio that can really drive the company in the stock in the future. Can you kind of highlight for us which assets you see having the most embedded value and maybe the ability to garner some capital from to deploy into acquisitions over the next couple of years?

Sure. I think certainly, the flagship asset would be 123 William Street, sitting around 91%, 92% occupancy. We think that, that asset has significant equity value in it. It's one of the larger assets that we own and really strong tenant base with New York City and New York State governmental agencies as well as some very large, well-capitalized nonprofits. So we do think there are opportunities on that asset. Similarly, we've got the retail condos at -- on Orchard that fully occupied net leases with three strong tenants there. We think that there is also significant equity in those deals and those assets. And as we've looked to and are working through a refi at 9 Times Square. So the appraisals are also confirming for us that 9 Times Square does have meaningful equity in it above and beyond the level of debt at $49.5 million. So I think those three are probably the three largest and strongest assets that could prove to provide proceeds to the company for reinvestment opportunities, should we decide to take any of them to market in the coming years.

Okay, that's helpful. Thank you.

Thanks, Bryan.

There are no further questions at this time. I will now turn the call over to Michael Anderson for some closing remarks.

Thank you, operator, and thank you all for joining us. We're excited about the year that we have ahead of us, as we continue to focus on leasing efforts in our office portfolio as well as meaningful expense reduction initiatives. And I'd like to once again thank Joe for his service as our CFO and wish him the best in his retirement and excited to have Michael LeSanto by my side as the new CFO for the year to come. So thank you all.

This concludes today's conference call. You may now disconnect.