American Strategic Investment Company reported its third-quarter earnings for 2024, noting an increase in cash net operating income (NOI) and occupancy rates, alongside plans to sell key properties to reduce leverage and diversify its portfolio. The company announced a definitive agreement to sell its property at 9 Times Square for $63.5 million, expected to close in the fourth quarter of 2024, with proceeds aimed at investing in higher-yielding assets. Despite a reported GAAP net loss due to noncash impairments, the management remains focused on long-term value creation through strategic portfolio management and asset divestiture.
Key Takeaways
- American Strategic Investment Company achieved a 70 basis point expansion in occupancy to 85.8% compared to the same quarter in 2023.
- The company entered into an agreement to sell 9 Times Square for $63.5 million, with expected net proceeds of approximately $13.5 million.
- A noncash impairment of $1.9 million was recorded for 9 Times Square in the third quarter.
- The company is actively marketing properties at 123 William Street and 196 Orchard for sale.
- Third-quarter 2024 revenue was $15.4 million, down from $16 million in the third quarter of 2023.
- GAAP net loss attributable to common stockholders was $34.5 million in the third quarter of 2024.
- Adjusted EBITDA for the quarter was $3.1 million, and cash NOI grew to $6.8 million.
- The portfolio's weighted average remaining lease term is 5.9 years, with 45% of leases extending beyond 2030.
Company Outlook
- The company is in the process of divesting certain Manhattan assets to reduce leverage and invest in higher-yielding opportunities.
- Proceeds from the sale of assets will be used to diversify the portfolio, with a focus on properties outside of New York City.
- Management expressed confidence in the company's proactive asset management strategy and its ability to unlock additional value for shareholders.
Bearish Highlights
- The company reported a significant GAAP net loss due to noncash impairments.
- Revenue for the third quarter of 2024 saw a decrease compared to the previous year.
Bullish Highlights
- There is a strong tenant base with top 10 tenants being 81% investment grade or implied investment grade, providing portfolio stability.
- Positive net absorption in the New York City office market and strong interest from potential lessees for available space in the company's portfolio.
Misses
- The reported revenue and adjusted EBITDA for the third quarter of 2024 were lower than the same quarter in the previous year.
Q&A Highlights
- The company has engaged brokers for the sale of properties at 123 William Street and 196 Orchard, attracting different types of buyers.
- There is optimism about interest rate movements aiding the sale of 196 Orchard and leasing activities at 123 William Street.
- American Strategic Investment is exploring opportunities in core iconic real estate outside New York City, particularly in the New England area with a mix of hospitality and operating businesses.
- The company noted improvements in leasing trends in New York City, driven by a return to office mandates, with subtenants converting to direct leases and new tenants entering the market.
American Strategic Investment Company (ticker not provided) is navigating a strategic shift in its portfolio amidst a challenging financial period. The company's management remains focused on long-term growth and value creation through targeted asset sales and reinvestment in diverse and higher-yielding opportunities.
InvestingPro Insights
American Strategic Investment Company's recent earnings report and strategic moves can be further contextualized with insights from InvestingPro. The company's financial position reflects some of the challenges highlighted in the earnings report, particularly regarding its debt and profitability.
According to InvestingPro data, the company has a market capitalization of $23.04 million USD, which is relatively small and may explain its focus on strategic asset sales to improve its financial position. The Price to Book ratio of 0.18 suggests that the stock is trading below its book value, which aligns with the InvestingPro Tip indicating that the company is "Trading at a low Price / Book multiple." This could potentially signal an undervaluation, but it may also reflect investor concerns about the company's future prospects.
Two critical InvestingPro Tips shed light on the company's financial health:
1. "Operates with a significant debt burden"
2. "May have trouble making interest payments on debt"
These tips are particularly relevant given the company's announced plans to sell key properties to reduce leverage. The sale of 9 Times Square and the potential divestiture of other assets are likely strategies to address these debt-related concerns.
Additionally, the InvestingPro Tip stating that the company is "Quickly burning through cash" underscores the importance of the company's efforts to generate proceeds from asset sales and improve its cash position.
It's worth noting that InvestingPro offers 12 additional tips for this company, providing a more comprehensive analysis for investors seeking deeper insights into American Strategic Investment Company's financial situation and market performance.
The company's strategic pivot, including its focus on divesting Manhattan assets and exploring opportunities outside New York City, appears to be a response to these financial pressures and an attempt to improve its overall financial health and portfolio diversification.
Full transcript - American Strategic Investment Co (NYC) Q3 2024:
Operator: Good morning, and welcome to the American Strategic Investment Company Third Quarter Earnings Call. My name is Karen, and I'll be your operator today. [Operator Instructions] Thank you. I'd like to turn the conference over to Curtis Parker, Senior Vice President. Please go ahead.
Curtis Parker: Thank you. Good morning, everyone, and thank you for joining us for our third quarter 2024 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 Mike LeSanto, 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 the third quarter 2024 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 1, 2024, and all subsequent SEC filings for a more detailed discussion of the risk factors that could cause these differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. As stated in our SEC filings, the company disclaims any intent or obligation to update or revise these forward-looking statements, except as required by law. Also, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release, which is posted on our website at www.americanstrategicinvestment.com. We 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.
Michael Anderson: Thanks, Curtis. Good morning, and thank you all for joining us. Our positive results for the third quarter included additional incremental cash NOI growth compared to the third quarter of 2023. We achieved this growth through ongoing leasing success and occupancy gains. Specifically, we delivered a 70 basis point expansion in occupancy to 85.8% compared to the same quarter in 2023. Beyond the strong operating execution, as previously announced, we've entered into a definitive agreement to sell our property at 9 Times Square for $63.5 million, which is expected to close in the fourth quarter of '24. The sale of this property would reduce leverage on our balance sheet and generate net proceeds of approximately $13.5 million, strengthening our cash position. We incurred a noncash impairment of $1.9 million for this property in this quarter's results. Importantly, and as we previously shared, we successfully extended our debt on this asset through year-end as we work to close this transaction. To further strengthen our balance sheet, we are actively marketing 123 William Street and 196 Orchard for sale. We believe these properties are well positioned to generate significant returns. Proceeds from any sale will be used to diversify our portfolio into higher-yielding assets as discussed last year. We are excited about this initiative and its potential to increase long-term value. While we are committed to creating long-term value in our portfolio, our focus remains on our current assets. Our portfolio's weighted average remaining lease term is 5.9 years as of September 30, 2024, with 45% of our leases extending beyond 2030 based on annualized straight-line rent. We believe that this, coupled with a high-quality tenant base featuring top 10 tenants who are 81% investment grade or implied investment grade provides significant portfolio stability. We believe our proactive asset management strategy has enhanced our $490 million, 1.2 million square foot New York City real estate portfolio. Located primarily in Manhattan, our 7 office and retail properties benefit from a strong tenant base, including several large investment-grade firms. By focusing on resilient industries and transit-oriented locations, we believe we've positioned ourselves for long-term success. We are further encouraged by third quarter data showing positive net absorption in the New York City office market, reversing a long-running trend and halting vacancy rates. In our own portfolio, we continue to see strong interest from potential lessees for our remaining available space. Our third quarter results highlight the effectiveness of our consistent portfolio management approach. By prioritizing tenant retention, property enhancements and cost control, we believe we've built a solid foundation for maximizing shareholder value. As we divest certain Manhattan assets to reduce leverage and pursue higher yielding opportunities, we are confident in our ability to deliver on this strategy and unlock additional value. With that, I'll turn it over to Mike LeSanto to go over the third quarter results. Mike?
Mike LeSanto: Thank you, Michael. Third quarter 2024 revenue was $15.4 million compared to $16 million in the third quarter of 2023. The company's GAAP net loss attributable to common stockholders was $34.5 million in the third quarter of 2024 compared to a net loss of $9.4 million in the third quarter of 2023 due primarily to noncash impairments, one of which Michael discussed earlier. For the third quarter of 2024, adjusted EBITDA was $3.1 million compared to $3.4 million in the third quarter of 2023. Cash net operating income grew by $0.3 million to $6.8 million from $6.5 million in the third quarter of 2023. The growth was achieved through ongoing leasing success along with the reduction in G&A and operating expenses. As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release and quarterly supplemental on our website. At quarter end, our balance sheet included net leverage of approximately 60%, a weighted average interest rate of 4.9% and 2.5 years of weighted average debt maturity. I'll now turn the call back to Michael for some closing remarks.
Michael Anderson: Thank you, Mike, and thank you all for joining us today. Our strong quarterly performance driven by increased occupancy and growing cash NOI is a direct result of our strategic portfolio management. As we begin divesting certain Manhattan assets, we anticipate generating significant cash proceeds and reducing our leverage. These funds will be crucial in expanding our portfolio into new higher-yielding opportunities. We believe this is a strategic move to enhance shareholder value and are committed to keeping you updated on our progress. Operator, please open the line for questions.
Operator: [Operator Instructions] Our first question comes from the line of Bryan Maher from B. Riley Securities.
Bryan Maher: On the properties that you're marketing for sale, can you tell me kind of how you're going about doing that? Do your brokers engaged? What type of buyers are looking at these properties? And how would you gauge the level of interest in 123 and Orchard?
Michael Anderson: Sure. Thanks, Bryan. We do have brokers engaged on both of those properties. We're seeing different types of buyers on those 2 properties. 196 is attracting interest from more family office type investors to fully occupied retail condo whereas 123 is attracting more institutional interest. We are seeing some traction. We think interest rates will help, particularly with 196 Orchard. And we've got some interest in leasing that we're optimistic will be executed in the coming months on 123 that we think will drive value there and remain confident that we'll transact on both those assets.
Bryan Maher: Okay. And to date, you have been a little coy on how you plan to redeploy those dollars? Are you in a position to give us any more color on where those proceeds might be reinvested?
Michael Anderson: Yes, we're still beginning, I would say, to look at opportunities, given that we've got the transaction on 9 Time Square closing in this quarter, but we see a lot of interesting opportunity in core iconic real estate outside of the New York City market really looking in kind of New England area with kind of hospitality, operating business mix where we would control the real estate and also the operations of the businesses and think that we can drive value there. Given that we've let go of the REIT status, it gives us some more flexibility in how we own and operate those assets in the underlying operations of the businesses, whereas we were hamstrung by REIT restrictions and what we could do with the operations of those sorts of assets previously.
Bryan Maher: Okay. And then just last, I mean, I think you touched upon improvements in leasing trends in New York City. Can you give us a little more detail there. What are the types of tenants? What's their motivation? Is it return to office? Is it something else? Anything would be helpful.
Michael Anderson: Sure. Yes, we're certainly seeing return to office being the norm. I think put graphic in the markets where we own office properties has increased markedly year-over-year. I think we're also seeing a lot of groups that may have taken smaller space on a shorter-term basis during COVID given opportunistic leasing and work from home that are now returning to office with a full workforce. And so they're looking to expand their footprint. So we're seeing a lot of subtenants looking to convert into direct leases and a lot of new tenants looking into the markets that we're operating and owning assets in. And it's largely driven by that return to office mandate.
Operator: I do not see any further questions in the queue. I'm going to turn the call back over to Curtis for closing remarks.
Curtis Parker: Thanks, operator. I'd like to take this. Thank you all for joining us this morning. We're excited about the quarter and excited about the closing of 9 Time Square this quarter and look forward to sharing updates as we consummate that transaction and begin to deploy those proceeds elsewhere and more on sharing those updates.
Operator: Thank you all for joining. This concludes today's call. You may now disconnect.
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