In a recent earnings call, American Strategic Investment Company (ticker not provided) reported positive results for the first quarter of 2024, with growth in adjusted EBITDA and a 320 basis point increase in occupancy to 87.2%. The company also announced the marketing of several New York City properties for sale as part of a portfolio diversification strategy. This approach is intended to reduce leverage on the balance sheet and generate significant cash proceeds for reinvestment into higher-yielding assets.
Key Takeaways
- American Strategic Investment Company reported an increase in adjusted EBITDA and occupancy rates for Q1 2024.
- The company is marketing properties at 9 Times Square (NYSE:SQ), 123 William Street, and 196 Orchard Street for sale.
- Proceeds from potential sales aim to reduce leverage and fund diversification into higher-yielding assets.
- Portfolio management remains a focus, with over 40% of leases extending beyond 2030 and 80% of top tenants being investment grade or implied investment grade.
- Revenue remained flat at $15.5 million, while GAAP net loss improved year-over-year, from $11.8 million in Q1 2023 to $7.6 million in Q1 2024.
Company Outlook
- The company is in the process of diversifying the portfolio to position for future growth.
- Strategic disposition of select properties is expected to reduce leverage and generate cash.
- Focus on securing tenants in resilient industries and managing expenses to create shareholder value.
Bearish Highlights
- The company reported a GAAP net loss of $7.6 million for Q1 2024.
- Revenue was flat compared to the same quarter in the previous year.
Bullish Highlights
- Adjusted EBITDA and cash net operating income showed growth.
- A proactive asset management approach is believed to contribute to the marketability of the company's real estate portfolio.
Misses
- Despite improvements, the company still faces a GAAP net loss.
Q&A Highlights
- The company is open to investing outside of New York and is considering a variety of real estate and adjacent opportunities.
- Interest has been expressed in the properties being marketed, with a strong market for assets like 196 Orchard.
- The timing for selling the Brooklyn property is not currently favorable.
- Bellevue's tender offer for additional shares is seen as a sign of support for the company's long-term vision.
The earnings call reflects American Strategic Investment Company's efforts to manage its portfolio effectively and its strategic moves to position itself for future growth. The company's leadership remains focused on expense control and leasing success while preparing to diversify its asset base.
InvestingPro Insights
American Strategic Investment Company's recent earnings call highlighted its strategic initiatives and financial health, which are of keen interest to investors. To further understand the company's position, let's delve into some real-time data and InvestingPro Tips that could provide additional context:
InvestingPro Data:
- Market Cap (Adjusted): 20.38M USD
- Price / Book (as of Q4 2023): 0.09
- 1 Week Price Total Return (as of current date): 41.31%
These metrics suggest that while the company is small in market capitalization, its stock has experienced a significant return over the past week. The low Price / Book multiple could indicate that the company's stock is undervalued relative to its book value, which might be a point of interest for value investors.
InvestingPro Tips:
- The company operates with a significant debt burden and may have trouble making interest payments on its debt.
- Analysts do not anticipate the company will be profitable this year.
These InvestingPro Tips highlight some of the financial challenges American Strategic Investment Company may face, despite its strategic efforts to improve its financial standing by selling assets and reducing leverage. The company's high debt levels and the analysts' outlook on profitability are crucial factors for investors to consider.
For those interested in a deeper analysis, there are 17 additional InvestingPro Tips available for American Strategic Investment Company, which can be accessed at https://www.investing.com/pro/. To enrich your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - New York City REIT (NYC) Q1 2024:
Operator: Good morning, and welcome to the American Strategic Investment Company's First Quarter Earnings Call. [Operator Instructions] I'd now 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 first 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 first 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. Please also refer to our earnings release for more detailed information about what we can 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. This morning, we announced very positive results for the first quarter, including growth in adjusted EBITDA compared to the first quarter of 2023. We achieved this growth through a reduction in G&A and operating expenses, coupled with our ongoing leasing success. We also delivered a 320 basis point increase in occupancy, to 87.2%, compared to the same quarter in 2023. Additionally, as we previously announced, we have started the process of diversifying the portfolio to better position the company to grow in the future. As part of this broader monetization effort, we have started to market for sale our property at 9 Times Square, and will shortly begin the same process at 123 William Street and 196 Orchard Street. We believe that this approach will accelerate the evolution of our business. Prior to launching the marketing of 9 Times Square, we extended the maturity of our existing debt at that property to October 2024, with the opportunity to extend through year-end, in order to facilitate the sale of the property. If completed, we believe that the strategic disposition of this property, along with 123 William Street and 196 Orchard Street, will meaningfully reduce leverage on our balance sheet and generate significant cash proceeds. We intend to use proceeds from any disposition to diversify our portfolio into higher-yielding assets, a strategy we announced last year. We are excited to be moving forward on this initiative and look forward to the opportunities that lie ahead. While we look to the future, we are conscious that we must also maintain our focus on our current assets. As of March 31, 2024, our portfolio weighted average remaining lease term was 6.3 years, as over 40% of our leases extend beyond the year 2030 based on annualized straight-line rent, which we believe enhances the stability of the real estate we own. Of our top 10 tenants, 80% are investment grade or implied investment grade, showing the quality of our tenant roster. These tenants had a remaining lease term of 8.2 years, providing further stability to our portfolio. We believe our continued proactive asset management approach contributes to the marketability of our $726 million, 1.2 million square foot portfolio of New York City real estate. At the end of the first quarter, our portfolio consisted of seven office and retail assets, all located in New York City, primarily in Manhattan. Our New York City-centric portfolio features a number of large investment grade tenants. 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 desirable submarkets with close proximity to major transportation hubs. Our first quarter results once again demonstrated the effectiveness of our consistent focus on portfolio management. We believe our longstanding dedication to retaining existing tenants, working to make our properties attractive to new tenants, and managing our expenses have positioned us well to create value for shareholders as we look to sell some of our Manhattan properties, reduce leverage, and seek new higher-yielding investment opportunities. With that, I'll turn it over to Mike LeSanto to go over the first quarter results. Mike?
Mike LeSanto: Thank you, Michael. First quarter 2024 revenue was relatively flat as we produced $15.5 million in both the first quarter of 2024 and 2023. The company's GAAP net loss attributable to common stockholders was $7.6 million in the first quarter of 2024, compared to a net loss of $11.8 million in the first quarter of 2023, representing a year-over-year improvement of $4.2 million. For the first quarter of 2024, adjusted EBITDA was $2.9 million, compared to $2.5 million in 2023. Cash net operating income increased by $0.1 million, or 1%, to over $7 million, compared to nearly $7 million in the first quarter of 2023. The growth was achieved through a reduction in G&A and operating expenses, coupled with our ongoing leasing success. As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release and quarterly supplemental, and on our website. At quarter-end, we had a relatively conservative balance sheet on our net leverage of approximately 47%, a weighted average interest rate of 4.4%, and 3.4 years of weighted average debt maturity. Subsequent to quarter-end, we announced an amendment to the loan on our property at 9 Times Square. Among other provisions, the amendment extended the maturity date of the loan to October 31, 2024, with the option of an additional extension to January 31, 2025, in order to facilitate efforts to sell the property. 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. I'll now turn the call back to Michael for some closing remarks.
Michael Anderson: Thanks, Mike, and thank you all for joining us today. The occupancy and cash NOI growth that we accomplished this quarter can be attributed to our ongoing commitment to portfolio management as we begin the divestment process for certain of our assets in Manhattan. The reduction in leverage and significant cash proceeds that these sales are expected to generate, if sales are completed, are expected to fuel the diversification of our portfolio into new and higher-yielding assets. We believe that now is the right time to execute on this strategy, and look forward to keeping you updated on our successful execution of the strategy. Operator, please open the line for questions.
Operator: Thank you. Our first question comes from Bryan Maher.
Bryan Maher: Thank you. And good morning. Hopefully, you can hear me. I could barely hear the operator there.
Michael Anderson: Yes.
Bryan Maher: A couple of questions this morning. I know you talked about slightly use of proceeds. But I mean, okay, so you're going to pay down debt with some of these asset sales, and I suspect, redeploy some. Do you expect that the redeployed capital would stay in the Greater New York area or do you anticipate going out to other regions? And I know in the past, you've talked about other asset types. But can you give us a little more color on what you're thinking?
Michael Anderson: Sure. And nice to speak with you this morning, Bryan. We are certainly looking everywhere, and certainly not tied to the New York region. Our focus is on real estate and real estate adjacent assets, looking at opportunities outside of New York that include real estate acquisitions along with operating business acquisitions that we were not able to invest in under the prior REIT confines. And so I would say that the focus is probably outside of New York, but looking for the right opportunities with the right yield for this company.
Bryan Maher: Okay. And can you talk about why those three specific assets right now? I mean has the market opened up? Is there demand? Is it cap rates? I mean what is it, A, about right now, and B, about those three assets in particular?
Michael Anderson: Sure. We think that there are similar types of buyers for the asset at 9 Times Square as well as at 123 William Street. We have had some unsolicited interest in recent months on 9 Times Square and think that there will be similar interest at 123 William as we take the property to market. And then we do think that there is a strong market for assets like 196 Orchard, which are net lease, condo assets that we think there are a lot of buyers out there looking to deploy capital in that sort of investment.
Bryan Maher: And is there a cap rate range that you're comfortable sharing on any or all those?
Michael Anderson: I don't know that we're prepared to share a range at this point. But as we get closer to entering into deals, and certainly as we get further down the investment disposition process, I think we can share with you at that point.
Bryan Maher: Okay. And maybe shifting gears to 1140 Avenue of the Americas. I mean that's a nice property. I have toured that with your team. It's in a great location. What is the hang-up there kind of getting the occupancy back nicely up into the 80s?
Michael Anderson: I think we are seeing a lot of interest and foot traffic at that property. We have some larger floors and full floors that are available, but we have seen some increased leasing interest. Have a tenant that just recently took possession of a partial floor in that building. And so that property is certainly a high focus for us as we work on this leasing initiative. And I think we're still seeing some interest from financial institutions and financial services groups, which tend to be the right tenant base for that asset.
Bryan Maher: Okay. And just two more quick ones. Why not Brooklyn? I mean when I look at the portfolio, we've been covering the company for a couple of years, it's always seemed like kind of a fish out of water. Is there some reason for hanging on to that particular asset?
Michael Anderson: We don't think the time is right on Brooklyn at this point. We have leased that building up entirely and have done some renewal and re-leasing work there in recent years. And so we think that that certainly is a property that we will look to dispose of. It doesn't necessarily fit our go-forward business plan. But just not the right time for disposing in that market, we don't think.
Bryan Maher: Okay. And last for me, and I don't know if you're going to be able to answer it or not, but obviously, we all saw the Bellevue tender. I think it was earlier this week. A little bit of an elephant in the room, another big slug of shares coming out and lower liquidity in the stock. Can you share any thoughts on what's going on there? I mean it almost feels like an eventual take-private.
Michael Anderson: Yes. I think, to the extent that we can speak of it, we believe that it just is another indication of support from Bellevue in the company, and then particularly on the long-term vision for the company and the growth plan that we have outlined to the market. And so the Board will want to go its process to make its recommendations as it's required to, but we see it as a sign that there is continued support for the company and the direction the company is going.
Bryan Maher: Right. I mean, look, for sure, and as we've written, if you look at the book value of this company, and if you can get anywhere near what those assets are being traded for relative to book value, I mean -- or even some haircut to book value in a decent way, the stock is grossly undervalued. But it's just been a weird couple of quarters, couple of years. So anyway, thank you for taking my questions.
Michael Anderson: Absolutely. Thanks, Bryan.
Operator: And with that, I'll hand the floor over to management for closing remarks.
Michael Anderson: Thank you, operator, and thank you all for joining us. As we outlined earlier, we're excited about the direction of the company. We're very pleased with our expense control efforts that we've put into place, and starting to see the results of those. And we will look forward to continuing to share updates as we make progress to our revised business plan that we've outlined today. Thanks.
Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.
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