American Strategic Investment Q3 2024 Earnings Call Transcript

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November 12, 2024

There are 5 speakers on the call.

Operator

Good morning, and welcome to the American Strategic Investment Company's 3rd Quarter Earnings Call. My name is Karen, and I'll be your operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you.

Operator

I'd like to turn the conference over to Curtis Parker, Senior Vice President. Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining us for our Q3 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 Lothanto, 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.

Speaker 1

Please review the forward looking and cautionary statements section at the end of the Q3 2024 earnings release for various factors that could cause actual results to differ materially from forward looking statements made during our call today. Should 1 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 ks 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, company disclaims any intent or obligation to update or revise these forward looking statements except as required by law.

Speaker 1

Also during today's call, we will discuss non GAAP financial measures, which we believe will 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.americanstrategicinvestments.com. Please also refer to our earnings release for more detailed information about what we consider to be implied investment grade tenants that are currently used throughout today's call. I will now turn the call over to Michael Anderson, Chief Executive Officer.

Speaker 1

Please go ahead, Michael.

Speaker 2

Thanks, Curtis. Good morning and thank you all for joining us. Our positive results for the Q3 included additional incremental cash NOI growth compared to the Q3 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.

Speaker 2

Beyond the strong operating execution, as previously announced, we've entered into a definitive agreement to sell our property at 9 Times Square for $63,500,000 which is expected to close in the Q4 of 2024. To sale this property would reduce leverage on our balance sheet and generate net proceeds of approximately $13,500,000 strengthening our cash position. We incurred a non cash impairment of $1,900,000 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.

Speaker 2

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 was 5.9 years as of September 30, 2024, with 45% of our leases extending beyond 2,030 based on annualized straight line rent.

Speaker 2

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 $490,000,000 1,200,000 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 Q3 data showing positive net absorption in the New York City office market, reversing the long running trend and halting vacancy rates.

Speaker 2

In our own portfolio, we continue to see strong interest from potential lessees for our remaining available space. Our Q3 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 Lufanto to go over the Q3 results.

Speaker 2

Mike?

Speaker 3

Thank you, Michael. 3rd quarter 2024 revenue was $15,400,000 compared to $16,000,000 in the Q3 of 2023. The company's GAAP net loss attributable to common stockholders was $34,500,000 in the Q3 of 2024 compared to a net loss of $9,400,000 in the Q3 of 2023 due primarily to non cash impairments, one of which Michael discussed earlier. For the Q3 of 2024, adjusted EBITDA was $3,100,000 compared to $3,400,000 in the Q3 of 2023. Cash net operating income grew by $300,000 to $6,800,000 from $6,500,000 in the Q3 of 2023.

Speaker 3

The growth was achieved through ongoing leasing success along with the reduction in G and 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 percent and 2.5 years of weighted average debt maturity. I'll now turn the call back to Michael for some closing remarks.

Speaker 2

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.

Speaker 2

Operator, please open the lines for questions.

Operator

Our first question comes from the line of Brian Maher from B. Riley Securities. Your line is open.

Speaker 2

Hi, Brian.

Speaker 4

Good morning. On the properties that you're marketing for sale, can you tell me kind of how you're going about doing that? Do you have brokers engaged? What type of buyers are looking at these properties? And how would you gauge the level of interest in 123 and Orchard?

Speaker 2

Sure. Thanks, Brian. I speak with you this morning. We do have brokers engaged on both of those properties. We're seeing different types of buyers on those two properties.

Speaker 2

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 interesting 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.

Speaker 4

Okay. And to date, you've been a little coy on how you plan to redeploy those dollars.

Speaker 1

Are you

Speaker 4

in a position to give us any more color on where those proceeds might be reinvested?

Speaker 2

Yes. We're still beginning, I would say, to look at opportunities given that we've got the transaction on 9 Times Square closing in this quarter. But we see a lot of interesting opportunities in 4 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 we own and operate those assets and 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.

Speaker 4

Okay. And then just lastly, 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?

Speaker 4

Is it return to office? Is it something else? Anything would be helpful. Thanks.

Speaker 2

Sure. Yes, we're certainly seeing return to office being the norm. I think foot traffic 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 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.

Speaker 2

So we're seeing a lot of sub tenants 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.

Speaker 1

Okay. Thank you. That's all for me. Thanks, Ryan.

Operator

We do not I do not see any further questions in the queue. I'm going to turn the call back over to Curtis for closing remarks.

Speaker 2

Thanks, operator. I'll actually take this. Thank you all for joining us this morning. We're excited about the quarter and excited about the closing of 9 Times Square this quarter and look forward to sharing updates as we consummate that transaction and begin to deploy those proceeds elsewhere and forward to sharing those updates.

Operator

Thank you all for joining. This concludes today's call. You may now disconnect.

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Key Takeaways

  • Occupancy and Cash NOI Growth: Q3 occupancy rose 70 basis points to 85.8% year-over-year, driving cash NOI up by $300,000 to $6.8 million through robust leasing and expense control.
  • Asset Sales to Delever and Fund Growth: Entered agreement to sell 9 Times Square for $63.5 million (closing Q4 2024) with net proceeds of ~$13.5 million and is marketing 123 William Street and 196 Orchard for further deleveraging and reinvestment.
  • Strategic Reinvestment Initiative: Proceeds will be deployed into higher-yielding opportunities—potentially hospitality and operating businesses in markets like New England—leveraging greater operational flexibility outside REIT constraints.
  • Portfolio Strength and Market Momentum: The portfolio has a 5.9-year weighted average remaining lease term, with 81% of top tenants investment grade or implied investment grade, and benefits from positive net absorption and return-to-office trends in the NYC office market.
  • Q3 Financial Highlights: Revenue was $15.4 million, GAAP net loss of $34.5 million (driven by non-cash impairments), adjusted EBITDA of $3.1 million, net leverage ~60%, weighted average interest rate of 4.9% and 2.5 years average debt maturity.
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Earnings Conference Call
American Strategic Investment Q3 2024
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