American Strategic Investment Q4 2023 Earnings Call Transcript

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April 2, 2024

There are 5 speakers on the call.

Operator

Good morning, and welcome to the American Strategic Investment Company's 4th Quarter and Year End 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer I will now turn the conference over to Curtis Parker, Senior Vice President. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining us for ASIC's 4th quarter 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 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 our Q4 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 ks filed for the year ended December 31, 2023, filed on April 1, 2024, for a more detailed discussion of the risk factors that could cause these differences. Any forward looking statements provided during this call are only made as of the date of this call. As stated in our SEC filings, ASIC disclaims any intent or obligation to update or revise these forward looking statements, except as required to do so by law.

Speaker 1

Please note that all Q4 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.

Speaker 1

I will now turn the call over to Michael Anderson, Chief Executive Officer. Please go ahead, Michael.

Speaker 2

Thanks, Curtis. Good morning and thank you for joining us. Today, we will discuss our results for the Q4 and full year 2023. 2 of the most important initiatives for ASIC in 2023 were leasing and controlling costs. Through the end of the 4th 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.

Speaker 2

As part of our expense reduction efforts, early in the Q4, we sold the Hit Factory, a small unoccupied asset for which we had been exploring strategic options. The sale generated $4,200,000 in cash proceeds and eliminated annual carrying costs of approximately $300,000 Our existing portfolio consists of 7 real estate assets throughout New York City, primarily in Manhattan. At year end, our $725,100,000 1,200,000 Square Foot and a 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.

Speaker 2

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. 1 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 Q4 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.

Speaker 2

In 2023, we completed 15 new leases totaling over 100,000 square feet and $4,600,000 of straight line rent, including 5 in the 4th quarter that totaled almost 48,000 square feet and $1,600,000 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 Martikova to go over the Q4 and full year 2023 results.

Speaker 2

Joe?

Speaker 3

Thanks, Michael. Revenue was $62,700,000 for the year ended December 31, 2023, compared to $64,000,000 in 20.22. Revenue for the Q4 2023 was $15,400,000 compared to $16,200,000 in the Q4 of 2022. The company's full year GAAP net loss attributable to common stockholders was $105,900,000 compared to a net loss of 45 $900,000 in 2022. Net loss for the quarter was $73,900,000 compared to $10,100,000 for the Q4 2022.

Speaker 3

Net loss for the quarter was primarily impacted by a $66,100,000 non cash impairment on one of the company's office properties in Midtown Manhattan. This noncash 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 20.20 3 would have been approximately $39,400,000 or a $6,500,000 improvement over 2022. Adjusted EBITDA for 2023 was $11,900,000 and was $3,400,000 for the 4th quarter. Cash NOI for the full year was $27,300,000 and was $6,300,000 in the 4th quarter.

Speaker 3

For the Q4 of 2023, our FFO attributable to common stockholders was negative $1,500,000 compared to negative $2,400,000 last year. Core FFO was negative $1,200,000 in the 4th quarter or negative $0.52 per share compared to negative $200,000 or negative $0.11 per share in the Q4 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 ks. NYC maintains a relatively conservative balance sheet with 100 percent fixed rate debt and prudent net leverage of 47%. We ended the 4th quarter with net debt of $394,200,000 at a weighted average effective interest rate of 4.4% and a weighted average remaining debt term of 3.2 years.

Speaker 3

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.

Speaker 2

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 Losanto as our new CFO. Mike joined us in 2020 as Senior Portfolio Controller, and served as the company's Chief Accounting Officer from 2021 through 2024.

Speaker 2

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 changed 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.

Speaker 2

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

Operator

you. Your first question comes from the line of Brian Maynard of B. Riley Securities. Your line is

Speaker 4

open. Thank you and good afternoon, Michael and Joseph. Not too many questions today. I mean it was helpful getting the 10 ks 20 hours before the earnings call. So a lot of questions already answered in that.

Speaker 4

That. But I do have a question regarding specifically $11.40 and the impairment that you took there. And tell me if I was reading this right in the 10 ks. Is the new value on the property something like $69,000,000 and the debt $99,000,000 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.

Speaker 2

Thanks, Brian, 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 4 or 5 months 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 sheets.

Speaker 2

So the focus as we think about a refinance about 2.5 years out is going to be 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 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.

Speaker 4

Okay. And can you give us a little bit more color maybe Chris, I don't know, on what's going on with 9 Times Square? How's that property continuing to lease up? What's the pipeline there? It's well situated relative to traffic in the city.

Speaker 4

Can you just give us a little more color on how we should think about 9 Times Square this year?

Speaker 2

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. Nine 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.

Speaker 2

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 11:40 and saw a 2% increase in occupancy at that building over the Q3. And I think similar to 11:40, I would say that both 9 Times Square and 11:40 are where we see a lot of increased interest and pricing elasticity from the landlord side of things.

Speaker 4

Okay. And maybe last for me. I mean, it's a tough stock to cover, right? I mean, we look at the balance sheet and the equity, which is nearly $100 a share trading at 7 dollars Clearly, there's some embedded value in some of these assets in the portfolio that can really drive the company and 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

Speaker 2

asset would be 123 William Street sitting in 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 non profit. So we do think there are opportunities on that asset. Similarly, we've got the retail condos that on Orchard that fully occupied net leases with 3 strong tenants there.

Speaker 2

We think that there is also significant equity in those deals and in those assets. And as we look to and are working through a refi at 9 Times Square, Those appraisals are also confirming for us that 9 Times Square does have meaningful equity in it above and beyond the level of debt at $49,500,000 So, I think those 3 are probably the 3 largest and strongest assets that could prove to provide proceeds to company for reinvestment opportunities should we decide to take any of them to market in the coming years.

Speaker 4

Okay, that's helpful. Thank you.

Speaker 2

Thanks, Brian.

Operator

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

Speaker 2

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 Mike Lisanto by my side as the new CFO for the year to come. So thank you all.

Operator

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

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Key Takeaways

  • Through Q4, ASIC completed 15 new leases, boosting portfolio occupancy by 400 basis points to 86.7%, with a pipeline that could raise it to 87.9%.
  • The sale of the Hit Factory generated $4.2 million in cash and cut annual carrying costs by about $300,000 as part of expense reduction efforts.
  • 2023 revenue was $62.7 million with a GAAP net loss of $105.9 million, largely driven by a $66.1 million non-cash impairment, while adjusted EBITDA reached $11.9 million.
  • ASIC’s portfolio of seven NYC office assets totals 1.2 million square feet, features a weighted average lease term of 6.5 years and 79% of straight-line rent from (implied) investment-grade tenants.
  • The balance sheet remains conservative with 100% fixed-rate debt, net leverage at 47% and $394.2 million of net debt at a 4.4% average interest rate, supporting planned refinancings and accretive investments.
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Earnings Conference Call
American Strategic Investment Q4 2023
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