American Strategic Investment Co. (NYSE:NYC) is an externally managed company that owns a portfolio of commercial real estate located within the five boroughs of New York City, primarily Manhattan. As of March 31, 2024, the company owned seven properties consisting of 1.2 million rentable square feet, acquired for an aggregate purchase price of $783.5 million with an overall occupancy of 87.2%.

Business Overview

On December 30, 2022, the company announced that it was changing its business strategy by expanding the scope of the assets and businesses it may own and operate. By investing in other asset types, the company may generate income that does not otherwise constitute income that qualifies for purposes of qualifying as a real estate investment trust (REIT). As a result, on January 9, 2023, the company's board of directors authorized the termination of the company's REIT election which became effective as of January 1, 2023.

Financials

For the full year ended December 31, 2023, the company reported annual net income of -$105,924,000, annual revenue of $62,710,000, annual operating cash flow of -$7,405,000, and annual free cash flow of -$11,464,000. In the first quarter of 2024, the company reported revenue of $15,481,000, a net loss of $7,608,000, and adjusted EBITDA of $2,928,000.

Portfolio Performance

The company's portfolio is primarily comprised of office and retail tenants. As of March 31, 2024, the company's portfolio had an overall occupancy of 87.2%, up from 84.0% as of March 31, 2023. This improvement can be attributed to new leases signed during the year ended December 31, 2023, particularly at the company's 9 Times Square and 1140 Avenue of the Americas properties.

First Quarter 2024 Results

The company's results for the first quarter of 2024 demonstrated the effectiveness of its consistent focus on portfolio management. Revenue from tenants remained flat at $15.5 million for the three months ended March 31, 2024 and 2023. The company's net loss attributable to common stockholders improved to $7.6 million in the first quarter of 2024 from $11.8 million in the first quarter of 2023, representing a year-over-year improvement of $4.2 million. This was driven by a reduction in G&A and operating expenses, coupled with the company's ongoing leasing success.

Adjusted EBITDA for the first quarter of 2024 was $2.9 million, compared to $2.5 million in the first quarter of 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.

Liquidity

The company has a relatively conservative balance sheet, with net leverage of approximately 47% and a weighted average interest rate of 4.4% as of March 31, 2024. The company's weighted average debt maturity was 3.4 years as of the same date.

Recent Developments

Subsequent to the first quarter, the company announced an amendment to the loan on its 9 Times Square property. 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. The company has also announced plans to market its 123 William Street and 196 Orchard Street properties for sale.

The company believes that the strategic disposition of these properties will meaningfully reduce leverage on its balance sheet and generate significant cash proceeds. The company intends to use the proceeds from any dispositions to diversify its portfolio into higher-yielding assets, a strategy it announced in 2022.

Tenant Profile

The company's portfolio features a number of large investment-grade tenants, with 80% of its top 10 tenants being investment grade or implied investment grade. The company's portfolio had a weighted average remaining lease term of 6.3 years as of March 31, 2024, with over 40% of its leases extending beyond the year 2030 based on annualized straight-line rent.

Outlook

The company's focus on portfolio management, including its efforts to retain existing tenants, make its properties attractive to new tenants, and manage its expenses, have positioned it well to create value for shareholders as it looks to sell some of its Manhattan properties, reduce leverage, and seek new higher-yielding investment opportunities.

Conclusion

Overall, American Strategic Investment Co. is taking steps to diversify its portfolio beyond its New York City real estate holdings, with the goal of reducing leverage and pursuing higher-yielding assets. The company's first quarter 2024 results demonstrate its ability to manage its operations effectively, and its plans to sell certain properties and redeploy the proceeds into new investments suggest a strategic shift in the company's direction.