Q3 2024 American Strategic Investment Co Earnings Call - Q&A

Karen: Good morning and welcome to the American Strategic Investment Company's third 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.

Karen: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad.

Karen: If you'd like to withdraw your question, press star once again.

Speaker Change: Thank you. I'd like to turn the conference over to Curtis Parker, Senior Vice President. Please go ahead.

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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 Michael LeSanto, the Chief Financial Officer.

Curtis Parker: 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.

Curtis Parker: 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.

Curtis Parker: 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.

Curtis Parker: 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.

Curtis Parker: 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 will be useful in evaluating the company's financial performance.

Curtis Parker: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

Curtis Parker: A reconciliation of these measures to the most directly comparable gap measure is available in our earnings release, which is posted on our website at www.americanstrategicinvestments.com.

Curtis Parker: 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 Change: 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.

Michael Anderson: Our positive results for the third quarter included additional incremental cash NLI growth compared to the third quarter of 2023.

Michael Anderson: We achieve this growth through ongoing leasing success and occupancy gains.

Michael Anderson: Specifically, we delivered a 70 basis point expansion in occupancy to 85.8% compared to the same quarter in 2023.

Michael Anderson: Beyond the strong operating execution, as previously announced, we've entered into a definitive agreement to sell our property at nine times square for $63.5 million, which is expected to close in the fourth quarter of 2024.

Michael Anderson: Disable this property would reduce leverage on our balance sheet and generate net proceeds of approximately $13.5 million, strengthening our cash position.

Michael Anderson: We incurred a non-cash 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 worked to close this transaction.

Michael Anderson: To further strengthen our balance sheet, we are actively marketing 123 William Street and 196 Orchard for sale.

Michael Anderson: We believe these properties are well positioned to generate significant returns.

Michael Anderson: Proceeds from any sale will be used to diversify our portfolio into higher yielding assets as discussed last year.

Michael Anderson: We are excited about this initiative and its potential to increase long-term value.

Michael Anderson: While we are committed to creating long-term value in our portfolio, our focus remains on our current assets.

Michael Anderson: Our portfolio's weighted average remaining lease term was 5.9 years as of September 30, 2024.

Michael Anderson: With 45% of our leases extending beyond 2030 based on annualized straight-line rent.

Michael Anderson: 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.

Michael Anderson: We believe our proactive asset management strategy has enhanced our $490 million, 1.2 million square foot New York City real estate portfolio.

Michael Anderson: Located primarily in Manhattan, our seven office and retail properties benefit from a strong tenant base, including several large investment grade firms.

Michael Anderson: By focusing on resilient industries and transit-oriented locations, we believe we've positioned ourselves for long-term success.

Michael Anderson: 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.

Michael Anderson: In our own portfolio, we continue to see strong interest from potential lessees for our remaining available space.

Michael Anderson: Our third quarter results highlight the effectiveness of our consistent portfolio management approach.

Michael Anderson: By prioritizing tenant retention, property enhancement, and cost control, we believe we've built a solid foundation for maximizing shareholder value.

Michael Anderson: 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.

Speaker Change: With that, I'll turn it over to Michael LeSanto to go over the third quarter results. Mike.

Thank you, Michael.

Michael LeSanto: Third quarter 2024 revenue was $15.4 million compared to $16 million in the third quarter of 2023.

Michael LeSanto: The company's gap 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 non-cash impairments, one of which Michael discussed earlier.

Michael LeSanto: For the third quarter of 2024, adjusted EBITDA was $3.1 million compared to $3.4 million in the third quarter of 2023.

Michael LeSanto: 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 a reduction in G&A and operating expenses.

Michael LeSanto: 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.

Speaker Change: 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 LeSanto: 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.

Speaker Change: As we begin divesting certain Manhattan assets, we anticipate generating significant cash proceeds and reducing our leverage.

Speaker Change: These funds will be crucial in expanding our portfolio into new, higher-yielding opportunities.

Speaker Change: 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.

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Speaker Change: At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A.

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

Thank you.

Speaker Change: 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?

Sure. Thanks, Brian.

I speak with you this morning.

Speaker Change: You know, we're seeing different types of buyers on those two properties 196 is attracting interest from more family office type investors fully occupied retail condo

Speaker Change: 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

Speaker Change: be executed in the coming months on 1.23 that we think will drive value there and remain confident that we'll transact on both those assets.

Speaker Change: Okay and today you've 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?

Speaker Change: Yeah, we, you know, we're still beginning, I would say, to look at opportunities given that we've got the transaction on Nine Times Square closing in this quarter, but we see a lot of interesting opportunities in

Speaker Change: core iconic real estate outside of the New York City market, really looking in New England.

area with

Thank you for watching. Bye. Bye.

Speaker Change: 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

Speaker Change: how we own and operate those assets and the underlying operations of the businesses, whereas we were hamstrung by restrictions and what we could do with the operations of those sorts of assets previously.

Speaker Change: Okay, and then just last, I think you touched upon, you know, improvements and leasing trends in New York City. Can you give us a little more detail there? You know, what are the types of tenants? You know, what's their motivation? Is it return to office? Is it something else? Anything would be helpful. Thanks.

Speaker Change: Yeah, we're certainly seeing return to office being the norm, you know, I think.

Speaker Change: put 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

Speaker Change: 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

Speaker Change: we're operating and owning assets in and it's largely driven by that return to office mandate.

Okay, thank you. That's all for me.

Thanks, Brian.

Speaker Change: We do not 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'll let you take this. Thank you all for joining us this morning. We're excited about the quarter.

Curtis Parker: Excited about the closing of nine times square this quarter and look forward to sharing updates as we consummate that transaction and begin to deploy deploy those proceeds elsewhere and Or to sharing those updates

Thank you. Thank you.

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

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