New York City REIT, Inc. (NYC) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the New York City REIT First Quarter Earnings Call. Please note, this event is being recorded. I would now like to turn the conference over to Louisa Quarto, Executive Vice President. Please go ahead.
Louisa Quarto: Thank you, operator. Good morning, everyone, and thank you for joining us for NYC’s first quarter 2021 earnings call. This event is being webcast in the Investor Relations section of NYC’s website at www.newyorkcityreit.com. Joining me today on the call to discuss the quarter’s results are Mike Weil, NYC’s Chief Executive Officer; and Chris Masterson, NYC’s Chief Financial Officer. The following information contains forward-looking statements, which are subject to risks and uncertainties. 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, 2020, filed on March 29, 2021, and all subsequent SEC filings for a more detailed discussion of the risk factors that could cause these differences.
Mike Weil: Thanks, Louisa. Good morning, and thank you for joining us today. New York City REIT continues to drive results through a proactive asset management strategy, highlighted by improving quarter-over-quarter cash rent collection across the portfolio and impressive leasing activity. After over a year of being substantially locked down, we are enthusiastic about the prospect of New York City reopening on a significant scale in the coming weeks and ramping up over the summer. We’re seeing an alignment of intentions from the mayor to the governor and all of the businesses, restaurants, tourist attractions and cultural institutions that should revitalize the vibrant city. The community is interlocked and depends on all of these segments for talent, inspiration and revenue. We believe that as these participants returned, it will serve as another catalyst for growth throughout the city. For the first quarter, we recorded strong cash rent collection of 85% across the portfolio, a 300 basis point increase from 82% last quarter, with 89% collected from our top 10 tenants, consistent with our collections from this group last quarter. Our asset management team has remained engaged with our tenants, helping to drive rent collection. At 1140 Avenue of the Americas, for instance, we’re able to work with one of our longest-standing tenants to come to a mutually acceptable agreement and are excited to see their success as restaurants resume normal operations in the near term. We remain highly confident in the long-term strength of New York City real estate, our business model and the opportunity to further grow our portfolio and create shareholder value.
Chris Masterson: Thanks, Mike. First quarter 2021 revenue was $15.2 million compared to $9.9 million in the fourth quarter of 2020. The company’s first quarter GAAP net loss attributable to common stockholders was $13.5 million compared to a net loss of $16.6 million in the fourth quarter 2020. For the first quarter of 2021, our FFO attributable to common stockholders was negative $5 million compared to negative $8.9 million last quarter. Core FFO was negative $2.9 million compared to negative $6.8 million in the fourth quarter. As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release, supplemental and Form 10-Q. NYC also maintains a conservative balance sheet with no debt maturities within the next 3 years and prudent net leverage of 37.6%. We ended the first quarter with net debt of $375.6 million at a weighted average effective interest rate of 4.4% and with a weighted average remaining debt term of nearly 6 years. With that, I’ll turn the call back to Mike for some closing remarks.
Mike Weil: Thanks, Chris. We believe that our New York City portfolio is well positioned to deliver long-term value. Our properties are concentrated in Manhattan and comprised of a diversified tenant base, of which 7 of the largest 10 are investment grade. The limited near-term lease expirations and long-weighted average remaining lease term provide the portfolio the stability, and the 82.8% occupancy rate leaves room for continued growth of annualized straight-line rent. We believe there is a tremendous value in the business relative to our portfolio and our continued performance during this pandemic. We own high-quality assets that we believe will greatly benefit from the imminent return of office workers at scale based on the time line set forth by the city, state and federal government and the announcements of significant New York City employers. We’ll maintain an aggressive approach to leasing in our own portfolio, which we believe will be accelerated by the return of active offices, busy restaurants and the world-class institutions that contribute to making New York City a great place to live and work. Operator, please open the line for questions.
Operator: Our first question comes from Bryan Maher from B. Riley Securities.
Bryan Maher: A couple of questions for me. You talked about acquisitions briefly in your prepared comments. Can you give us a little bit more color on what opportunities you’re seeing, maybe scope? And what is NYC’s appetite for making acquisitions over the next, say, 4 quarters?
Mike Weil: Sure. First, before I answer specifically, we did ask Chris Chao to join us today, as I think you have spoken to Chris before. But Chris heads up the asset management platform for New York City REIT, and he can jump in as well. I’ll start. We have seen a few assets come to market that fit the typical criteria of New York City REIT. I would describe these as boutique buildings in the $50 million to $250 million range with a solid rent roll of the types of businesses that we’ve always seen occupying the, what I would describe as, non trophy assets in New York City. So a lot of law firms, accounting firms, those types of businesses. We have reviewed some OMs where maybe it was a family-owned asset, and coming out of COVID there’s some re-leasing, retenanting work that needs to be done or just this long year period has just taken them to a place where they no longer want to be owners of real estate. So I think we’re going to continue to see that. Chris is very active in the market. And It’s probably one acquisition, maybe 2 that we would look to make in New York City, but we’re really going to take our time and find the right fit for the portfolio. We want to increase the occupancy, the stability in what we buy.
Bryan Maher: Great. And is there any update on the Hit Factory potentially selling that asset?
Mike Weil: I’ll give you an update there. As you know, it is a very small asset in the portfolio, but it does sit there, and we have been marketing it. Interestingly enough, we have really seen an increase in leasing interest, which is something that we’ve always been interested in opportunity. So I think it’s fair to say that we will continue to market it for sale. Chris is negotiating with a group right now with a potential longer-term lease opportunity in a related industry. So it’s a good fit. And I would look forward to updating you as we have more concrete information.
Bryan Maher: Great. And then I know you had signed rent parol agreements, I believe it’s Equinox and I Love New York Gifts. Any update with those 2 businesses, with a lot of visitation coming back to Times Square and some people moving into the New York City market as well as Equinox.
Mike Weil: Well, I’ll start with I Love New York because it’s been a really positive outcome and experience. I love New York is a terrific tenant in the portfolio and, frankly, a very talented business man and a great business. So we’ve been really pleased to see his business coming back. Obviously, every month of reopenings and traffic in New York City is beneficial to him. We’re all very excited having seen and listened to both the governor and the mayor’s commentary about reopening New York. And with the high level of vaccinations, that reopening is just tremendous for I Love New York’s business. And Not only did we come to an agreement, it did involve some abatements, some deferral, but also some extension of term. And this is a premier location for I Love New York. So I think that we have together, as landlord and tenant, really come to a great outcome so that we can both be successful. Equinox, I’m looking forward to the outcome of the pending litigation against them. It’s a very frustrating tenant because they have no reason to be the problem that they are. We know that their location is operating and open and quite successful. And again, they have absolutely no excuse for the position that they’ve taken, and we look forward to successful litigation.
Bryan Maher: Great. And then just a couple of more for me. On the Knotel side -- first of all, congratulations on getting that re-leased so quickly what you have so far. But what’s the outlook for the balance of that space?
Mike Weil: So, Chris Chao, would you like to talk a little bit about that. Obviously, we want to keep it to general conversation, and we’ll continue to update in our public disclosures, Bryan. But I think, Chris, you’ve got a great sense of activity at that space.
Chris Chao: Yes, certainly. Bryan, good to talk to you again. There’s been a really tremendous -- we’ve noticed tremendous leasing activity really through tours pick up over the past several months and starting -- and just looking at 200 West 41st Street where Knotel had 4 floors. We’ve seen a number of tenants walk them. As we’ve stated in our releases that these floors are fully built, furnished and really ready to go. And to that, we’ve -- we’re actually working with an existing tenant on an LOI for a new lease. And we continue to see traction on that front. And I would say the same at 123 William Street. And so we’re quite pleased with the progress that we’ve had so far.
Bryan Maher: Great.
Mike Weil: And Bryan, if I can just add, we’re seeing the market rents holding up to pre-COVID levels at this location. So we’re not seeing a significant need to discount rents. And as Chris mentioned, this is essentially first-generation build-out space. So we’re not anticipating significant construction costs in retenanting. So I don’t want to -- we’re not done, but we’ve certainly got good momentum. And Chris and his leasing team are active in retenanting.
Bryan Maher: Great. And then just last for me, and maybe this is best for Chris Masterson. On CapEx, when you look back the last couple of years, I think it was a little over $3 million last year, kind of 8-ish, 9-ish in the years before that. Where do you think that, that sticks out this year?
Chris Masterson: Sorry, can you just repeat the beginning please? You kind of cut out on my phone.
Bryan Maher: Sorry. I was just asking about CapEx for 2021 because when we looked back at last year, it was only a little over $3 million. And the 2 years before that, it was kind of $8 million, $9 million. And is it closer to the $3 million or closer to the $8 million, $9 million for this year?
Chris Masterson: I would say it’ll probably end up probably closer to the $3 million. It’s going to depend on what we need to do with any new tenants coming in. But in general, I would say it will probably shake out towards the lower end this year.
Operator: There are no more questions in the queue. This concludes our question-and-answer session. I’d like to turn the conference back over to management for any closing remarks.
Mike Weil: I just want to thank everybody for taking some time and listening to our update for the first quarter. We’re very excited about the reopening that is underway in New York City. This is obviously based on the positive news regarding vaccinations and COVID cases dropping. So we’re looking forward to a positive 2021 and look forward to talking again at the end of the second quarter. So thank you all very much.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
