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New York REIT: Unlocking Value In The Big Apple

Summary

New York REIT (NYRT) is a monthly dividend payer yielding 4% which has gone through several transitions in recent years, and may be about to go through another;.

The company barely covers its dividend, but it owns premium Manhattan properties that some feel are undervalued by the market;

While the valuation of the company at current levels is only fair, the company has retained an investment banker;.

New York REIT is a speculative play on the hot Manhattan real estate market, and the monthly dividend is a nice bonus as you await events.

Background

I recently included New York REIT (NYSE:NYRT) as one of me Top Ten Picks in my review of monthly dividend payers, "My Top 10 Monthly Dividend Stocks." NYRT has gone through significant transformations in its relatively brief existence:

  • its began as New York Recovery REIT, Inc., a public, non-traded company founded in 2010 specializing in high-end New York City real estate;
  • it converted on April 15, 2014 into its current, publicly traded form;
  • there was the saga of the tenure and departure of founder and former Chairman Nicholas Schorsch, who left at the end of 2014;
  • its current status as one of the major players in Manhattan real estate.

Currently, NYRT is a $1.87 billion mid-sized REIT that soon may turn into something else yet again, as discussed below. There are several REITs that concentrate on New York City, such as Empire State Realty Trust and SL Green, but NYRT is exclusively focused on its Manhattan niche market.

Thus, the most important threshold factor to consider with NYRT is that it is geographically concentrated in one location: Manhattan, New York. That can have advantages, as discussed further below. The prime disadvantage is that NYRT is dependent upon only one local economy, but the NYC real estate market is not in any trouble.

It is easy to lose sight of what a company is all about when it metamorphoses as much as NYRT. Past associations can blind even the savviest investor to a quality situation. However, by keeping our focus on the present and not its earlier incarnations, we can establish whether NYRT is a good investment now. It will be useful to review its performance in anticipation of its next earnings release scheduled for before the market open on 5 November 2015.

NYRT Financials

I always like to begin my analysis with a review of the company's financial history. That gives a feel for a REIT's character and factors such as size and growth that should always be considered when choosing an investment. Numbers don't tell the whole story, but they are a good introduction.

Due to NYRT's relatively brief history, the best place to look is its most recent quarterly results.

New York REIT Second Quarter Results
YearAssetsRevDiv/ shareFFO/ shareAFFO/ shareRatio
20142,120,83535,9490.1150.116.1230.99
20152,061,64943,6770.1150.115.1051.0

Source: NYRT Form 10-Q. All amounts in $000s except Ratio, which is Dividends per share divided by FFO per share. 2014 Assets are as of 31 December 2014. NYRT did not pay a dividend for the full second quarter of 2014 due to its structural change, so I extrapolated back the dividend paid subsequently.

As shown in the above chart, NYRT grew its revenue over the course of the year. However, its total assets dropped slightly, most likely due to building sales. More importantly for investors, NYRT is barely covering its dividend with Funds From Operation. While full coverage of any sort is better than none, a Ratio of 0.80 or lower is what you typically look for from a conservatively managed REIT.

NYRT also uses some variations of FFO which can make the picture look a bit brighter. Interim CFO Nick Radesca noted the following about second quarter earnings during the 7 August 205 conference call:

For the second quarter of 2015, our core FFO was $23.5 million or $0.14 per share, up 8% year-over-year on a per share basis. AFFO was $20.8 million or $0.12 per share, up 9% year-over-year on a per share basis. Cash NOI was $32.3 million, up 23% on a year-over-year basis and cash NOI excluding the Viceroy was $30.8 million or up 25% year-over-year.

The company also reported a portfolio occupancy rate of 97.2%...


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