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NYC REIT Chooses Renovations Over Dividends As Stock Price Falls

1140 Sixth Ave., one of New York City REIT's office buildings that it disclosed it was in danger of defaulting on its debts for.

New York City REIT, a publicly traded real estate investment trust that owns office buildings, has elected not to pay out cash dividends to investors, a surprising move for a company whose primary vehicle for delivering returns is through dividends.

The real estate investment trust’s board of directors decided that suspending the $1.3M quarterly payout was in the interest of investors, according to a statement from the company’s CEO, Michael Weil. Rather than paying out dividends, the REIT says it plans to reinvest the money into leasing efforts and renovations for tenants, describing the decision as “a prudent step.”

“Leasing commissions and tenant improvement costs, which are payable prior to rent commencement, are economically beneficial compared to the substantial rent paid over the terms of the leases,” Weil said. “To potentially help fund these future expenses, we are temporarily suspending the dividend as we maintain our leasing momentum.”

The announcement also included a footnote stating that it could not provide any assurance as to when or if dividends would be reinstated or what amount future payouts would reach. Crain's New York Business first reported the dividend suspension.

While the REIT recently managed to thwart an activist investor’s attempt to place an independent member on the board of directors, the decision follows a dip to new lows in the REIT’s stock price. The stock has lost over half its value, sitting at $5.04 per share Wednesday afternoon — its lowest price since two years ago, when the REIT first listed on the New York Stock Exchange.

Like many office owners since the start of the pandemic, New York City REIT is struggling. The company’s 1.2M SF portfolio consists of eight buildings, seven of which are in Manhattan, and several of which are office towers struggling to sign tenants in the era of hybrid and remote work.

Office vacancy rates are hovering at around 15% in New York City, but were significantly higher at NYC REIT’s properties, Crain’s reported. At the end of last year, the company’s 9 Times Square property had a vacancy rate of almost 40%, according to the REIT’s annual report. Of its other properties, the annual report said only its 60K SF 196 Orchard St. condominium would be fully leased by the middle of this year.

The annual report also disclosed that the REIT was at risk of defaulting on loans for four of its commercial properties, where debt on the assets had reached $200M. The four properties — 8713 Fifth Ave., 1140 Sixth Ave., 9 Times Square and 400 East 67th St./200 Riverside Blvd. — make up approximately half of the REIT’s portfolio, totaling 550K SF.