Q1 2020 Earnings Call
The line it will be right that's.
Good afternoon, ladies and gentlemen, and welcome to Clipper Realty first quarter 20 earnings call. At this time, all participants I've been placed on to listen only mode.
On the floor for your questions and comments after the presentation.
My pleasure to turn the floor to your host Michael friends surf the floor is yours.
Good afternoon, and thank you for joining us so the first quarter 2020 Clipper Realty Inc. earnings conference call participating with me on today's call or David distributor co Chairman of the board and Chief Executive Officer, and JJ Pester, Sir Chief operating officer.
Please be aware that statements made during the call that are not historical maybe deemed forward looking statements and actual results may differ materially from those indicated by such forward looking statements.
These statements are subject to numerous risks and uncertainties, including those disclosed in the company's quarterly reports on form 10-Q posted today and the company's 2019th annual report on form 10-K, which are bulk accessible at www dot FCC dot Gov and our website.
As a reminder, the forward looking statements speak only as of the date of this call May 11, 2020, and the company undertakes no duty to update.
During this call management may refer to certain non-GAAP financial measures, including adjusted funds from operations or I guess, if though.
Adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA and net operating income or in Hawaii.
Please see our press release supplemental financial information and form 10-Q posted today for a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures with that I'll now turn the call over to our co chairman and CEO David investors.
Thank you Michael.
Results.
Well.
To use it takes us so steps to navigate.
You can challenges.
Some.
Additional liquidity provided.
There's going to refinancing.
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Capitalizing on the movies.
These rules.
The potential expansion is gone.
Sentence specific street to be developing.
Well positioned to exclude a strategic initiatives.
Great value.
Emphasize as the refinancing.
Yeah.
So.
[noise] even through this was a company.
That.
Stands on its own the.
None of these mortgages.
Oh.
That's the same thing independent.
The reason is the property.
To close outs.
Not take place.
27.
Our properties have remained.
Operation.
So.
Since these.
Taking the necessary steps the coupon tendencies in compliance with state and local children. Please what does.
We continue to provide typical services where residents under difficult circumstances businesses remains.
And stuff.
City markets remain zeibel's.
Good range attendance.
Let me turn into.
Stays overtime.
Extremely pleased.
Yeah.
Promotions the company.
We expect to.
We continue to be able to fly the services.
Yes.
The existing ones was 6 million, though the properties like has gone.
Just themselves.
Interest rates.
345%.
It was replaced.
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That's the proceeds of $78 million before reserves increased cash position.
Recently, we have no debt maturities of any kind as I said.
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Companies will position some liquidity perspective.
Turning to a couple of highlights.
This quarter clubhouse.
On my list.
Is 99% lease.
It was any of you the renovation Sotheby's amenities.
Stations was the most desirable names.
Yes.
Would drive and maintain exception.
Thanks, Matt.
She was the redevelop reasons.
[noise] acquisition located in fast because.
And I think Tim.
Sensor hub as previously discussed we estimate the size of course 85 million though.
Thank you Sir please.
I love to six and a half a dozen stabilized cap rate JJ.
This is Roger.
In our office portfolio lease roll up to 50 seems to be probably will occur in August at which time on new news city is expected to initially.
Only $5 million.
And why.
41 living since we probably will increase 25%.
2020, which will add $2.1 million sort of properties.
Hi.
Together these roles expected.
Mental 7.1 million event, you otherwise wasn't folio, representing 10% thing.
For the run rate.
I don't know itself is gone.
Wrestling with the.
Processes.
Yes, it slowed down because there's a pandemic crisis.
That contract.
The cities a city planning office is fully there's no assurance or whatever the the application will be fully or partially proved submitted.
I would like to provide an update on the Tribeca House for 21 do you litigation as previously disclosed in New York City Court of Appeals rules in June 2019, the problems and buildings receiving for 21 G tax benefits.
That's subject to luxury collection that we should be noted overturned the previous anonymous pillars.
On January seven division granted a full saves, especially with movies.
I mean, the calculation of sensor rental charges comes it's Christmas ring fencing, a field, which is controlling expenses.
In September 2020 20022.
What will happen material impact on their business.
Lastly, I would like to commence enough first quarter results. We're very proud to report record quarterly revenue 30.9 million record quarterly otherwise 17.1 billion and a strong hey, AFFO of $5.6 million all of which was like.
Leasing performance and expense.
Good.
I will provide further details of financial performance. Shortly we'll now turn the call to JJ, who will provide enough doesn't operations.
Thank you I would like to begin by reiterating our deep gratitude to both our employees and residents during this challenging time.
Colleagues have worked tirelessly can assist our attendance and communities maintaining as much of a sense of analyses as possible.
Yes, taking significant steps to keep all residents and employees safe.
In compliance with the government mandated orders, including requiring Boulevard employees and service providers, who enter our buildings the weight compliant personal protective equipment and practice social distances.
Properties remain open and operational providing committed regular services to our attendance yeah utilizing technology as appropriate to conduct operations at all levels. For example, how property management teams are using technological resources to limit in person contact while continuing to provide essential maintenance services.
Dressed residents service needs I.
Well leasing team are able to interact remotely with prospective tenants to guide them through the process.
Collections have been strong in April our collections were 94%.
Our collections in much prior to the impact of Cobot 19.
Since in situations, where tenants notify us that they cannot meet their rent obligations. As a result on dependent we may review potential alternative payment arrangements on a case by case basis.
Turning to the first quarter, we continue to leverage I was strong position operating performance driving ongoing cashable improvements through efficient leasing and focused expense management, we're very proud that our portfolio is 98% leased.
When you think there's limits that global house has been very strong the property is 99% leased and the average $71 per square foot and is a new record.
Yeah, well positioned to moving forward with exceptional occupancy providing leverage to future rent discussions.
The 10th emphasis excuse me are proceeding with the belt existing warehouse structure on sites has been demolished. We have filed plans for the Newbuilding and are working through the associated regulatory processes, we expect to develop and non story fully amenitized multifamily rental building, including enough talking with approximately 119.
Thousand rentable square feet, and 175 total residential units, 70% of which will be free market and 30% affordable significantly. The property is eligible for 35 years for 21 eight tax abatement.
To the affordable components, you, we will provide further updates as we get close into commencing construction.
Back of House continues its strong performance, we increased residential revenue by 4.5% in the first quarter over Q1 last year, driven by occupancy and rent per square foot gains. The property was 99.6% leased at end of much building Amit it's exceptionally high occupancy trends through the winter importantly, we have delivered.
These rent recent improvements with limited investment in the property Tribeca houses luxury level experience at a more attractive price when compared to the surrounding neighborhoods augur well for the properties overall growth trajectory.
With full occupancy tied the problem in turnaround times that strengthened rent negotiations and significant remaining upside potential between our current $71 per square foot rents and then they bodes comparable $80 per square foot friends, Jamaica House is well positioned for the future.
What happens gardens in Brooklyn, the conflicts continues to benefit from.
I am extremely high demand and was 97.2% leased at the end of much continuing exceptional occupancy trends over the last several quarters.
With accompanying rent growth rent per square foot, that's 24095 cents at the end of the first what it did they new records for the property, we increased residential revenue by 3.2% in the first quarter over Q1 last year.
Importantly, our focus on expense management drove in excess of a 500 basis points improvement in anyway margin at the property during the first quarter versus Q1 last year as mentioned on prior earnings calls the June 19 rent stabilization laws somewhat tempers the properties future rent growth trajectory. However, rents have continued to increase.
Future news will move in tandem with annual rent guideline book increases and preferential unit vacancies still offer the ability to increase the new rent up to the maximum legal limit.
EPS guidance remains a very significant part about our portfolio growth story with definitely our expansion project and incremental value opportunity.
I will now turn the call over to Michael who will discuss our financial results.
Thank you Jay our first quarter results demonstrate the strong leasing and operational efficiencies highlighted by David and Jay.
The first quarter, we achieved record revenues of $30.9 billion, an increase of $3.2 million for 11.7% compared to the same period in 2019.
We achieved record an ally of 17.1 million during the quarter.
16.3% increase compared to the same period in 2019, and AFFO of 5.6 million or 13 cents per share if five points by 20% increase compared to the same period in 2019.
The year over year total revenue increase was primarily attributable to residential rate rental rate improvements Flatbush gardens, and Tribeca House, They fully online Clover house and the completion of the renovation and releasing of approximately 50% of the units at 10, what 65th Street during the second quarter last year.
As Jay noted Klapisch and trying to back a residential revenues grew 3.2% and 4.5% year on year respectively.
Well over house generated $1.7 million revenue during the first quarter and as rapidly approached full occupancy.
On the expense side key Europe of your changes were as follows.
Property operating expenses decreased by 0.4 million in the first quarter year on year, primarily driven by lower legal and utilities expenses.
Real estate taxes, and insurance increased by approximately $1.1 million in the first quarter two to property tax increases across the portfolio and general insurance industry cost increases.
Cash general and administrative expenses, excluding nonrecurring letter litigation related costs, and a onetime adjustment related to our CFO transition last year increased modestly by approximately $200000 in the first quarter.
Interest expense increased by $1.5 million in the first quarter, primarily due to the recognition of interest in connection with bringing clubhouse online.
As a reminder, refinance our portfolio on an asset by asset basis or debt is non recourse and it does not cross collateralized.
We have no debt maturities on any operating properties, including coal Clover house until 2027.
As David mentioned earlier on the call, we did announce a refinancing of our flat Busch gardens property.
Refinanced it with a 329 billion dollar 12 year secured first mortgage loan put New York humidity Bank the properties current lender.
The loan bears interest that we entered ace and requires interest only payments for the first seven years.
Which is expected to initially reduce annual debt service by $3 million.
With the proceeds the company repaid the existing $246 million alone and the property due March 2028, which bore interest at 3.5% through February of 2023 and was scheduled to commence principal amortization in September 2020.
Net remaining proceeds of $77.8 million before reserves increased the company's cash position I.
I note that in connection with the refinancing and independent appraisal commissioned by the lender dilute the property at $475 million.
Turning to Capex, we were occur we incurred $6.1 million of capital expenditures in the first quarter.
Similar amounts to the fourth quarter and an approximate 50% decrease from the average spend the first three quarters of 29 team.
This decrease was primarily driven by the completion of the clubhouse renovation.
Lastly, today, we are announcing a dividend died and a half cent per share for the first quarter same amount as last quarter. The dividend will be paid on may 29 shareholders of record on may 22nd.
Let me now turn the call back over to David for concluding remarks.
Thank you Michael.
Please.
Nations portfolio.
Well.
I mean, so throughout the pandemic.
We will continue to think than necessary steps to navigate through the cone challenges.
Strengthened this liquidity provided by the refinancing.
Yeah, I think we look forward capitalizing the news of growth opportunities, including the upcoming office Israel's.
That's true expansion of Stephens guns.
Excuse me development, we will we remain well positioned to execute a strategic initiatives. It creates value you hope everyone stay safe and healthy and sound.
I'd like to open up the floor for any questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you have a question or comment. Please indicate so now by pressing star one on your Touchtone phone.
Lastly, while placing your question. Please pick up your handset of listening on speaker phone to provide optimum sound quality.
Please hold while we poll for questions.
Looks like your first question is coming from Buck Horne Buck Your line is life.
All right. Thanks, Good afternoon, guys and congrats on the result, the relatively stronger April collections, all things considered a and the refinancing.
A lot of progress.
Oh do now let me start with the April collections, if I could ER and specifically, maybe if we can drill down at flat Bush and how that performed versus the rest of the portfolio a kind of what you know what percentage of Flatbush residents came to you are applied for some sort of hardship for relief and how.
Are you working with those residents in particular.
Yeah.
Yes, so as I mentioned in my remarks.
Taking this on a case by case basis, obviously workforce housing is going to not obviously, but we believe that workforce housing and not instances, taking somewhat of a bigger effect into this a pandemic and were being cognizant of that and we're working with each individual on individual case basis.
To see what we can do that helps and get through this crisis.
We're not doing anything in the global manner, it's being done on the case by case basis and that telling full you know residents. If they have something that they would like to discuss with us about the differing payments in some sort of that nature. If it makes sense than it is valid we will try to cooperate and give them that really.
And back to your initial question I think in terms of the collections are they got were over 90% of collections in April and as you can imagine that that's pretty much across the board here I know I understand the question were flat Busch gardens, but just as a point of reference Flatbush in April was roughly 80% to 89% of collected so again I think we had a very.
Strong performance across the board, but.
Flatbush just like the rest of the properties performed well end up so far it's continuing to progress here into the first 10, or so days, a bag and well keep watching it and keep hooks up they did.
Okay. Yeah. So that that was that you think you jumped in my next question just to clarify maker I understood. There. So through the first is they are you, saying to the first 10 days the may that you're a portfolio is over 90% collected and flat Bush's is pretty similar to that so far no that what I was trying to say the numbers I gave were for April or I guess.
90, plus percent across the board Flatbush that 80% to 89% in April and May I was just saying that again, it's only 10 days and so it's still early but our indication. So far is that we continue to collect and they can we don't know final numbers yet Flatbush is one of the properties in particular, where I think the payments come in you know what about more staggered during the month, but.
So far what we're seeing is Ah things look pretty good and we'll know more obviously in the next kinda week or two here, but.
So far so good.
Okay, great great and maybe just with this Ah getting the refinancing congratulations on that that's a huge again like you said huge liquidity event.
These little flushed with cash at the moment is the plan just due to hold it through the duration of what's to come with the pandemic do you have any other plans or redevelopment wise or I mean have you considered share repurchases that I don't know what's the.
The thought process on Leverages at this point, but but.
Any thoughts on what to do with the exit excess cash right now I know, it's a you know it's going to sit tight.
Oh, that's been done it plays itself out.
But a very predictable as you can see what's going on with it.
Okay.
So it was very astute move to take advantage of this money because it reduces the amount that service that we've been on the property it reduces interest cost.
Pushes out the maturity the.
Oh, the particularly property. So we thought this was important to do.
Oh, we're going to wait and see how this thing plays out and see what opportunities.
Itself in the future.
And because you can imagine as well, but on that kind of Capex I just.
Again as you know we have our our portfolio is operating or except for the one property. We just bought a 10 10 Pacific Street.
Anything else is pretty much done and ready to go here are fully operating so terms just kind of future capex spend will obviously, we're doing piece central stuff that needs to be done obviously to keep the property safe and operational and fully maintained but as David said, you know, we're sort of hunkering down here doing what we need to do and a as we move forward on 10, 10 Pacific which is.
Really the only capex requirement at this point, obviously going to put a permanent loan in places we moved into development. So we'll get to that but as we sit here today from a capex perspective, it's pretty minimal requirements.
Okay, if I sneak one more and I just a quick update on 10 10 Pacific do you think what's going on in the city and just either delays permitting wiser constructing wise is the timeline on 10 didn't Pacific moving out yet or are you feeling still competent and the cost construction cost to build it and hitting your.
Initial underwriting targets any any change on that front.
We believe the timeline for some time line will be study the albeit in a.
And he push out of that the city is a permitting properties, especially properties that have.
A little components to it.
Sit on the cool the evolution is just the both completed.
And.
We think that though.
Turning to maybe a decrease in some of the construction costs.
And then.
The prices will soften the construction.
Close.
Every little bit helps all right. So much guys I'll hand, the floor of didn't they someone else I suppose it's actually goes.
Okay. Your next question is coming from Yehuda Cats Yehuda Your line is life.
Hi, Thanks, so much guys for taking the question then certainly congratulations on the refinancing that's a massive liquidity event for the company as you said.
Just a kind of as we as we look at 10, 10 Pacific and not embarking on an 80 $85 million development.
Wanted to clarify and maybe what the realized a yield on the last two redevelopment that you guys did Clover House and 10, Wessex, that's really where so I guess what were the unlevered yields and.
Where those kind of on target with what you expected when you embark on those projects.
Thanks, Michael.
I think on a BOE Clover House, one off seven Columbia Heights agreed develop that to a kind of roughly to a 5% yield here again I think as we mentioned on prior calls I think.
We put a lot of.
<unk> renovation capex into we realize the potential for the property and where we thought it could go so I think the timeline as we previously disclosed took a little longer than we initially planned but I think we've got it to a spot now where you can see in their performance, we're basically 99% leased after five or five months yourself six month.
ER and rents continue to rise so I think we've developed out one too.
Roughly kind of a 5% range on 10 watts 60 cents, a that when it sort of the TBD.
In the sense that.
Right now.
Yeah, we're doing okay, I think as you're well aware of them, but the property at 76000 run rentable square feet. It also was 52000 square feet of Air rights.
Which just given the current state of the market, it's not something where in position to utilize yet.
But.
That is something that we're going to deal with obviously the teachers and times right. So from the kind of a yield perspective, I think it's sort of getting three of but not any ball game, if you will where.
We're going to get there on the development here, so right now where sort of just a kind of moving along with it.
[noise] great onset. So I guess, just a follow up on on the 5%. This number on Clover House do you mind, just a bridging I think the purchase price was 87, five and then how much how much capex did that project kinda take occupancy.
The finish and then I guess, what the NOI number that you guys kind of see a stabilized yield.
Ah Capex roughly turned out to be kind of $30 million range.
In terms of.
Yeah, I'll close here and right now we are projecting again, we don't we don't get kind of forecast. If you will but I think kind of kind of run rate basis for sort of any kind of side and a half the 6 million dollar.
Range rental I.
Which put your rough got it.
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This is something whereby the target just yeah. We go look I think like we can we can have this conversation I think it's a habit Apollo separately and separate phone calls that's easier here think weeds.
We'd like to talk about sort of the current numbers here. So again I couldn't happen to reach out after this call and he can talk road, if that's easier, but I can answer your questions perhaps in more detail.
Okay, great. Thank you sound like and again, congratulations on the great quarter.
Thank you.
Your next question is coming from Lisboa lists your line is lifeless.
Thanks to the call I'm thinking back to resolution on the type of house losses.
You clarify your number 2020 comment.
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But the casino.
Those who though too.
Of course will do.
You know these times was a cause for the functioning so it's difficult to tell.
Oh sitting with Oh, the trade news supposed to come out.
With.
Determine what's the difference.
To be.
As we've said we don't believe this material.
Results, but we have no way until you all over the schools.
I think it's time to come to fruition.
Okay. Your next question is coming from me David Boy here.
David Your line is life.
Good afternoon. My question relates to the care Sac and has the company email to benefit at all from the any of the government subsidy for programs.
Yes, we have decided not to make us a available to the today.
Some council.
And clarifies it for.
The public companies. So we decided to not proceed with it.
Pattern and neat and public policies written guarding the current share plaque pricing in a record low.
Any of the insiders.
Considering increasing their busy.
Rather than though to come with it wasn't so it isn't gonna do at this point so since I was do anything overseas.
It was it forms you'll see purposes.
Thank you.
Okay.
Your next question is coming from anything like Nathan Your line is life.
Hey doing that.
Great question.
So just I know kind of bucket asked about a you know when you guys planning on them with cash you mentioned kind of hunkering down and I know you do have a with 10 P.M. Pacific is a decent amount of cash obligations over there. So I'm I'm trying to just curious or or I.
I guess asking you know as far as return on investment over there relative to you know maybe buying back shares.
You know how do you view that clearly.
When a share prices, possibly the investment and buying back shares can be no incrementally greater them and investment on 10 Pan Pacific I know I know you mentioned, you hunkering down, but there's cash needs to be spent in order to kinda proceed over there so.
So I mean have you guys bought about hey should we be spending that cash right now could we could we be getting a rate greater return on investment in buying back shares.
We may decide to do that are we just closed in this refinancing was a.
Today.
So the terms you it's supposed to do with the cashes audio books with anthem specific to the construction loan line, though for that.
Like social will be used to to construct a building.
And as soon as we finish supposed to be refinancings, we did.
Other properties on the permanent Standalone fixed with Mark.
Oh, no cash needs to be go needs to go in additional cash into that kind of side, though that that leasing.
Oh, no cash bonuses most of the most of the money will come from the financing.
Okay.
Uh huh.
Okay. So so I guess with existing cash on the balance sheet.
What are the opportunities available or other than than buying back shares.
We still know yet the you know remains to be season, we think the this.
Particular been Dominik will make a lot of things available to us in the future.
<unk>.
What opportunities will present themselves.
Everything towards the middle than the other than you will become the better position to answer that question.
Okay, if I could just as an investor who would love to see buyback shares and I think the return on investment at these prices can be.
To be significant population has one more question they tried becca.
The litigation Oh, I don't know if you quantified it kind of the range of where that could fall out of it would possibly could give us a sense.
We're close to being in between.
A few people.
Yes, it does lawsuit.
No.
<unk> new people love it taken vendors of those little Susan join losses.
So we think the a the mountain dew effect when the company is not material.
Mm only two people, okay, and then more people can get involved.
I think there was into like 40 people.
And the losses.
20 that moves out of the building is thought to sit in Atlanta as it moves out of I think another 20 people have joined.
So I think the amount of people that have those laws.
[noise] connect changed this in a meaningful manner or that cannot change.
The cannot go beyond that seemed to pick them up so it can judge is about 75 people who <unk>.
We'll be entitled to become part of those losses.
I think it's sort of meeting for them.
Yeah.
I'll say that the lawsuit came about or what the decision I should say came about last June. So we're approaching a one year anniversary of the appeals order and as we've said it's been there's roughly 60 odd people that have come across in the last year or so or 10 months.
I just think clarifying timing because his question was also asked before in terms of September I mean, as as we said the key point is that this is a little bit of uncharted territory, just given the nature of the decision. So in terms actually how you would go about calculating the potential rent overcharge payment or whatever it may be if there is any it's it it does need to be fully worked out.
With the help of especial refereed to just because it since the first time, where basically going through there. So again that we as we disclosed in our 10-Q today. It's it's a process that's ongoing occasional appeals, but right now the best time be we have is that it is scheduled to be heard into September 2020 terms. So at least a couple of months out but to the extent, we get more clarity.
On either the amount timing et cetera.
Then provide an update to folks.
Okay. Thank you so much.
Your next question is coming from Craig [laughter], Craig Your line is life.
Hey, Good afternoon, guys are just wanted to clarify was the collections number for April or across the entire portfolio or just multifamily I just some color there would be great.
As we said another way.
That is across the entire portfolio a it has a good point, Greg City, a which again we have two buildings with them as you know.
The city's current with their payments as we would expect them to be a second that's helpful to us, but the 90 plus percent that we talked about that is across the entire portfolio, but.
Property on its own in April was roughly that 90% wage to become much though so far we've seen that very good results.
Got it and as far as a you do have some modest retail exposure.
Can you talk about how you're you know maybe working with some of those tenants are they asking for.
Maintenance or are you.
Working with them onto deferrals or just some color on kind of where your how you're managing that process.
To do.
Yeah, so as as I'm sure you know everyone's hearing that mutations are getting hurt. The most then the or whether it's in the parking facilities or the you know fitness centers that we haven't some of 'em properties.
These are things that are happening and these people I'm not functioning right now so they're not able to you know pay their end. So right now we're in a in a position of waiting to see what happens we don't have the ability to change anything about it for the moment because the government mandated closure, but we hope to come out of this sooner than later and then resumed the rental.
Actions on those pumping.
Okay.
That's it for me thank you.
Thank you sorry.
And you have one of them any question in queue from how we Shan how are your line is life.
Hi, everyone I'm good afternoon, I actually think my questions where.
Answered earlier, but thanks again for taking my question.
Thank you.
Exotic nfthree.
There are any remaining questions. Please indicate so now by pressing star one.
Okay, we have no further questions in queue.
Thank you joining us today, we look forward to speaking with you again, so they will.
Thanks, everyone.
Thank you ladies and gentlemen, this does conclude todays conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.