Q2 2020 Clipper Realty Inc Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to the Clipper Realty to Q 2020 earnings call. At this time all participants are in place I don't listen only mode. We open the floor for your questions and comments after the presentation and it's now my pleasure to turn the floor over to your host Michael Friends Chief financial.
Officer, Sir the floor is yours.
Good afternoon, and thank you for joining us for the second quarter 2020, Clipper Realty Inc. earnings conference call participating with me on todays call, partly because tracer co chairman of the board and Chief Executive Officer, and judicious or Chief operating officer.
Please be aware that statement statements made during the call that are not historical maybe deemed forward looking statements and actual results may differ materially from those syndicated by such forward looking state.
These statements are subject to numerous risks and uncertainties, including those disclosed in the Companys quarterly report on form 10-Q posted today.
The company's quarterly report on form 10-Q for the first quarter Twentytwenty.
The company's 2019th annual report on form 10-K sure.
Both at Www Dot.
That goes and our website.
As a reminder, forward looking statements speak only as of today. This call August 10th 2020 kind of company undertakes no duty to update them.
During this call management may refer to certain non-GAAP financial measures, including adjusted funds from operations Francisco adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA and net operating income or and a lot.
Please see our press release.
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.
Thank you Michael Good afternoon, and welcome to the second quarter 2020 earnings call for good real.
I will provide an update on a business, including recent highlights in milestones as well.
And in responding to cope with 19 pandemic I'll, then turn the call with as JJ will discuss property level activity.
You see performance capital projects.
Measures taken lined up and the final finally, Mike who will speak about a quarterly financial performance.
Then take your questions.
Let me begin by saying, how grateful we ought to entirely.
They can do and hard work and reserve is doing this these challenging times.
The dedication to our residents communities a business had been spying during this time of the unprecedented view, we thank them for the ongoing a.
Genuine Dresden issues, we are taking colleagues were through this crisis.
Oh properties that remain open.
And operations rather than that we can see taking the necessary steps to keep us in the safe in compliance with state and local state and local orders and I'll provide a typical services.
We saw a slight downtick in occupancy during the second was driven by Copel 19.
But water in residential properties was still over 96% leased and to stabilize at that level through July.
The difficult circumstances <unk> business has remained strong we expect our properties.
And the New York City markets remain desirable to a broad range of tenants and our operations to return to more normal state over time.
Our balance sheet is well positioned from a liquidity is from a perspective to manage through the bundle.
I haven't axes of 160 million of cash consisting of approximately approximately 88 million of unrestricted cash and 28 million of restricted cash you finance portfolio, but on an as is massive bases and that is non recourse and it's not it's not grow a cross collateralized.
Importantly, we have no debt maturities on any of our operating properties in 2027.
No nothing today and no stock repurchase program, whereby we may repurchase up to $10 million of a common stock we may repurchase insurers and don't Mako private transactions for block trades or otherwise Nunn Bush as we purchase and the timing man a price and about the venue repurchases.
I'd now discussion subject availability of star general market conditions and trading price in the stock alternative uses of capital enough financial performance repurchase program, maybe suspended terminated or not if at any time for that reason and does not obligate those to repurchase any particular a number of shares.
Turning to upcoming developments, we are proceeding with the redevelopment of 10 10 Pacific Street acquisition located in prospect I've spoken about one lives on the Atlantic Gem of Barclays Center.
As previously discussed we estimate the project will cost approximately 85 million total take two used to bleed.
And develop into a 6% stabilized cap rate.
Jay Jay will provide further updates on the project shortly.
<unk> office portfolio, the new lease with the city or to 53.
Probably begins after this month and is expected to initially at approximately $5 million to the properties and Oh boy at the 141. This industry is probably the citizen rents will increase 25% at the end of 2020, which was at $2.1 billion sort of properties totaling one together. These roles are expect.
And incremental $7.1 million and you analyze what portfolio, representing a 10% increase on the portfolio run rate.
And that's not been guns property, we continue to progress on the uniform land use reduced shuja or unit.
The process for the city, we did this but the approval that significant floor emissions and the complex meaningfully expanding the size of the property, adding significant value in allowing us to begin to develop.
There was no insurance, however, because you're moving fully or partially approvals submitted.
I would like to provide an update to dry back up to 41 litigation as previously disclosed the new according to abuse rule was down 19 that apartments and buildings receiving for 21 G tax benefits are not subject to luggage luxury de regulation issue in order that overtime the previous in Adam Isabella.
The businesses on January 7th of this year, the Bell division gradually to fool say, Oh, the rep, especially referees hearing regarding the calculation, but that's about one charges in the comes niche.
Okay spending appeal, which has caused the expected to be argue during October 2022, we do not believe it or what it will happen through that impact on that business Lastly, I'd like to come in on a second quarter results reporting quarterly revenue was 30.7 million record quarterly NOI of 17.3 million.
And if that's all 5.5 million.
We estimate the strength and strength.
The ability of our business during the pandemic Michael will provide further details on our financial performance shortly well now turn the call over the JJ will provide an update in operations and our response to the part of it.
Thank you I would like to begin by reiterating a deep gratitude.
Both our employees and residents during this challenging period, our colleagues have continued to work tirelessly to assist our attendance and communities maintaining as much of a sense of the mallozzi as possible throughout the pandemic.
We continue to rigorous rigorously maintain protocols to keep our resident and employees safe in compliance with government mandated orders, including requiring all of our employees and service providers when do I buildings to weird complying personal protective equipment and practice most of this and think Oh properties remain open in operation.
Providing permitted regular services to our.
Tenants, we continue to utilize technology as appropriate to conduct operations at all levels.
Collections have been strong during independently during the second quarter I rent collections rate was equal to 94% of our first quarter collection rate.
To the impact of covert 19, and I would you like collection rate improved to 98%.
We continue to work with tenants on a case by case basis in situations, where they notified us that they cannot meet their obligations as a result of dependent make including in reviewing potential alternative payment arrangements.
Further demonstrating the resiliency of our business second quarter revenue was down only <unk>, 0.5% versus the first quarter prior to the Bendeka.
Oh residential properties was still 96.2% leased at the end of the second quarter down the 150 basis points from 97.7% at the end of the first quarter and stabilize at that level in July.
I will focus on expense management mitigated these pressures, resulting in an approximate 90 basis point improvement in in a wide margin.
In the second quarter versus the first quarter.
Turning to the property level and Pennsaid Pacific Street, we filed the plan with the new building and are working expeditiously to complete the associated regulatory processes.
As previously disclosed we expect to develop in non story fully amenitized multifamily rental building, including indoor parking.
With approximately 119000 rentable square feet and 175 total residential units, 70% of which will be free market and 30.
Since then.
Affordable significantly the properties eligible for 35, yes for 21, a tax abatement.
And affordable component.
We will provide further updates as we get closer to the government commencing construction.
Think of home at the close the house continues to be very strong the properties, 97.5% leased and the average $72 per square foot rent is a new record the properties well position moving forward with exceptional occupancy continuing to provide leverage and future rent discussions.
To back out has been the property not pull in most affected today by the pandemic.
The property was 91% leased at the end of the second quarter compared to being almost fully leased before called the 19.
We believe the decrease is temporary and.
And that occupancy will return to its p. These levels as Tribeca House continues to offer and luxury level experience at a more attractive price point compared to this around the neighborhood. The properties rented square foot was essentially flat for the second quarter compared to the first quarter. The significant upside remaining between the current $70 plus per square foot rent.
And then they both can comparable any dollar per square foot rents.
That's what happens bonds in Brooklyn, the complex continues to benefit from extremely high demand and was 97.2% leased at the end of June the same rate as before the pandemic rents per square foot of $25.
Five cents at the end of the second quarter is a new records for the property importantly, I will focus on expense management drove a 60 basis point improvement in Hawaii margin at the property during the second quarter.
Versus the first quarter, what happens on remains a very significant part of our personal again growth story with FBR expansion project and incremental value opportunity.
[noise] I will now turn the call over the Michael who will discuss our financial results. Thank you.
Thank you Jay.
For the second quarter, we achieved revenues of $30.7 million, an increase of $2.3 million or 8% compared to the same period in 2019.
We achieved record an ally of $17.3 million and 8.7% increase compared to the same period in 2019, and AFFO of $5.5 million or 12 cents per share.
The year over year total revenue increase was primarily attributable to bringing the clubhouse property online during the third quarter 2019.
Completing renovation and releasing of approximately 50% of the units to 10 Watts 60, Pip Street property during the second quarter of 2019.
On the expense side key year over year changes were as follows.
Property operating expenses increased by 0.1 million in the second quarter year on year, primarily driven by an increase in that provision for bad debt due to the impact of cobot 19.
Real estate taxes, and insurance increased by approximately $1.1 million at the second quarter due to property tax increases across the portfolio in general insurance industry cost increases.
Cash general and administrative costs, excluding nonrecurring litigation related expenses were flat in the second quarter year on year.
Interest expense increased by $1.8 million in the second quarter year on year, primarily due to the recognition of interest expense in connection with bringing clubhouse online and the refinancing of the Flatbush gardens property in May.
As David mentioned earlier, we are well positioned from a liquidity perspective.
As of June Thirtyth, we'd have an excess of $116 million the cash.
Well, you know I unrestricted cash and 28 million of restricted cash.
We finance our portfolio on an asset by asset basis, and our debt is non recourse and not cross collateralized, we have no debt maturities on any operating properties until 2027.
Lastly, today, we are announcing a dividend of nine and a half cents per share for the second quarter. The same amount as last quarter. The dividend will be paid on August 28 to shareholders of record on August 21st.
Let me now turn the call back over to David for concluding remarks.
Thank you Michael business has remained strong durable through out the but them, it's driven by the quality of the portfolio and the efforts of our team.
We continue to take the necessary steps to navigate through the current challenges buttressed by strong balance sheet, New York City as demonstrated grid resiliency over time.
We expect to see to emerge from the been them extremely.
Enthusiastically look forward to capitalizing on a myriad of growth opportunities, including the upcoming office lease rolls the potential expansion of weapons guns, and the 10th Embassy suites redevelop.
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The line for questions.
[noise]. Thank you, ladies and gentlemen, a floor is now open for questions. If you have any questions or comments, we seem to keep so now by pressing star one on your Touchtone phone.
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Okay and your first question is coming from a Buck Horne from Raymond James Buck Your line is life.
Hey, Thank you good afternoon, and congratulations on the a very resilient results in a tough quarter for everyone. I think I'd like to start with a bad debt and just your bad debt accounting policy, how you're you're treating a any delinquencies now what you know what the accrual rate.
Was in this quarter versus the first quarter could you just help us understand how you're you're planning for the current level above delinquency and for any future accruals that may be needed.
Sure.
Good to talk to you but.
So I think the long story short is that obviously, we've been looking at it this quarter a little bit more urgency than perhaps in the past just given.
Yes.
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Third phone.
Sure its benefits and just the ability of people to stay current with their rents.
I think of the general matter in the past as we've looked over our tenant profile I think in prior quarters before Q2, I think we generally look at flat Busch Gardens is the place where we mostly focused on a potential reserve prepared that debt and generally speaking that's a property where are we did take a provision previously you know.
In terms of order of rough magnitude was roughly two to $300000 a quarter of bad debt reserve for a place like Klapisch gardens through Q1 of this year starting in Q2, okay, given what's going on with the pandemic.
We took a harder look at all of the properties.
Hi case by case basis looking at each of the different tenants, both residential and retail and.
Working through that analysis, we thought there was prudent again given the current uncertainty to take an increased reserves I think it makes the most sense and looking at a relatively conservatively, we decided to take roughly an additional $300000 as bad debt reserves. This quarter. So in total the bad debt reserve for Q3 was roughly 600000 spread across the different.
Properties again, we think chicken looking at each tenant.
And he situation individually, we felt that was the best approach. The city is still paying its its goes to us as you would expect on the office side, a retail tenants when sort of tenant by tenant and where negotiations with tenants are kind of on a daily basis to make sure that.
We keep everything up to speed and that was the general approach.
Okay No that's that's very helpful.
You know as it relates to the Flatbush and just flat Bush's resident you just being more sensitive to you know these economic pressures that are out there and if I.
I don't know if you have any way of measuring or any way of determining the sensitivity level of.
Whether or not supplemental on it you know the unemployment insurance benefits.
Get approved or how do you think about the potential risks. If you know more federal assistance is not forthcoming on a property like Flatbush.
Mhm.
Look like I think it's a good question I'll start off by saying that across the board or at least as I look at the Flatbush trajectory of rent collections over the last little bit here before Cook Cobot struck we were very as as you. All know Buck we were in the high Ninetys collections, even in a place like Flatbush gardens.
I think it into the second quarter as I think as you've also seen with other reach.
April and May took a little bit of Adeptus initial impact of cobot hit we were roughly sort of in Ah you know kind of low to mid Ninetys under collection I push gardens into June and then further into July we've actually seen a significant uptick June we were basically almost basically at 100% in July we were.
And that sort of range as well so.
To answer your specific question have we done an analysis of the impact of the potential loss of supplemental unemployment insurance I don't have a sort of tenant by tenant analysis of that but look as I said before it's a situation just given the lingering uncertainty and what we still can't quite figure out an endpoint to this whole pandemic.
It's something where we're going to continue to look at it but ER in connection with putting a bad debt reserve and he said the other properties. We did a look at flat Bush's we always deal that we took a slightly higher reserve last quarter, but as I said encouragingly the collections for Flatbush in the last couple of months, if it actually quite strong so well continue to look at it realizing that going for.
Howard would they have to adjust our thinking but.
So far so good but we are clearly analyzing it not a day by day basis.
Yep, Thanks, and one last thing sneak one in just on the repurchase program I think that's a great idea at these price levels. So.
Congrats on that move I'm just curious if.
When when can the company first began becoming active in the market. If you can I don't know when the window opens for the program.
What did or no correctly.
Yeah that was after at least.
Alright, perfect Alright, Thanks again, guys appreciate it.
Sputniks they will.
Well.
Okay. Your next question is coming from Craig I'm, sorry, Craig Your line is life.
Yeah, Hey, guys.
I agree.
Hi, there.
Aside from the buyback a you know you're looking at $10 million. There you still have a pretty significant amount of cash on the balance sheet.
Any updated thoughts on the east that he still looking for acquisitions or kind of what are your current costs there.
We just Oh, we are taking a look at the market see what's it was how the market is going to me I call. This and how it's going to unfold.
I have a specific plans yet on what to do with is still a you know cautiously reviewing everything that's going on.
Focus right now is maintaining everything provide like we said in the gun.
The scrip.
Sure the old and Evans received the essential services.
He goes as planned.
Obligated to do.
And you know working with people who have the issues about thing working those things through.
And you know just being a good responsible level and what we will do with the cash and think it's going to it's gonna be sometime it until we see how the market is unfolding.
Okay.
I know you mentioned that you expect occupancy to improve the Tribeca.
But was there anything specific at that property that to how the occupancy drop as much as it did from last quarter or or even last year.
I think other thing.
No no I think it's really a young people there and that's pretty good problem.
More so than somebody other properties as well with old to move out in the city temporarily.
Summer homes or different home second homes of going on to more rule places out in the suburbs.
As a trend that was going on them and have not more than the Bose.
As you can see you cannot portfolio more than the Bose.
His way where people are opting to leave the city.
I think now with the opening a the governor announces opening up the public schools, though the private schools are opening up.
I think we'll see the that moved stabilize.
Okay great.
I think in early June you had.
You had mentioned at least at a restaurant had closed that tried that car or any other retail tenants not likely going to open up again.
Not that nothing my nose.
Obviously, a very small exposure.
Who the you know the retail space.
I don't know if anything at the moment opening.
Okay great.
And I'm curious to hear a with the your look year look application I imagine that things really slow down in the second quarter have they picked back up here in third quarter or is that still sort of on hold.
Your term.
Just just opened up the public hearings that Europe is a public in process.
I see in the pandemic they were not a they would not holding public hearings. They did not make that available to remote zoom process or things that you know electronic processes.
But now they've actually a you know notified us that they're opening up the process together you know be allowed to have you know.
Obviously with the proper precision, but they can allow these process happened. So we're going to go back in and try to get that going again.
Okay, Great. That's it for me thank you.
That's correct.
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Thank you very much and everybody. Please stay section and we look forward to speaking you again soon thank you have a good day.
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.
Thank you.
Thank you.