Q3 2020 Clipper Realty Inc Earnings Call
On the line and we'll be back in a moment.
[music].
He told a lot.
[laughter].
Good afternoon, ladies and gentlemen, and welcome to the Clipper Realty three Q 20 earnings call.
This time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Michael friends, Sir the floor is yours.
Good afternoon, and thank you for joining us for the third quarter 2020, Clipper Realty Inc. earnings Conference call participating with me on today's call are David distress or co chairman of the board and Chief Executive Officer, and JJ Investor, Sir 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 indicated by such forward looking statements.
These statements are subject to numerous risks and uncertainties, including those disclosed in the company's quarterly report on form 10-Q posted today the company's quarterly reports on form 10-Q for the first and second quarters of 2020 and the.
The company's 2019 annual report on form 10-K, which are all accessible at www Dot FCC dot Gov, and our web site.
As a reminder, the forward looking statements speak only as of the date of this call November night, 2020, and the company undertakes no duty to update them.
During this call management may refer to certain non-GAAP financial measures, including adjusted funds from operations or.
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 will now turn the call over to our co chairman and CEO David distributor.
Thank you Michael Good afternoon, and welcome to the third quarter 2028 schools, we took the realty.
I will provide an update on our business performance, including recent highlights and milestones as well as.
How a company that is funny to cope with 19.
I will then turn the call over to JJ will discuss property level activity, including recent performance and measures taken line as well.
Finally, Michael will speak about our quarterly financial performance. We will then take your questions.
I will begin by thanking the entire clip the team for their continued hard work and perseverance. During this challenging to ongoing dedication to our residents communities in a business.
Been remarkable throughout the course of the benefits and pandemic and we are grateful for their efforts.
Our properties have remained open and operational throughout the <unk> and then we.
We continue to take necessary steps to keep us on sales and.
In compliance with state and local orders and I provided typical services to our residents during.
During the third quarter, we witnessed some pressure on occupancy and rental rates at several of our properties driven by economic activity declines related to cope with 19 at quarter end. The residential properties was 93% leased compared to 96% at the end of the second quarter.
Despite the current headwinds we are confident in the resiliency of New York City, and we expect our properties in the New York City markets remain desirable to a broad range of tenants in operations to return to a normal rates stayed over time about.
Don't shoot continues to be well positioned from a liquidity perspective to manage through it through that but then you have a $105 million of guys consisting of $80 million of unrestricted cash and $22 million of restricted cash you finance the portfolio on an asset by asset basis.
Debt and recall, the nonrecourse and is not.
Cross collateralized, we have no debt maturity than any other operating properties until 2027.
During the third quarter, we purchased 45858 shares of common stock.
Where did the average price of $5.90, that's true under 10 million, though the stock repurchase program announced in August at the end.
For the quarter, we had $9.7 million remaining under the stock repurchase program.
Turning to upcoming developments, we can do to proceed with the redevelopment of our 10th and Pacific Street acquisition located in <unk>, Brooklyn about one life of mine one mile from the Atlantic Terminal Barclays Center hub as.
As previously disclosed we estimate that the project will cost approximately $85 million in total and take two years to complete.
Develop at a 6.5% stabilized cap rate JJ will provide further updates on the project shortly.
It was office before the other the new lease that is.
The city of New York at 250 lives in Street commenced in August. This lease is expected to initially had substantially approximately $5.8 million at a drop in revenue and Noel and is.
Second this is a significant milestone for the company.
Well, let me just read the city's rent will increase 25% at the end of December which will add $2.1 million to the properties annual.
No why together these rules are expected to add an incremental $7.1 million value otherwise about portfolio.
Representing an approximate 10% increase on a normalized run rate.
I left off his guns rapidly we continue with the uniform then use we do procedure well you look at the buses with the city this debate that approval.
One floor area ratios is a complex meaningfully expanding the size of the property, adding significant value and allowing us to begin development. There was no assurance, however that the pet application fully or partially approved submitted.
I'd like to provide an update to the Tribeca House for 21 G comes is litigation.
As previously disclosed the new City Court of Appeals in June 2019 that apartment buildings, receiving for 21, g. tax benefits and not subject to look through the regulation.
It's over 29, the appellate division apply.
Applied to the court of Appeals ruling the Jena case, only that the base rent for the termination rents overcharges is four years prior to 2016 filing of the comms is completed and overcharges, if any ought to be determined by campaigns event actually charge during the four year period.
The rent increases the mid if I knew Synrad nothing guidelines book.
Although not eliminating overcharges liability altogether. This ruling is expected to limit our financial exposure in this regard the Bell division, though everything from the low cost of the award of attorneys fees the plaintiffs.
Okay, Libby remanded back to the low cost, which will determine the amount of liability for rental which are the attorney's fees no future court dates have been scheduled yet.
I do not believe that this litigation will have a material impact on our business.
As it pertains to the limited subset of previous an existing tenant at the property. The vast majority is kinda incentives and all future movements are not impacted by litigation as those units a free market.
I would like to comment on our third quarter with the results. We are reporting one of the revenues of $29.6 million and why a $14.5 million an EPS will fall of 2.9 million, though results that reflect the current headwinds discussed earlier, Michael will provide further details on our financial performance. Shortly I will now turn.
The call over the JJ, who will provide an update on operations and our response that have been done that including a targeted overhead reduction to future streamline expenses.
Thank you I begin by asking but again thanking our colleagues at our properties and corporate office for their tireless efforts throughout this challenging period there.
Their unwavering commitment to our attendance at communities has been inspiring.
We face certain revenue challenges in the third quarter as a result of declines in economic activity related to COVID-19 there.
Third quarter total revenue was 3.6% lower than second quarter total revenue driven by declines in occupancy and rental rates and several of our properties due to the ongoing pandemic.
Rent per square foot and sit back it was $66 at the end of the third quarter.
We are working diligently to manage revenue at the property and know that occupancy has recently increased 83%.
Longer longer term, we believe that occupancy and rental rates at the property will return to pre called levels, given tobacco houses attractiveness from a pricing standpoint compared to other luxury buildings in the surrounding neighborhood.
The flap is gone is complex and Brooklyn held up well in the third quarter from a revenue standpoint as it has throughout the pandemic the property maintain high occupancy ending the quarter over 96% leased.
Per square foot was a record $25.10 at the end of the quarter.
We continue to proactively streamline the business and manage our expense base and have recognized the organize certain operations at the property.
Which is expected to result in annual cost savings in excess of $800000 suffers.
Suppose guns is a key element of our portfolio and growth story with the ethylene expansion project an incremental value opportunity.
Yes.
[noise] [noise] the global House, Aspen intent was 66 street properties experienced some occupancy and pricing pressures.
Due to COVID-19, each ending the third quarter, approximately 90% leased compared to middle 90 levels at the end of the second quarter, we have ever seen a recent uptick in activity at these properties with occupancy gains ranging from 380 to 610 basis points since the end of the quarter.
Elections have remained strong during independent Mike.
In collection rates in the third quarter was 97%.
We continue to work with tenants on a case by case basis, when they notified us that they cannot meet their rent obligations as a result of depend nemec, including reviewing potential alternative payment arrangements.
On the development side, we are completing the necessary regulatory process at 10, 10 Pacific Street to construct a nice story 119000 rent.
Rentable square foot fully amenitized multifamily rental building with underground indoor parking.
The property will have 175 total units, 70% of which will be free markets and 30% affordable and is eligible for 35 years for 21, a tax abatement. We are in the process of negotiation negotiating a construction loan for the project.
Looking ahead, we are focused on optimizing occupancy pricing and expenses gross expenses across the business against the backdrop of ongoing pandemic driven headwinds that continue to pressure, both our portfolio and the New York City market in general.
The near term environment will remain challenging, but we are committed to strongly positioning ourselves to emerge from the pandemic.
I will now turn over the call to Michael who will discuss our financial results.
Just one moment gentlemen, Michael's line has disconnected reconnecting them now.
[noise] [noise].
<unk>.
Hello.
Yes. This is the operator, we're trying to connect Michael friends is like gets dropped that's.
That's me come back.
Okay perfect. Thanks.
Okay. So you're on.
Hi, Thanks, guys apologies for that had a connection problem.
Okay, but the third quarter, we achieved revenues of $29.6 million, an increase of 0.2 million or 0.6% compared to the same period. In 2019, we achieved NOI of 14.5 million and AFFO of $2.9 million or six cents per share.
The year over year total revenue increase was primarily attributable to the commencement of the new office lease at the 250, Let me State Street property and bringing the clubhouse property online during the third quarter of 2019, partially offset by a decline in leased occupancy residential rental rate the Tribeca House property.
On the expense side key year over year changes were as follows.
Property property operating expenses increased by zero point $5 million in the third quarter year on year, primarily driven by an increase in the provision for bad debt due to the impact of Coke at 19.
Real estate taxes, and insurance increased by zero point $7 million in the third quarter due to property tax increases across their portfolio in general insurance industry cost increases.
Interest expense increased by $1.5 million in the third quarter year on year, primarily due to the recognition of interest expenses in connection with bringing Cobra House online and the refinancing of the flat Busch gardens property in May.
As David mentioned earlier, we are well positioned from a liquidity perspective as.
As of September Thirtyth, we had $105 million of cash consisting of $83 million of unrestricted cash and $22 million of restricted cash.
We finance our portfolio on an asset by asset basis.
Our debt is nonrecourse that is not cross collateralized.
We have no debt maturities on any operating properties until 2020 so.
Lastly, today, we are announcing a dividend of nine and a half cents per share for the third quarter. The same amount as last quarter. The dividend will be paid on November 27 to shareholders of record on November Twentyth.
Let me now turn the call back over to David for concluding remarks.
Thank you Michael we remain focused on efficiently operating a portfolio throughout the business.
Safety about tenants and employees, our highest priority we continue to take the necessary steps steps to navigate through the current challenges buttressed by strong balance sheet, New York City, I survive and thrive.
Challenging circumstances overtime, and we have every confidence that the city will emerge from that but then again.
[noise] ethically look forward to capitalizing on a myriad of growth opportunities, including the Pacific rim.
And then potentially offensive weapons Gov.
We hope everyone stays safe and healthy with that I'd like to open up the line for questions.
Thank you ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please indicate so now by pressing star one on your Touchtone phone pressing star to where we're moving from Q should your question be answered and lastly, what posing your question. Please pick up your handset uplisting on speakerphone to provide optimum sound quality. Please hold.
While we poll for questions.
Your first question is coming from Craig Sarah Craig Your line is live.
Yeah, Hi, I just wanted to confirm guys did you say that outside of China.
Hi back at where you gave the update that did occupancy had improved to 83% a you mentioned flatbush that all the other properties had seen anywhere from a 380 to 610 basis points in occupancy.
Since the third quarter.
[noise], Yes, yes, hi, Craig how are you.
Well at the end of the second quarter some of the properties as we said Aspentech elastic Clover house. They were all in the mid Ninetys percent occupancy range, 95% to 97% by the end of the third quarter, they had dipped a bit to 90%, but since the end of the third quarter between September and today, we see a bump back up on those properties any.
Aware from three to 4% to 5%. So they asked incentivized and clubhouse properties currently are least ranging from 92% to 95%.
Okay, great and.
And I just wanted to follow up on.
And I guess, how have rents trended basically flat down here in the <unk> in the fourth quarter has there been any rent concessions to get those folks back.
So Jim do you want to talk to that.
[noise] sure. So the Rems has pretty much stayed drop below what they were prior simply because we're trying to recapture occupancy so the winters well well positioned so when the market does come back to start pushing rents again. So for now we are doing the best we can and making sure that we.
Don't lose any opportunities to rent a bomb and.
So there's a slight and down downtick and then rent per square foot because of that.
Got it and and just one more for me.
Tracking are able to track whether as the folks moved out from second to third quarter are they are they staying in market or are these people that are basically just exiting the market or maybe it will come back at some point in the future, but are no longer in the greater New York and I say.
[noise] to answer that and again without the exact detail numbers. The answer is a significant amount of them are moving out of out of the cities and some of them depending on the property I'm moving to lets say second homes that they have in the suburbs.
Many of them tell us when on the way out they say you know we wished and this didn't come to this and we hope to be back soon we really like the you know the property and were looking for so when things get back to normal. So we can return to the city.
Okay, well, that's that's encouraging that's it for me thanks guys.
[noise] [noise] if there are any remaining questions or comments. Please indicate so now by pressing star one.
Okay. Your next question is coming from.
Horn.
Okay Airlines life.
Yeah, Hey, Thanks, Mike could you just quantify what was what the bad debt expense was in the quarter I don't know if you ever did you break out the operating expenses.
Absolutely ER as a refresher in the second quarter as you as you know we took about a $600000 bad debt expense and now into the third quarter here given the high collections right collection rate as Jay just said, we're still in that sort of in high nineties.
So what we've seen is actually to date pretty good and strong performance you're going to depend demick lingers all in all it's the third quarter, we took a approximate $660000 charge for bad debt. So at a 10% increase over the second quarter, but again given everything that's been going on.
The pandemic I think we're pleasantly surprised and continue to see a collections hold up overall.
Okay, there any remaining questions or comments. Please indicate so now by pressing star one.
Okay, we have no remaining questions in queue.
Thank you for joining us today, we look forward to speaking with you again soon stay safe.
<unk>.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation. Thank you.
[noise].