Q2 2021 Clipper Realty Inc Earnings Call
Good day.
Okay.
Good afternoon, ladies and gentlemen, and welcome to the Clipper Realty <unk> 21 earnings call. At 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 Larry Kreider.
<unk> financial officer, Sir the floor is yours.
Good afternoon, and thank you for joining us for the second quarter 2021, Clipper Realty, Inc. Earnings Conference call participating with me on today's call are David just for <unk> co Chairman of the board and Chief Executive Officer, and JJ bits of research Chief operating officer.
Please be aware of the statements made during the call that are not historical maybe deemed forward looking 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 2020 and.
<unk> report on form 10-K, which is accessible at www Dot FCC Dot Gov.
And our website as a reminder of the forward looking statements speak only as of the date of this call August 9.2021, 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 <unk> adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA.
Net operating income or NOI. Please see our press release supplemental financial information in the 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 chair of our co chairman and CEO, David <unk>. Thank you, Larry and good afternoon, and welcome to the second quarter 2021 of the earnings call for the Clipper Realty I will provide an update on our business performance, including the recent highlights and milestones as well as our company continues to respond to the COVID-19 the stomach.
I will then turn the call over to the J J, who will discuss the property level of activity, including leasing performance finally, la will speak about our clearly defined the financial performance. We'll then take your questions.
In by once again extending of the things of that entire Clipper Realty team for the ongoing hard work of impressive is during this unprecedented time, we may grateful for their efforts and over the past 17 months of the very challenging circumstances.
Out of the continued dedication to our residents communities in our business. Our properties have remained open and operations throughout the pandemic the increase of New York City residential leasing activity the 2.
Hold in the fourth quarter of last year continues today, because both of the city and the economy in general further strengthened from the depths of it had been done.
We expect rental demand to remain elevated and pricing to improve.
Good day as the reopening of explanations proliferate at the end of the second quarter of properties with 94% leased and the leases are properties are reaching pre pandemic levels, including us Rebecca property.
We had new lease rates in July of approximately $78 per square foot. We continue the take the necessary steps to keep us safe and compliance of state and local orders and I'll provide a typical services to our residents. We remain confident of the resiliency of New York City, and we expect the properties and the city to say the desirable to a broad range of tenants.
Operations continues to return to a more normal state overtime, our balance sheet continues to be well positioned from a liquidity perspective to manage through the pandemic, we of approximately $98 million of cash consisting of 85 million of the unrestricted cash of $13 million of restricted cash we finance our portfolio of an asset by asset basis.
Our debt is nonrecourse subject of limited standard carve outs and.
That cross Collateralize, we have no debt maturities on any of the operating properties until 2027.
Some more recent developments we could do the proceed with the redevelopment of 10.10 specific strength in Brooklyn, located in prospect by Prospect Heights about 1 mile from the Atlantic Terminal Slash Barclays Center hub construction is well underway as previously discussed we estimate the property. The project will of course, approximately 85 million.
In total if the all of the construction.
We'll take 2 years the complete at the balance of 6 and a half.
Stabilized cap rate at this point the bulk of the 80% of our construction contracts are completed.
Bought out.
We are about to enter into the new 52, and a half million dollars construction loan facility that will provide us with financing through completion.
Jay will provide further update on the project shortly.
Our office portfolio of the city rent of 141, there is the street increased 25% of the end of 2020, adding $2.1 million of the property's annual NOI together with the expected additional of $5 million of.
The annual NOI, resulting from the city's new lease of $2.50, Livingston Street property that commenced in August of 2020. These increases are expected to add incremental $7.1 million of the annual NOI to our properties to our portfolio, representing an approximate 10 per cent decrease on a normalized run rate.
I would like to comment that our second quarter results were reported quarterly revenue of $37 million.
NOI of $16.1 million.
<unk> of $4.1 million, while revenue is stable with last quarter as we turned the corner on residential rental leasing NOI of half.
Improved by over $1 million.
Each as a result of the reduced utility expenses and improved collections as Larry will further detail I will now turn the call over to J J, who will provide an update on operations.
Thank you I'd begin by again, extending our thanks to the company's employees for the inspiring efforts throughout this unprecedented period.
Grateful for their ongoing commitment to our tenants and communities the.
The increase in the residential leasing activity that began toward the end of the last year continues today.
At the end of the second quarter all of our residential properties of at least in the mid to high 90 per cent range, depending on the year and trends in the market improvement versus the approximately approximate 90% levels being 9 months ago as we anticipated last quarter, we are seeing improved the rental demand.
As New York City for the reopened the vaccines continues to become more widespread.
New rental rates of reaching or exceeding pre pandemic levels and all the exceeding present average rates.
For example, new leased as of July at the Trabecular of House property was $78 per square foot.
At the top advanced any $1 per square foot and Aspen holding $1 per square foot.
Occupancy at Tribeca House remained high at the end of the second quarter of residential units were 97% occupied versus 96, 5% last quarter.
90% at year end on the 80% of 9 months ago, we continue to work diligently to manage the revenue at the top.
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Rental rates that your back of house are beginning to return to pre COVID-19 levels as mentioned the both given the asset quality and the attractiveness from a pricing standpoint could take the other luxury buildings in the surrounding neighborhood.
Revenue at the club is non complex in Brooklyn held up well in the second quarter.
As it has throughout the pandemic the property and maintain high occupancy and in the quarter of 93% leased rent per square foot was $25 per square foot at the end of the quarter and near record level.
As noted previously we have reorganized certain operations at the property as part of the ongoing efforts to manage our expense base, which is expected to result in annual cost savings in excess of $800000.
The average loans remains a key element of our portfolio of growth story.
Rent collections remained strong despite the challenges of the pandemic and.
Collection rate in the second quarter was 96% an uptick versus 95% of year end.
We continue to work with tenants on the case by case basis.
The notice of files that they cannot meet the rent obligations due to the pandemic. We also expect the benefit to get the benefit in the next few months from the emergency rental assistance program, otherwise known as the Internet when the city begins paying out you really have residents with approximately $1 million of applications pending.
On the development side, we have commenced construction of Tencent Pacific Street on of 9 story.
119000, rentable square foot suddenly and monetize the multifamily rental building with underground in the parking at the property is expected to have 175 total units.
70% of which will be free market in the 30% of 4 of them.
And is eligible for 35 years for 201, a tax abatement.
We are about we are about to enter into the $52 million $52.5 million destruction on the root cause of items with the financing through completion.
In addition, we have finalized the touching 80% of the construction contracts.
Looking ahead, we remain focused on optimizing occupancy pricing and the expenses across the business. The best position ourselves as New York City continues its emergence from the pandemic.
I will now turn the call over to Larry who will discuss how the financial results.
Thank you J J for.
For the second quarter, we achieved revenues of $30.7 million compared to $31.2 million for the second quarter of 2020.
And $30.7 million in the first quarter of 2021, and the second quarter. We achieved NOI of 16 point of 1 billion and a F. F O of 4.1 million as compared to $17.3 million and $5.5 billion for the second quarter of 2020, but up from the 14.8 million.
And $3.1 billion in the first quarter of 2021.
The year on year revenue change was primarily attributable attributable to bargain residential race, we offered of the Tribeca House property last year to maintain occupancy at the property and the termination of certain commercial leases at the property, partially offset by the commencement of the new office lease at the 250 <unk>.
Some of the street property during the third quarter of 2020.
At this point the rates, we are achieving it on new residential leases have substantially recovered from last year has the Tribeca House property residential rates in July were at the $78 per square foot level with similar increases at our other properties as well.
On the expense side key your year over year changes were as follows.
Property operating expenses increased by $4 million in the second quarter year on year, primarily driven by an increase in the provision for bad debt due to the impact of COVID-19 summaries of resumption of normal repairs and maintenance of tenant legal activities at Flatbush gardens, partially offset by the decrease in the staff.
Cost from realignment of operating activities at Flatbush Gardens.
You'll estate taxes of insurance increased by <unk> 6 million in the second quarter year on year due to property tax increases across the portfolio of general insurance industry cost increases insurance expense increased by <unk> 4 million in the second quarter year on year, primarily due to the refinancing of the Flatbush gardens property.
In May 2020, and the 141 Livingston Street property in February this year.
As David mentioned, we are well positioned from a liquidity perspective, we have $98 million of cash consisting of $85 million of unrestricted cash of $13 million of restricted cash we find that sort of portfolio on an asset by asset basis. Our debt is nonrecourse subject to the limited standard carve outs and as of.
Not cross collateralized, we have no debt maturities on any properties until 2027 today, we are announcing a dividend of 9.5 cents per share for the second quarter. The same amount as last quarter. The dividend will be paid on August 26 to shareholders of record.
On August 19.
Let me turn the call back to David for concluding remarks.
Thank you Larry.
They focus on efficiency operating a portfolio with the safety of attendance of employees, our highest priority. We continue to take the necessary steps to navigate through the current challenges buttressed by the strong balance sheet, We expect New York city's recovery from the pandemic to continue to accelerate through 2021 and beyond we look forward the capitalizing.
The myriad of growth opportunities, including the 10.10 Pacific through development and the other possibilities that may present themselves, we hope everyone stays safe and healthy.
Now to open up the line for questions.
Thank you ladies and gentlemen, the floor is now opened for questions. If you of any questions or comments. Please indicate so now by pressing star 1 on your Touchtone phone pressing star 2 of removing from the Q should your question be answered and lastly, we are posing your question. Please pickup your handset of listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.
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And your first question is coming from Craig Kucera from B Riley Securities Craig of your line is live.
Yes. Thank you I appreciate you guys, taking my call.
I noted that you had some acquisition costs this quarter.
Can you comment at all on kind of what you're evaluating.
If you have any sense of at what point all of the cash that you currently have on balance sheet might be put to work given that it appears that rents are getting back to pre pandemic levels.
Of the cash that we have on the on hand zone.
The <unk> have plans, specifically now to put them to work yet we have them available for opportunities arise and we will.
The evaluate each opportunity as it arises regarding your question about the acquisition costs on the quarterly of that.
The Larry Yeah, Craig I see $60000 from more from the first quarter.
What are you referring to.
Yes, it was in regard to that.
Okay.
I think yeah that was just spillover I think for adjustment of some invoices from prior acquisitions.
Okay, that's fair.
And can you kind of walk me through the mechanics of what's going on at Tribeca.
Occupancy increased by about 50 basis points.
I think earlier in the quarter, you said that rents were up 20% on what you were signing and clearly this quarter there at $78 for versus the current 60 is that of that is that a mix issue. When you had the sequential decline in residential rents or can you kind of tell me what's going on there.
So a simple I mean people are coming back to the cities of the occupancy is up.
With the occupancy going up obviously, the rents are going back.
Slowly, but the going back to where it was pre pandemic so rent levels. The Z now this quarter.
Motion to where it was before the pandemic and people were.
The different mode as they are today.
Okay.
That.
That's it for me. Thank you I appreciate your time thank.
Thank you.
Once again, if there are any remaining questions or comments. Please indicate so now by pressing star 1 on your Touchtone phone.
Okay. We have no further questions. We have a question coming from Buck Horne from Raymond James.
Hey, Thanks, Good day.
Okay.
Alright, great. Thanks.
Just curious.
With the eviction moratorium from the CDC kind of getting extended year, whether that's the legality of that I think is still up in your question, but it does seem like these moratoriums could drag on for a while.
The fact, if any do you anticipate that having operationally or how youre thinking about how bad debt accruals will trend through the remainder of the year.
So hard to answer with any specificity, but I think we've done the much.
Much better during the epidemic.
Good day.
The set of the pandemic is where the collections would go.
We have collections of doing much better than we anticipated.
It's continuing to improve.
By the biologic now more comfortable with the economic footings.
The more comfortable with the opening.
The Bill this is bill the people do not want to Miss because at the end of the day, whether the courts are not open the net of nobody wants to have the bad credit rating and this affects the rating through the courts.
Not yet fully open, but they're starting to take summonses. So some of the some of our buildings, where we have some problems with issuing sums of processing. It caused the process isn't the.
I think it's only a matter of time.
Politicians actually you know that the court's open up but nonetheless, I think the collections.
By month of the month of getting better not worse because people are understanding that the economic climate is better and also the eventually if they don't pay the we'll have a bad credit and or they'll wind up on the street eventually.
Mhm and maybe Conversely are you into the to that point.
What do you think that whats the moratoriums are finally fully expired.
You feel like the.
The substantial portion of your tenants wood.
Find a way to find the money I guess or catch back up to that you don't actually have to incur the turnover or or the situations, where there's going to be a substantial level of turnover at the end of the process.
I think that the level of.
People are not paying us more.
It's a small amount obviously, we're watching it and whatever debt debt.
Write offs of reserves, we have to put on them, we do that on a quarter by quarter basis.
I see it getting better getting worse, so even when the core to open up I think it's going to improve because at the end of the day people.
Do not want to find themselves on the sidewalk, it's not like we have luxury housing where people who have the.
Ability to say you know what will will go down a notch. This is obviously, there's always goes down and find something cheaper, but by and large with the living the quality of the people of paying for it. So I don't think that from here on I think it's going to improve net net.
The decrease things will get the okay.
1 last 1 I was just curious what you bought the let me just let me just add to that I would just add to the that you heard on the core we also discussed that.
We're taking the opportunity to apply for the government subsidies that they're going to be giving out of the people that could not pay the rent. So we made applications for that in excess of around $1 million at this point. So there they're working out the logistics of that but we expect the start trickling in pretty soon for the ones that actually cannot.
Cover the rental expense on a monthly basis.
Got it that's helpful. Thanks, I appreciate the JJ Yeah. My last 1 is just any.
Yes or update.
In terms of re leasing retail commercial space, whether it's.
Prime backer or any of the other properties of the ground level retail space any any improvement there.
I think we've I'll take the.
No go ahead.
And about the pre.
Of course, the judge is going to tell you we made the conscious decision to.
The bid because we don't have a lot of retail and during the pandemic.
The.
The leasing of these spaces will admit that the.
The substantial of this guns and we were charging we don't think that was the prudent right now the few stores that we have vacant mostly in the Tribeca, We think that will do much better with US now if we go out for them to the market for the next couple of months than we were doing.
Previously we have won.
Specific but the spud the on the corner of the tenant vacated was being like $40 rent is way below the market even in today's market.
By and large we think that we will all the time released the spaces of more than we were achieving.
<unk> joined the prior to the pandemic.
Alright, and just to add to that I'll say that we're actively engaged with the brokers on a daily basis.
The speaking to them all the time, where we're actively listening and negotiating with potential tenants.
We're not going to the strike a deal the <unk>.
It's like it's.
Let's call it artificially low rents because of the Covid effect, because we say commercial.
Commercial deals go out for 10, sometimes with 20 years, and we don't want to lock ourselves in on the rent that's going to be benefiting from a short term depression, that's going to pay that but hopefully very soon.
So we're talking to them, but we're not just kind of make a deal that will look silly in a few years from now.
Alright got it got it thanks, guys I appreciate the clarity of a great great day.
Thank you.
Okay, we have no remaining questions in queue.
Thank you very much. Thank you for joining our call and everybody stay safe.
Of note.
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.
Yes.