Q2 2022 Clipper Realty Inc Earnings Call
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[music]. Thank you for holding we sincerely appreciate your patients stay on the line and we'll be back in a moment.
Good afternoon, ladies and gentlemen, and welcome to today's Clipper Realty second quarter 2022 earnings call. At this time, all participants have been placed on a listen only mode, but 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 lines greater Lawrence the floor is yours.
Thank you very much good afternoon, and thank you for joining us for the second quarter 2020 to Clipper Realty, Inc. Earnings Conference call participating with me on today's call are David <unk> Co Chairman of the Board and Chief Executive Officer, and JJ <unk> Chief operating officer, please be aware that.
That's 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 2021 annual report on Form 10-K, which is 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.
Call August nine 2022, 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 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 This or Sir Thank you Larry and good afternoon, and welcome to the second quarter of 2022 earnings call for Clipper Realty.
We'll provide an update of our business performance, including recent highlights and milestones as well as the company's progress I will then turn the call over to JJ will address property level activity, including leasing performance finally, Larry will speak about our quarterly financial performance. We will then take your questions.
See positive operational trends as we look forward.
Leasing activity is rapidly improving despite the recent headline news on inflation and interest rate increases, we expect rental demand to remain strong and pricing to improve the other New York City is largely reopen people seek to relocate back to the city and employees increasingly returned to their offices.
At the end of the second quarter.
<unk> with 98% leased and new leases at our property are reaching or exceeding pre pandemic levels, including as Rebecca has probably with new lease rates in the second quarter exceeded $80, a square foot more than 30% better than the previous rents and June average rents per square foot increased.
To $67 per foot from 65.
At the end of March and 63 per square foot at end of December with respect to interest rate increases. We believe we are butters by relatively strong long duration.
Debt of which 95% is fixed at 376%.
As an average duration of seven three years and is nonrecourse subject to limited standard carve us none of course grows with respect to inflation, we looked at a short duration of our residential leases to allow us to cover increased expenses on a substantial number of leases.
Major existing construction project contracts were all bought out in 2021.
Our balance sheet continues to be well positioned from a liquidity perspective, we have approximately $44 million consisting of $29 $5 million of unrestricted cash and fortinet millions of dollars of restricted cash we finance our portfolio on an asset by asset basis.
Turning to recent developments.
Essentially ground up development of 10 Pacific acquisition is moving along very well and we are targeting substantial completion in the fourth quarter.
The property is located in prospect Heights, Brooklyn, a mile from the Atlantic Terminal Barclays Center hub as previously discussed we estimate the project to cost $85 million and developed to a six 5% stabilized cap rate.
Jay will provide further update on the project shortly.
At the end of the year. We also bought another property in the same area of booking at 953. These streets.
We will we intend to redevelop from the ground up in April we completed the incremental purchase of land and financing to bring the initial approaches to total cost of approximately $48 million with with the acquisition financing of $37 million, we expect to build a nine story fully amortize residential.
Building the other 60.
Thousands of residential rentable square feet to others for the U S, 70% of free market, 30% affordable, which is under the <unk> program, which is a tax taxed up for 35 years with 85.
Have any 500 commercial rental square feet with regard to our second quarter results. We are reporting quarterly revenue of $31 $9 million NOI of $17 $2 million.
So a $5 $1 million as a result of improved leasing I mentioned about these results represent significant improvements over the second quarter last year as J J and no further detail I will now turn the call over to J J, who will provide an update on operations.
Thank you.
The residential leasing activity that began last year to Houston.
At the end of the second quarter residential properties were leased in the high 90% range.
And new rental rates.
Second quarter are reaching or exceeding pre pandemic levels and.
And all exceeds present average rental rates.
As I will detail shortly combined all of our properties.
Lease rental rates in the second quarter exceeded.
Instruments by over 20% in renewal rental rates exceeded previous runs by over 10%.
We are experiencing strong rental demand.
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Well at least occupancy has averaged 98% over the last 12 months.
Increased.
Throughput to $67 per square foot from $60.
In the last six months.
Leases have risen to over $80 per square foot, representing an increase of 30% over the previous rents and rent on renewals has increased 18% over the previous rents.
How do we expect rent per square foot to continue to grow steadily through next year as a result of turnover.
Of our one and two year leases entered into last year in response.
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We also continued to make progress on new leases.
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Just you're making house property.
You can force smaller pieces.
And substantially higher rates.
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Yes.
In the second quarter, we are.
Focused on leasing the units vacating since mid 2020.
Since the beginning of the year, we have increased occupancy to Mimi.
New leases.
Wow.
Approximately 8%.
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Do you mean.
Overall average rents of the property.
The increase again rising to 25059.
Cool.
At the end of the quarter versus 25012 cents at the end of the last year looking forward. We also shouldn't we.
We should also benefit from the new guidelines put forth by the meat.
Jason Bourne, which beginning October one.
E E.
Three.
Two 5%.
And 5%.
That's increasing have been limited to Europe .
For the last couple of years.
These increases will help offset a continuing investment.
In the property, which has announced it amounted to nearly $2 million this year.
We continue to benefit from the 'twenty 'twenty reorganization of the property's operations and Muni equate to nearly $800000 in savings.
Our other residential properties Clover house, almost 60 to the street.
In 2015, and some street continues to perform well.
Occupancy has remained high all above 95%.
Average rental rates with exception of Aspen have increased five 8% since the beginning of the year increasing on both.
New leases on the news and averaged over 20%.
Aspen.
With very little turnover.
Collections across our portfolio remains strong despite the residual challenges of the pandemic.
Overall collection rate in the second quarter.
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Hum.
No.
Through this program.
Yeah.
The landlord rental assistance program.
I wish we had $1 $4 million in the second.
Clinton.
In the first quarter and.
$2 $5 million in the fourth quarter of 2021.
On the development side.
Meanwhile on construction.
Pete.
And all of them targeting substantial completion.
The fourth quarter.
Our newly completed at the start of it.
No.
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Costs are expecting hasn't book.
Construction contracts.
The recent spike in costs.
You'll find out that construction fleet through our 52 5 million construction loan.
The development of a nuclear on 119000 rentable square foot.
Multifamily rental.
And on the ground in the economy.
Exactly.
125, totaling 70, Columbia, which will be free market.
On the affordable and is eligible for 35 years, what 'twenty, one a tax abatement.
Looking ahead, we remain focused on optimizing occupancy.
And expenses across the business to best position ourselves for growth.
I'll now turn the call over to Larry who will discuss our financial results.
Thank you J J.
For the second quarter revenues increased by $1 $2 million to $31 $9 billion from $37 million last year's second quarter NOI. This quarter increased by $1 $1 billion to $17 2 million from $16 $1 billion last year's second quarter.
<unk> increased by $1 billion to $5 $1 billion this quarter from $4 $1 billion last last year's second quarter as I discussed last quarter adoption of a new accounting standard ASC 842 shifted the classification of bad debt expense from expense to revenue at <unk>.
Accelerating the recognition of bad debt expense at accounts that are not fully collectible as a result, we have deducted bad debt expense for revenue in 2022 versus adding to expense in 2021 at earlier to record the effect of the acceleration of bad debt expense, our bad debt expense recognition.
And from the new accounting standard, we recorded a $5 $8 million charge to retained earnings in the first quarter, and then a $1 $1 billion credit to revenue for improved prospects of a commercial tenant of the Tribeca House property.
As a result, excluding the impact of the new accounting standard revenue in the second quarter increased by $1.9 billion to $32 $6 million from $37 million last year, primarily due as JJ detailed to increased occupancy at the Flatbush gardens property higher Rev.
<unk> rental rates at the Tribeca House, Clover House, 10, West 65th Street, and Flatbush Gardens properties, new commercial tenants at the Tribeca House property and.
The increased Cam billings at the $1 41, Livingston Street property.
These increases were partially offset.
By $700000 of bad debt expense this quarter versus a $900000 charge to operating expenses last year.
On the expense side.
The key year over year changes were as follows property operating expenses were $600000 higher than last year, excluding the $900000 charge for bad debt expense in last year's second quarter. This was due primarily to increased prices of heating oil and gas and increased expenses.
To make vacant units at the Flatbush gardens property ready for improved leasing this year.
State taxes and insurance increased by approximately $500000 in the second quarter year on year due to increased insurance costs across the portfolio for arrangements begun in the third quarter last year.
Interest expense decreased by $360000 in the second quarter year on year due to additional capitalization of interest associated with the 10 10 Pacific Street at 953, Dean Street development projects.
With regard to our balance sheet as David mentioned, we have a $29.4 million of unrestricted cash and $14 $5 billion of restricted cash we are funding our development of our 10 10 Pacific Street, a Dean Street.
Acquisitions substantially with construction financing, we finance our portfolio on an asset by asset basis that our debt is nonrecourse subject to limited standard carve outs and is not cross collateralized, we have no debt maturities on any properties until 2022 with average.
Twenty-seven with.
Excuse me with average overall duration of 7.13 years today or 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 26 to shareholders of record on August 19th.
Let me now turn the call back over to David for concluding remarks. Thank you Larry we may focus on efficiency operating a portfolio.
We look to current operating improvements to continue to accelerate through 2022 and beyond we look forward to capitalizing on a myriad of growth opportunities, including the 10, a M Pacific and 953 D. C developments in other possibilities that may present themselves I would now like to open up the line for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. At this time you May press star one on your telephone keypad to enter the queue. We do ask if listing on speaker phone today that you. Please pickup your handset to provide optimal.
Sound quality once again, ladies and gentlemen, you can press Star then one on your telephone keypad at this time, if you'd like to ask a question. Please hold a moment, while we poll for questions and as a reminder, ladies and gentlemen, and that'll be star one on your telephone keypad at this time once again.
Please hold a moment, while we poll for questions.
And we do have a question.
Coming from Buck Horne from Raymond James.
Your line is live please go ahead.
Hey, Thanks, Good afternoon, Hey, guys good afternoon.
Just curious with completion of 10 10 Pacific coming into visibility here, what the timeframe would be for putting in some sort of permanent financing on that property or taken out the construction loan and what kind of costs you see in the market in terms of like what do you think you can go to market at.
In the next few months and price that loan out at.
We haven't we haven't yet.
Onto the market.
Starting to speak too to the lender itself, who has a program for permanent financing.
We're starting to make such applications, it's a little bit early because it sets rented yet.
And we think that.
Jumping the gun before the renters will hurt us in the interest rate other terms of alone.
But.
Focused on it and we know that what are the things that we'll be doing.
More towards the fourth quarter of this year, but we will engage with different lenses on it.
Okay, Okay, I appreciate that and on the.
Street redevelopment so what's the projected timeline for completion on that if you have any idea on what.
Pro forma stabilized yield on cost might look like there.
This is something we'll have to get back to you don't have the number here, we actually have it but I don't have it in front of me.
We'll get back to you after the call.
Okay, Alright, guys. Thanks.
Sure welcome.
I was talking to you.
Thank you and as a reminder, ladies and gentlemen, if you would like to ask a question. At this time you May Press Star then one on your telephone keypad.
And there are no further questions in queue at this time I would now like to pass the floor back to the management team for closing remarks.
Thank you for joining us today, we look forward to speaking with you again soon.
Plc summer.
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.
Okay.