Clipper Realty Inc.
Q4 2020 Earnings Call Transcript

Published: 17 Mar 2021

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Clipper Realty 4Q 2020 Earnings Call. At this time, all participants have been placed on a listen-only mode. And the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Michael Frenz. Sir, the floor is yours.

[Michael Frenz:]

Good morning, and thank you for joining us for the fourth quarter 2020 Clipper Realty Inc. earnings conference call. Participating with me on today's call are David Bistricer, Co-Chairman of the Board and Chief Executive Officer; and JJ Bistricer, Chief Operating Officer. Please be aware that statements made during the call that are not historical may be 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 2020 annual report on Form 10-K posted yesterday, which is accessible at www.sec.gov and our website. As a reminder, the forward-looking statements speak only as of the date of this call, March 17, 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 AFFO; adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA and net operating income or NOI. Please see our press release, supplemental financial information and Form 10-K posted yesterday for a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures.

[David Bistricer:]

Thank you, Michael. Good morning, and welcome to the fourth quarter 2020 earnings call for Clipper Realty. I will provide an update to our business performance, including recent highlights and milestones as well as how our company continues to respond to the COVID-19 pandemic. I will then turn the call over to JJ, who will discuss property-level activity, including leasing performance and measures taken in light of the pandemic. Finally, Michael will speak about our quarterly financial performance. We will then take your questions. I will begin by thanking the entire Clipper Realty team for their continued hard work and perseverance during these unprecedented times. We are grateful for their efforts over the past year under very challenging circumstances are proud of their ongoing dedication to our shareholders, residents, communities and our business. Our properties have remained open and operational throughout the pandemic. We continued to take the necessary steps to make our tenants safe and in compliance with state and local orders. During the fourth quarter and into the beginning of 2021, we have seen an increase in residential leasing activity as New York City and the economy in general continues to strengthen from the depths of the pandemic. We expect demand to accelerate, pricing continue to improve as New York City continues to open up and vaccinations proliferate. At year end, the properties were 95% leased and approximate 200 basis points increase versus the end of the third quarter. We are confident in the resiliency of New York City. We expect our properties in the city to remain desirable to a broad range of tenants and operations to continue to return to a more normal state overtime. Last month, we refinanced our 141 Livingston Street property with a $100 million, 10 years secured first mortgage loan with Citi Real Estate Funding Inc. The loan bears interest at 3.21% interest-only for the entire term, which is expected to reduce annual debt service by $1.3 million. We repaid existing $74 million amortizing loan on the property that was due in 2028 and bore interest at 3.875% through May, 2023. Net proceeds of approximately $23 million increased our cash position. We finance our portfolio on an asset by asset basis, no cost collateralization and our debt is non-recourse and non-cost collateralized except for standard carve-outs. We have no debt maturities on any of our operating properties until 2027. Our property is well positioned from a liquidity perspective. During the fourth quarter, we repurchased approximately 1.7 million shares of common stock at an average price of $5.70 per share under our $10 million repurchase growth program announced in August of 2020. We completed the repurchase program in November of last year.

[JJ Bistricer:]

Thank you. I begin by again extending our gratitude to the company's employees for their tireless efforts throughout this unprecedented period; we remain inspired by the ongoing commitment to our tenants and communities. We continue to rigorously maintain protocols, keep our residents and employees safe in compliance with COVID related government mandated orders and to provide permitted regular services to our tenants.

[Michael Frenz:]

Thank you, JJ. For the fourth quarter, we achieved revenues of $30.3 million, compared to $30.6 million for the fourth quarter of 2019. We achieved NOI of $14.7 million and AFFO of $3 million. A slight year-over-year revenue change was primarily attributable to a decline in leased occupancy and residential rental rate at the Tribeca House property partially offset by the commencement of the new office lease at the 250 Livingston Street property during the third quarter of 2020. On the expense side, key year-over-year changes were as follows

[David Bistricer:]

Thank you, Michael. We remain focused on efficiently, operating our portfolio throughout the pandemic, with the safety of our tenants and employees, our highest priority. We continue to take the necessary steps to navigate through the current challenges, buttressed by a strong balance sheet.

[Operator:]

Thank you. And the first question is coming from Craig Kucera . Craig, your line is live. Please announce your affiliation and pull your question.

[Craig Kucera:]

Yes. Thanks. Hi, this is Craig Kucera with B. Riley Securities. Good morning, and thanks for taking my questions. Let's talk about the refinance you completed earlier this quarter. You have now about $95 million in cash. You still got your restricted cash on top of that. Can you give us a sense of what you plan on doing with the excess cash you have after this refinance? And I know you had the excess cash from last year's refinances as Flatbush as well. Just some thoughts there would be helpful?

[David Bistricer:]

We don't have any specific plans at this moment in time; we continue to be on the lookout for opportunities as it presents itself. The company took advantage of these refinancing opportunities to extend the maturity days on interest only basis. And we thought that it was a low interest environment, prudent to do it at the time. And we are pretty confident that the overtime opportunities that meet our investment criteria will present itself.

[Craig Kucera:]

Got it. And now that you completed the 10 million share – $10 million share repurchase in the fourth quarter; is the board revisiting another authorization?

[David Bistricer:]

Not been discussed yet. As you know, the stock has gone up to $8 from $5 where we purchased the shares. We haven't had any discussions yet about that. If we do and we make any decisions, obviously we'll announce it.

[Craig Kucera:]

Got it. And can you give me some color on the refinance at 141 Livingston, what was the LTV, was that done on trailing or forward-looking NOI and any color there would be helpful?

[David Bistricer:]

I think it was approximately about 60% or 65% LTV was a CMBS alone.

[Craig Kucera:]

And was that done on the revised lease?

[Michael Frenz:]

Yes, sorry. Go ahead David.

[David Bistricer:]

Yes, it was.

[Craig Kucera:]

Okay, great. And you had a – did a very good job of getting occupancy up very quickly from third quarter to fourth quarter in a number of your properties. But at some you had to really reduce rents particularly like at a Clover House. And this is a two-part question, I guess, a, is the $50 or so that, that Clover House is that now – is that now market or did you kind of take some short-term pain to get that back-up to 99% occupancy? And b, what are your expectations to begin pushing rents now that you have occupancy much closer to kind of traditionally where you operated with the exception of Tribeca?

[David Bistricer:]

Great question. The latter is true, we obviously, our strategy is, as my father always says, last rent is a smoke opportunity. Can never get that back. So our position and strategy has always been to try to maximize the occupancy, it's great for when the tide changes and has to be able to increase rents slowly over time. And we've kept the occupancy high. And now we're going to start seeing I think the rents will slowly creep back to where they were before the pandemic is. There is a less amount of product around, there was a lot of cessation of construction going on and plans for construction. I think that'll help us. And the properties are well maintained, well positioned. And during the pandemic, we just lowered the prices to capture the occupancy that we enjoyed. But now we'll turn towards slowly starting to see those rents, get back to where they were.

[Michael Frenz:]

I can let, JJ speak as well, but a particular, as it relates to Clover House, as David said, we took the opportunity to fill up the building into the fourth quarter there. In the first couple of months of this year, we started to see a creep back up. I think Clover House is in the mid 50s already on rent per square foot. So again, we'll know more in the next kind of couple of weeks here and has become around to Q1. Well, obviously I'll give you updated information, but we've already seen tick back up into the mid to higher 50s at Clover House.

[Craig Kucera:]

Great. And as far as 1010 Pacific, I know your opening commentary, you said that you thought it would take about two years is that, two years from when you first began that project? So we'll see that completed, at some point in 2022, or is that two years from today? Just given that, things have optically appeared to have slowed down a bit from spending on that project.

[David Bistricer:]

I think it's more like, it's hard to predict precisely, but area on the side of conservatism is probably two years from today.

[Craig Kucera:]

Got it. And it looks like you didn't take a whole lot of bad debt expense here in the fourth quarter. Just looking at your K versus prior Qs. Mike, do you feel like that's been largely washed out of Tennessee as we sit here in the first quarter?

[Michael Frenz:]

No, I think, and again, we can go into more detail offline if you like, but we actually did take a decent amount of bad debt expense in the fourth quarter. It was roughly $1 million of bad debt in Q4 versus Q3 of mid-600,000. So again, we continue to analyze it. We can sort of talk offline if you'd like about the calculation, but we're seeing strong lend collections, as we said, we're still in the mid 90s, but just, examining certain leases and whatnot. And yes, we did take $1 million in the fourth quarter and we expect that to, start to creep down here as, stimulus payments come through and the economy continues to rebound. So hopefully here we're roughly at a peak level and we'll hopefully start to tick back down.

[Craig Kucera:]

Okay, thanks. That's it for me.

[Michael Frenz:]

Thank you.

[Operator:]

Thank you. And there were no other questions from the queue at this time.

[David Bistricer:]

Thank you for joining us today. We look forward to speaking with you again soon. Stay safe.

[Operator:]

Thank you, ladies and gentlemen, that 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.