Good afternoon, ladies and gentlemen, and welcome to Clipper Realty 2Q 2020 Earnings Call. At this time all participants have been placed on a listen-only mode. We'll 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 Frenz, 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 today's call are David Bistricer, Co-Chairman of the Board and Chief Executive Officer; and J.J. 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 quarterly report on Form 10-Q posted today, the company's quarterly report on Form 10-Q for the first quarter of 2020 and the company's 2019 annual report on Form 10-K, which are all accessible at www.sec.gov and our website. As a reminder, the forward-looking statements speak only as of the date of this call, August 10, 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 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-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 Bistricer.

Thank you, Michael. Good afternoon and welcome to the second quarter 2020 earnings call for Clipper Realty. I will provide an update on our business including recent highlights and milestones, as well as how our company is responding to COVID-19 pandemic. I will then turn the call over to JJ, who will discuss property level activity, including leasing performance, capital projects and measures taken in line with the pandemic. Finally, Michael will speak about our quarterly financial performance. We will then take your questions. Let me begin by saying how grateful we are to the entire Clipper team for the continued hard work and perseverance during these challenging times. The dedication to our residents, our communities and our business have been inspiring during this time of unprecedented upheaval and we thank them for the ongoing efforts. JJ will address the initiatives we are taking to help our colleagues work through the crisis. Our properties have remained open and operational throughout the pandemic. We continue to take the necessary steps to keep our tenants safe in compliance with state and local audits and are providing typical services to our residents. We saw a slight downtick in occupancy during the second quarter driven by COVID-19. But at quarter end, our residential properties were still over 96% leased and has stabilized at that level through July. Under difficult circumstances, our 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 a more normal state over time. Our balance sheet is well positioned from a liquidity perspective to manage through the pandemic. We have in excess of 116 million of cash consisting of approximately 88 million of unrestricted cash and 28 million of restricted cash.…

Thank you. I would like to begin by reiterating our deep gratitude to both our employees and residents during this challenging period. Our colleagues have continued to work tirelessly to assist our tenants and communities in maintaining as much of a sense of normalcy as possible throughout the pandemic. We continue to rigorously maintain protocols to keep our residents and employees safe in compliance with government mandated orders including requiring all of our employees and service providers who enter our buildings to wear compliant personal protective equipment and practice social distancing. Our properties remain open and operational, providing permitted regular services to our tenants. We continue to utilize technology as appropriate to conduct operations at all levels. Our collections have been strong during the pandemic. During the second quarter, our rent collections rate was equal to 94% of our first quarter collection rate prior to the impact of COVID-19 and our July collection rate improved to 98%. We continue to work with tenants on a case-by-case basis in situations where they notify us that they cannot meet their obligations as a result of the pandemic, including reviewing potential alternative payment arrangements. Further demonstrating the resiliency of our business, second quarter revenue was down only 0.5% versus the first quarter prior to the pandemic. Our residential properties were still 96.2% leased at the end of the second quarter, down 150 basis points from 97.7% at the end of the first quarter and stabilized at that level in July. Our focus on expense management mitigated these pressures, resulting in an approximate 90 basis point improvement in NOI margin in the second quarter versus the first quarter. Turning to the property level, at 1010 Pacific Street, we filed plans for the new building and are working expeditiously to complete the associated regulatory processes.…

Thank you, JJ. 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 NOI of $17.3 million, an 8.7% increase compared to the same period in 2019 and AFFO of $5.5 million or $0.12 per share. The year-over-year total revenue increase was primarily attributable to bringing the Clover House property online during the third quarter of 2019 and completing renovation and re-leasing of approximately 50% of the units at 10 West 65th 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 the provision for bad debt due to the impact of COVID-19. Real estate taxes and insurance increased by approximately $1.1 million in the second quarter due to property tax increases across the portfolio and general insurance industry cost increases. Cash, general and administrative costs, excluding non-recurring 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 Clover House 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 30, we have an excess of $116 million of cash, consisting of approximately 88 million of 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 $0.95 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 21. Let me now turn the call back over to David for concluding remarks.

Thank you, Michael. Our business has remained strong and durable throughout the pandemic 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 buttress by a strong balance sheet. New York City has demonstrated great resiliency over time and we expect the City to emerge from the pandemic stronger than ever. We enthusiastically look forward to capitalizing on a myriad of growth opportunities, including the upcoming office lease roles, the potential expansion of Flatbush Gardens and the 1010 Pacific Street, redevelopment. We hope everyone stay safe and healthy. With that I would like to open up the line for questions.

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Okay. And your first question is coming from Buck Horne from Raymond James. Buck, your line is live.

Okay, thank you. Good afternoon and congratulations on the very resilient results in a tough quarter for everyone. I think I'd like to start with bad debt and just your bad debt accounting policy, how you're treating any delinquencies now. What the accrual rate was in this quarter versus the first quarter? Could you just help us to understand how you're planning for the current level of delinquency and for any future accruals that may be needed?

Sure. Good to talk to you Buck. So I think the long story short is that obviously we've been looking at it this quarter, with a little bit more urgency than perhaps in the past, just given the unmet [indiscernible] benefits and just the ability to people to stay current with their rents. I think as a 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 Flatbush Gardens as the place where we mostly focused on a potential reserve prepared bad debt. And generally speaking, that's the property where we did take a provision previously. In terms of order of rough magnitude, it was roughly $200,000 to $300,000 a quarter of bad debt reserve for a place like Flatbush Gardens through Q1 of this year. Starting in Q2 again, given what's going on with the pandemic, we took a harder look at all of the properties a case-by-case basis, looking at each of the different tenants, both residential and retail. And working through that analysis, we thought it was prudent, again, given the current uncertainty to take an increased reserve. I think it makes the most sense. And looking at a relative conservatively, we decided to take roughly an additional $300,000 in bad debt reserves this quarter. So in total, the bad debt reserve for Q3 was roughly 600,000 [indiscernible] different properties. Again, we think - looking at each tenant and each situation individually, we felt that was the best approach. The City is still paying its bills to us, as you expect, on the office side. Retail tenants, we went sort of tenant-by-tenant and we're in negotiations with tenants kind of on a daily basis to make sure that we keep everything up to speed and that was the general approach.

Okay, that's very helpful. As it relates to the Flatbush and just Flatbush's residents just being more sensitive to these economic pressures that are out there. I don't know if you have any way of measuring or any way of determining the sensitivity level of whether or not supplemental - the unemployment insurance benefits get approved or how do you think about the potential risks if more federal assistance is not forthcoming on a property like Flatbush?

Look, I think it's a good question. I'll start off by saying that across the board, or at least has a look at the Flatbush trajectory of rent collections over the last little bit here. Before COVID struck we were very - as you all know Buck, we were in the high 90s collections even in a place like Flatbush Gardens. I think into the second quarter as I think you've also seen with other REITs, April and May took a little bit of a dip as the initial impact of COVID hit, we were roughly sort of in kind of low to mid 90s on the collection at Flatbush 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 in 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 while 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 in connection with putting a bad debt reserve on each of the other properties, we did look at Flatbush as we always do when we took a slightly higher reserve in the last quarter. But as I said, encouragingly, the collections for Flatbush in the last couple of months have been actually quite strong. So we'll continue to look at it realizing that going forward, we're may have to adjust our thinking, but so far so good, but we're clearly analyzing it on a day-by-day basis.

Yeah. Thanks. And one last, if I can 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 can the company first begin becoming active in the market if you can - when the window opens for the program?

48 hours after we release the earnings.

All right, perfect. All right, thank you again guys. Appreciate it.

Thanks Buck.

Thanks. Stay well.

Stay well.

Okay, your next question is coming from Craig Kucera. Craig, your line is live.

Yeah. Hey, guys.

Hi.

Hi there. Aside from the buyback, 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 use of that? Are you still looking for acquisitions or kind of what are your current thoughts there?

We're just - we're taking a look at the market to see what's - how the markets going to react to all this and how it's going to unfold. We don't have any specific plans yet on what to do with it. We're still cautiously reviewing everything that's going on. Our focus right now is maintaining everything like we said in the prepared script, we're making sure that all tenants received the essential services and everything goes as planned, as we are obligated to do and working with people who have issues about thing working those things through and just being a good responsible landlord and what we will do with the cash I think it's going to be some time yeah, till we see how the market is unfolding.

Okay. I know you mentioned that you expect occupancy to improve at Tribeca. But was there anything specific at that property that had the occupancy promise as much as it did from last quarter or even last year other than COVID?

No, not at all, I think it's really a - people there in that particular property, more so than some of the other properties had the wherewithal to move out of the City temporarily. And summer homes or digital homes, second homes going into more rural places, and the suburbs. That was a trend that was going on in Manhattan, Manhattan, more than the Boroughs as you can see from my portfolio more than the Boroughs in way where people are asking to leave the City. And I think now with the opening - the Governor announced he's opening up the - the public schools are opening up, the private schools are opening up. I think we'll see that that move stabilizing.

Okay, great. I think in early June, you had a - you had mentioned at least that a restaurant had closed at Tribeca, are any other retail tenants not likely going to open up again?

Not to my knowledge, we obviously a very small exposure to the retail space. But I don't know of anything at the moment that's not opening.

Okay, great. And I'm curious to hear with the year look application and 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 in near term?

No, they just opened up the public hearings that Europe is a public hearing process. Obviously, in the pandemic they were not holding public hearings. They did not make that available through a remote - Zoom process are things - electronic processes, but now they've actually notified us that they're opening up the process again and we're allowed to have obviously with the proper procedures, but then allow the process to happen. So we're going to go back and try to get that going again.

Okay, great. That's it for me. Thank you.

Thank you.

Thanks Craig.

Okay. [Operator Instructions] Okay, looks like we have no further questions in queue.

Thank you very much and everybody please stay safe. And we look forward to speaking to you again soon. Thank you. Have a good day.

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.