Good afternoon, ladies and gentlemen, and welcome to the Clipper Realty 2Q 2021 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, Chief 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 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 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, 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, 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 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, Larry. Good afternoon, and welcome to the second quarter 2021 earnings call for Clipper Realty. I will provide an update on 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. Finally, Larry will speak about our quarterly financial performance. We will then take your questions. I will begin by once again extending our thanks to the entire Clipper Realty team for their ongoing hard work and perseverance during this unprecedented time. We remain grateful for their efforts in over the past 17 months on the very challenging circumstances and proud of their continued dedication to our residents, communities and our business. Our properties have remained open and operational throughout the pandemic. The increase in New York City residential leasing activity that took hold in the fourth quarter of last year continues today, as both the city and the economy in general, further strengthened from the depths of the pandemic. We expect rental demand to remain elevated and pricing to improve as New York City continues to reopen and vaccinations proliferate. At the end of the second quarter, our properties were 94% leased and new leases at our properties are reaching pre-pandemic levels, including our Tribeca property, where new lease rates in July were approximately $78 per square foot. We continue to take the necessary steps to keep our tenants safe, in compliance with state and local orders and are providing typical services to our residents. We remain confident with the resiliency of New York City, and we expect our properties and the city to stay desirable to a broad range of tenants and our operations continue to return to…

Thank you. I begin by again extending our thanks to the company’s employees for their inspiring efforts throughout this unprecedented period. We are grateful for their ongoing commitment to our tenants and communities. The increase in 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 were leased in the mid to high 90s percent range, building on year-end trends and a marked improvement versus approximately – approximate 90% levels seen nine months ago. As we anticipated last quarter, we are seeing improved rental demand at – as New York City further reopens and vaccines continue to become more widespread. New rental rates are reaching or exceeding pre-pandemic levels and all exceeding present average rates. For example, new leases in July at the Tribeca House property were $78 per square foot; at Flatbush, down $31 per square foot; and at Aspen, $41 per square foot. Occupancy at Tribeca House remains high. At the end of the second quarter, residential units were 97% occupied versus 96.5% last quarter, 90% at year-end and 80% nine months ago. We continue to work diligently to manage revenue at the property. Rental rates at Tribeca House are beginning to return to pre-COVID levels as mentioned above, given the asset’s quality and attractiveness from a pricing standpoint compared to other luxury buildings in the surrounding neighborhood. Revenue at the Flatbush Gardens complex in Brooklyn held up well in the second quarter, as it has throughout the pandemic. The property maintained high occupancy, ending the quarter 93% leased. The rent per square foot was $27 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…

Thank you, JJ. 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. In the second quarter, we achieved NOI of $16.1 million and AFFO of $4.1 million as compared to $17.3 million and $5.5 million for the second quarter of 2020, but up from the $14.8 million and $3.1 million in the first quarter of 2021. The year-on-year revenue change was primarily attributable to bargain residential rates we offered at 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 Livingston Street property during the third quarter of 2020. At this point, the rates we are achieving at – on new residential leases have substantially recovered from last year as 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 year-over-year changes were as follows: property operating expenses increased by $0.4 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; some resumption of normal repairs and maintenance and tenant legal activities at the Flatbush Gardens, partially offset by the decrease in the staff costs from realignment of operating activities at Flatbush Gardens. Real estate taxes and insurance increased by $0.6 million in the second quarter year-on-year due to property tax increases across the portfolio and general insurance industry cost increases. Insurance expense increased by $0.4 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 and $13 million of restricted cash. We finance our portfolio on an asset by asset basis. Our debt is non-recourse subject to limited standard carve-outs and is not cross-collateralized. We have no debt maturities on any properties until 2027. Today we are announcing a dividend of $0.095 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. We remain focused on efficiency, operating our portfolio, 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. We expect now to see the recovery from the pandemic to continue to accelerate through 2021 and beyond. We look forward to capitalizing on a myriad of growth opportunities, including the 1010 Pacific Street development and other possibilities that may present themselves. We hope everyone stays safe and healthy. I allow now to open up the line for questions.

Thank you. [Operator Instructions] And your first question is coming from Craig Kucera from B. Riley Securities. Craig, your line is live.

Yes. Thank you. 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? And do you have any sense of at what point all 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?

Well, the cash that we have on hand, we don’t have plans specifically now to put them to work yet. We have them available for opportunity as they arise. And we’ll evaluate each opportunity as it arises. Regarding your question about the acquisition cost on the quarterly, I’ll let Larry, see if he…

Yes. Craig, I see $60,000 from – more from the first quarter. What are you referring to?

Yes, it was in regard to that. Okay that’s it.

There’s nothing more to that. I think – yes, 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, they’re at $70 versus the current $60. Is that a mix issue when you have a sequential decline in residential rents? Or can you kind of tell me what’s going on there?

Well, it’s very simple. I mean, people are coming back to the city, so the occupancy is up. And with occupancy going up, obviously, the rents are going back slowly, but they’re going back to where they were pre-pandemic. So the rent levels that you’re seeing now in this quarter are approaching to where it was before the pandemic and people who are in a different mode as they are today.

Okay. That’s it for me. Thank you, I appreciate your time.

[Operator Instructions] Okay. We have no further questions – we have a question coming from Buck Horne from Raymond James.

Great. Thanks. Just curious with the eviction moratorium from the CDC kind of getting extended here, whether that’s – the legality of that, I think is still up and in question, but it does seem like these moratoriums could drag on for a while. What effect, if any, do you anticipate that having operationally? Or how you’re thinking about how bad debt accruals will trend through the remainder of the year?

Not to answer that with any specificity, but I think we’ve done much better during the pandemic than we had feared at the onset of the pandemic, as where the collections would go. We have collections of doing much better than we anticipated, and it’s continuing to improve. People, by and large, now are more comfortable with their economic footings, and they’re more comfortable with paying the bills. This is a bill that people do not want to miss, because at the end of the day, whether the courts are not – open or not open, nobody wants to have a bad credit rating. And this affects their rating through the courts not yet fully open, but they’re starting to take some chances. So some of our buildings where we have some problems, we’re issuing summonses and processing it. Courts are processing them. But I think it’s only a matter of time when these politicians will actually let the courts open up. But nonetheless, I think the collections are by month-to-month, they’re getting better and not worse because people are understanding that the economic climate is better and also that eventually, if they don’t pay, they will have a bad credit and/or they will wind up on the street eventually.

And maybe conversely, to that point, would you think that once the moratoriums are finally fully expired, do you feel like a substantial portion of your tenants would find a way to find the money, I guess, or catch back up so that you don’t actually have to incur the turnover? Or are these 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 is small. It’s a small amount. Obviously, we’re watching it. And whatever that’s right off of reserves we have to put on and we do that on a quarter-by-quarter basis. And I see it getting better and it’s not getting worse. So even when the courts 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 have an ability to say, you know what, we’ll go down a notch. That is – obviously, this always go down and find something cheaper. But by and large, we’re delivering the quality that people are paying for. So I don’t think that – from here on, I think it’s going to improve, not decrease. I think we’ll get better.

Okay. One last one, I was just curious with the…

Buck, let me just add to that. I’ll just add to that. If you heard on the call, we also discussed that we’re taking the opportunity to apply for the government subsidies that they’re going to be giving out to people that could not pay their rents. So we made applications for that in excess of around $1 million at this point. So they’re working out the logistics of that, but we expect those to start trickling in pretty soon for the ones that actually cannot cover their rental expense on a monthly basis.

Got it. That’s helpful. Thanks. Appreciate it JJ. Yes, my last one then is just any progress or update in terms of re-leasing retail, commercial space, whether it’s Tribeca or any of the other properties, the ground level retail space? Any improvement there?

I think we’ve…

I’ll take that.

Go ahead. But I’ll just – I’ll give you a precursor to what JJ is going to tell you, we made a conscious decision to wait a bit, because we don’t have a lot of retail. And during the pandemic, leasing out these spaces would have meant we have to take a substantial discount from where we were charging. We don’t think that was prudent right now. The few stores that we have vacant, mostly in Tribeca, we think that we’re going to do much better with it now if we go out to the market in the next couple of months than we were doing previously. Now we have one specific spot on the corner, tenant vacated was paying like $40 in rent, that’s way below the market, even today’s market. We think, by and large, we think that we will, over time, re-lease these spaces at more than we were achieving at the – during the – prior to the pandemic.

Right. And just to add to that, I’ll say that we’re actively engaged with the brokers on a daily basis. We’re speaking to them all the time. We’re actively listening and negotiating with potential tenants, but we’re not going to strike a deal that seems like it’s, let’s call it, artificially low rent because of the COVID effect. Because we say commercial deals go out for 10, sometimes over 20 years. We don’t want to lock ourselves in on a rent that’s going to be benefiting from a short-term depression that’s going to phase out, hopefully very soon. So we’re talking to them, but we’re not just going to make a deal that will look silly in a few years from now.

Right, got it. Got it. Appreciate the clarity. Have a great day.

Thank you.

Thank you.

Okay. We have no remaining questions in queue.

Thank you very much. Thank you for joining our call, and everybody stay safe. Have a good night.

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.