Notes to Condensed Consolidated Financial Statements
(In thousands, except for share and per share data and as noted)
(Unaudited)
INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements of Clipper Realty Inc. (the “Company” or “we”) and subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 12, 2020.
The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation. These reclassifications did not have an impact on net income previously reported. These results are not necessarily indicative of a full year’s results of operations.
1. Organization
The Company was organized in the state of Maryland on July 7, 2015. On August 3, 2015, we completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLCs”) that comprised the predecessor of the Company (the “Predecessor”) in exchange for Class A LLC units in such LLCs and became the managing member of such LLCs. The owners of the LLCs exchanged their interests for Class B LLC units and an equal number of special, non-economic, voting stock in the Company. The Class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a one-for-one basis and are entitled to distributions.
On June 27, 2016, the Operating Partnership acquired the Aspen property at 1955 First Avenue in Manhattan, New York.
On February 9, 2017, the Company priced an initial public offering of 6,390,149 primary shares of its common stock (including the exercise of the over-allotment option, which closed on March 10, 2017) at a price of $13.50 per share (the “IPO”). The net proceeds of the IPO were approximately $78.7 million. We contributed the proceeds of the IPO to the Operating Partnership, in exchange for units in the Operating Partnership.
On May 9, 2017, the Company completed the purchase of 107 Columbia Heights (subsequently renovated and rebranded “Clover House”), a 158-unit apartment community located in Brooklyn Heights, New York.
On October 27, 2017, the Company completed the acquisition of an 82-unit residential property at 10 West 65th Street in the Upper West Side neighborhood of Manhattan, New York.
On November 8, 2019, the Company completed the acquisition of 1010 Pacific Street located in the Prospect Heights neighborhood of Brooklyn, New York; the Company plans to redevelop the property as a 175-unit residential building.
As of June 30, 2020, the properties owned by the Company consist of the following (collectively, the “Properties”):
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Tribeca House in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 483,000 square feet of residential rental Gross Leasable Area (“GLA”) and 77,000 square feet of retail rental and parking GLA;
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•
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Flatbush Gardens in Brooklyn, a 59-building residential housing complex with 2,496 rentable units;
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•
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141 Livingston Street in Brooklyn, a 15-story office building with approximately 216,000 square feet of GLA;
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•
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250 Livingston Street in Brooklyn, a 12-story office and residential building with approximately 370,000 square feet of GLA (fully remeasured);
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•
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Aspen in Manhattan, a 7-story building containing residential and retail space with approximately 166,000 square feet of residential rental GLA and approximately 21,000 square feet of retail rental GLA;
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•
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Clover House in Brooklyn, a 11-story residential building with approximately 102,000 square feet of residential rental GLA;
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•
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10 West 65th Street in Manhattan, a 6-story residential building with approximately 76,000 square feet of residential rental GLA; and
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•
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1010 Pacific Street in Brooklyn, which the Company plans to redevelop as a 9-story residential building with approximately 119,000 square feet of residential rental GLA.
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During 2019, we entered into a joint venture in which we own a 50% interest through which we are paying certain legal and advisory expenses in connection with various rent laws and ordinances which govern certain of our properties. During the three and six months ended June 30, 2020, the Company incurred $0.1 million and $0.3 million, respectively, of such expenses, which are recorded as part of general and administrative in the Condensed Consolidated Statements of Operations, and the Company has fulfilled its commitment to the joint venture.
The operations of Clipper Realty Inc. and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code (the “Code”). The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprised the Predecessor.
At June 30, 2020, the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitles it to 40.4% of the aggregate cash distributions from, and the profits and losses of, the LLCs.
The Company determined that the Operating Partnership and the LLCs are variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities.
2. Issuance of Common Stock
On April 9, 2019, the Company issued 1,917 primary shares of its common stock to one of our directors, in connection with the conversion of vested long-term incentive plan (“LTIP”) units on a one-for-one basis. The Company did not receive any proceeds from the issuance.
3. Significant Accounting Policies
Segments
At June 30, 2020, the Company had two reportable operating segments, Residential Rental Properties and Commercial Rental Properties. The Company’s chief operating decision maker may review operational and financial data on a property basis.
Basis of Consolidation
The accompanying consolidated financial statements of the Company are prepared in accordance with GAAP. The effect of all intercompany balances has been eliminated. The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interest.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.
Investment in Real Estate
Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy.
In accordance with ASU 2017-01, "Business Combinations – Clarifying the Definition of a Business,” the Company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business:
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Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or
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•
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The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction).
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An acquired process is considered substantive if:
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The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce) that is skilled, knowledgeable and experienced in performing the process;
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•
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The process cannot be replaced without significant cost, effort or delay; or
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•
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The process is considered unique or scarce.
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Generally, the Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.
Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above-market and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their relative fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. In the event that the Company obtains proceeds through an insurance policy due to impairment, the proceeds are offset against the write-down in calculating gain/loss on disposal of assets. Management of the Company does not believe that any of its properties within the portfolio are impaired as of June 30, 2020.
For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held-for-sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next twelve months. Real estate held-for-sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held-for-sale properties are charged to expense as incurred. Expenditures for improvements, renovations and replacements related to held-for-sale properties are capitalized at cost. Depreciation is not recorded on real estate held-for-sale.
If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).
Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
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Years
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Building and improvements
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10
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–
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44
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Tenant improvements
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Shorter of useful life or lease term
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Furniture, fixtures and equipment
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3
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–
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15
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The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of three months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times, may exceed the federally insured limit. No losses have been experienced related to such accounts.
Restricted Cash
Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs and capital improvements and security deposits.
Tenant and Other Receivables and Allowance for Doubtful Accounts
Tenant and other receivables are comprised of amounts due for monthly rents and other charges. The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. If a tenant fails to make contractual payments beyond any allowance, the Company may recognize additional bad debt expense in future periods.
Deferred Costs
Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases.
Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated statements of operations. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do not close are expensed in the period the financing transaction is terminated.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net loss adjusted for changes in unrealized gains and losses, reported in equity, for financial instruments required to be reported at fair value under GAAP. For the three and six months ended June 30, 2020 and 2019, the Company did not own any financial instruments for which the change in value was not reported in net loss accordingly and its comprehensive loss was its net loss as presented in the consolidated statements of operations.
Revenue Recognition
Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Rental income attributable to residential leases and parking is recognized as earned, which is not materially different from the straight-line basis. Leases entered into by residents for apartment units are generally for one-year terms, renewable upon consent of both parties on an annual or monthly basis.
Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs and are recorded as part of commercial rental income in the condensed consolidated statements of operations.
Stock-based Compensation
The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation.” As such, all equity-based awards are reflected as compensation expense in the Company’s consolidated statements of operations over their vesting period based on the fair value at the date of grant.
In April 2020, the Company granted 450,623 LTIP units with a weighted average grant date fair value of $4.75 per unit.
In June 2020, the Company granted 78,681 LTIP units with a weighted average grant date fair value of $8.10 per unit.
At June 30, 2020 and December 31, 2019, there were 1,410,371 and 881,067 LTIP units outstanding, respectively, with a weighted average grant date fair value of $9.90 and $12.70 per unit, respectively. As of June 30, 2020 and December 31, 2019, there was $3.5 million and $1.4 million, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. As of June 30, 2020, the weighted average period over which the unrecognized compensation expense will be recorded is approximately 1.1 years.
Income Taxes
The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the Code. To qualify as a REIT, the Company is required to distribute dividends equal to at least 90% of the REIT taxable income (computed without regard to the dividends paid deduction and net capital gains) to its stockholders, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, it is generally not subject to U.S. federal corporate-level income tax on the earnings distributed currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax. In addition, the Company may not be able to re-elect as a REIT for the four subsequent taxable years. The entities comprising the Predecessor are limited liability companies and are treated as pass-through entities for income tax purposes. Accordingly, no provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated financial statements.
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-19 pandemic. Included in the CARES Act are tax provisions which increase allowable interest expense deductions for 2019 and 2020 and increase the ability for taxpayers to use net operating losses. While we do not expect these provisions to have a material impact on the Company’s taxable income or tax liabilities, we continue to analyze the provisions of the CARES Act and related guidance as it is published.
In accordance with FASB ASC Topic 740, the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on its or the Predecessor’s financial position or results of operations. The prior three years’ income tax returns are subject to review by the Internal Revenue Service.
Fair Value Measurements
Refer to Note 9, “Fair Value of Financial Instruments”.
Derivative Financial Instruments
FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB guidance, the Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.
Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (loss) (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the fair value or cash flows of the derivative hedging instrument with the changes in the fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value would be recognized in earnings. As of June 30, 2020, the Company has no derivatives for which it applies hedge accounting.
Loss Per Share
Basic and diluted loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding. As of June 30, 2020 and 2019, the Company had unvested LTIP units which provide for non-forfeitable rights to dividend-equivalent payments. Accordingly, these unvested LTIP units are considered participating securities and are included in the computation of basic and diluted loss per share pursuant to the two-class method. The Company did not have dilutive securities as of June 30, 2020 or 2019.
The effect of the conversion of the 26,317 Class B LLC units outstanding is not reflected in the computation of basic and diluted loss per share, as the effect would be anti-dilutive. The net loss allocable to such units is reflected as non-controlling interests in the accompanying consolidated financial statements.
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (unaudited):
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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(in thousands, except per share amounts)
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2020
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|
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2019
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2020
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2019
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Numerator
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|
|
|
|
|
|
|
|
|
|
|
|
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Net loss attributable to common stockholders
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$
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(2,222
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)
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$
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(467
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)
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|
$
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(2,548
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)
|
|
$
|
(521
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)
|
Less: income attributable to participating securities
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|
|
(126
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)
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|
|
(83
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)
|
|
|
(210
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)
|
|
|
(152
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)
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Subtotal
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$
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(2,348
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)
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|
$
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(550
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)
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$
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(2,758
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)
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|
$
|
(673
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)
|
Denominator
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|
|
|
|
|
|
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|
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|
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|
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Weighted average common shares outstanding
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|
17,815
|
|
|
|
17,815
|
|
|
|
17,815
|
|
|
|
17,814
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic and diluted net loss per share attributable to common stockholders
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|
$
|
(0.13
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)
|
|
$
|
(0.03
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)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.04
|
)
|
Recently Issued Pronouncements
In April 2020, FASB issued a Staff Q & A to provide interpretive guidance for lease concessions related to the effects of the COVID-19 pandemic. The Company did not provide any such concessions to its tenants as a result of COVID-19 during the three months ended June 30, 2020; therefore, this guidance did not have a material effect on its consolidated financial statements. The Company continues to evaluate the effect that this guidance may have on its consolidated financial statements.
In March 2020, FASB issued ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic 848). ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective beginning on March 12, 2020, and may be applied prospectively to such transactions through December 31, 2022. We will apply ASU 2020-04 prospectively as and when we enter into transactions to which this guidance applies.
In March 2019, FASB issued ASU 2019-01, “Leases (Topic 842), Codification Improvements.” There are three codification updates to Topic 842 covered by this ASU: Issue 1 provides guidance on how to compute fair value of leased items for lessors who are non-dealers or manufacturers; Issue 2 relates to cash flow presentation for lessors of sales-type and direct financing leases; and Issue 3 clarifies that certain transition disclosures will only be required in annual disclosures.
In December 2018, FASB issued ASU 2018-20, “Leases (Topic 842), Narrow-Scope Improvements for Lessors.” This ASU modifies ASU 2016-02 to permit lessors, as an accounting policy election, not to evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Consequently, a lessor making this election will exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures (includes sales, use, value-added, and some excise taxes and excludes real estate taxes). The Company has elected not to evaluate whether the aforementioned costs are lessor or lessee costs. This ASU also provides that certain lessor costs require lessors to exclude from variable payments, and therefore revenue, specifically lessor costs paid by lessees directly to third parties. The amendments also require lessors to account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments. A lessor will record those reimbursed costs as revenue.
In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which prescribes a single, common revenue standard that supersedes nearly all existing revenue recognition guidance under U.S. GAAP, including most industry-specific requirements. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 outlines a five-step model to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2018, and interim periods within annual reporting periods beginning after December 15, 2019. The Company’s revenues are primarily derived from rental income, which is scoped out from this standard and is currently accounted for in accordance with ASC Topic 840, Leases. The Company adopted this standard effective January 1, 2019, using the modified retrospective approach, applying the provisions to open contracts as of the date of adoption. The adoption of this standard did not have a material impact on the timing or amounts of the Company’s revenues.
In February 2016, FASB issued ASU 2016-02, “Leases.” ASU 2016-02 supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, requires lessees to recognize most leases on their balance sheets and makes targeted changes to lessor accounting. In July 2018, FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which provides minor clarifications and corrections to ASU 2016-02, “Leases (Topic 842).” Further, in July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements.” This amendment provides a new practical expedient that allows lessors, by class of underlying asset, to avoid separating lease and associated non-lease components within a contract if certain criteria are met: (i) the timing and pattern of transfer for the non-lease component and the associated lease component are the same and (ii) the stand-alone lease component would be classified as an operating lease if accounted for separately. These pronouncements are effective for fiscal years beginning after December 15, 2021, and early adoption is permitted. The Company will adopt this standard effective January 1, 2022 and is currently evaluating the impact of adoption on its consolidated financial statements. As lessor, the Company expects that the adoption of ASU 2016-02 (as amended by subsequent ASUs) will not change the timing of revenue recognition of the Company’s rental revenues. As lessee, the Company is party to certain office equipment leases with future payment obligations for which the Company expects to record right-of-use assets and lease liabilities at the present value of the remaining minimum rental payments upon adoption of this standard.
In August 2018, FASB issued ASU 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC 820. This guidance is effective in fiscal years beginning after December 15, 2019 with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s financial statement reporting.
In June 2018, FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments provide specific guidance for transactions for acquiring goods and services from nonemployees and specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, “Revenue from Contracts with Customers.” The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements as it has not historically issued share-based payments in exchange for goods or services to be consumed within its operations.
In February 2017, FASB issued ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20),” to add guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU 2017-05 reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU 2017-05 is effective for the Company for its annual reporting beginning after December 15, 2018, including interim reporting periods beginning after December 15, 2019. The Company adopted this standard effective January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.
4. Acquisitions
On November 8, 2019, the Company acquired the 1010 Pacific Street property, a parcel of land, for $31,129, including acquisition costs of $129.
5. Deferred Costs and Intangible Assets
Deferred costs and intangible assets consist of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Deferred costs
|
|
$
|
348
|
|
|
$
|
348
|
|
Above-market leases
|
|
|
—
|
|
|
|
444
|
|
Lease origination costs
|
|
|
1,141
|
|
|
|
1,385
|
|
In-place leases
|
|
|
859
|
|
|
|
859
|
|
Real estate tax abatements
|
|
|
9,142
|
|
|
|
9,142
|
|
Total deferred costs and intangible assets
|
|
|
11,490
|
|
|
|
12,178
|
|
Less accumulated amortization
|
|
|
(3,291
|
)
|
|
|
(3,396
|
)
|
Total deferred costs and intangible assets, net
|
|
$
|
8,199
|
|
|
$
|
8,782
|
|
Amortization of deferred costs, lease origination costs and in-place lease intangible assets was $279 and $196 for the three months ended June 30, 2020 and 2019, respectively, and $352 and $384 for the six months ended June 30, 2020 and 2019, respectively; $283 of fully amortized lease origination costs was written off during the six months ended June 30, 2020. Amortization of real estate tax abatements of $121 and $120 for the three months ended June 30, 2020 and 2019, respectively, and $240 and $239 for the six months ended June 30, 2020 and 2019, respectively, is included in real estate taxes and insurance in the consolidated statements of operations. Amortization of above-market leases of $0 and $29 for the three months ended June 30, 2020 and 2019, respectively, and $30 and $59 for the six months ended June 30, 2020 and 2019, respectively, is included in commercial rental income in the consolidated statements of operations. $444 of fully amortized above-market leases was written off during the six months ended June 30, 2020.
Deferred costs and intangible assets as of June 30, 2020, amortize in future years as follows:
2020 (Remainder)
|
|
$
|
387
|
|
2021
|
|
|
760
|
|
2022
|
|
|
729
|
|
2023
|
|
|
583
|
|
2024
|
|
|
537
|
|
Thereafter
|
|
|
5,203
|
|
Total
|
|
$
|
8,199
|
|
6. Below-Market Leases, Net
The Company’s below-market lease intangibles liabilities are as follows:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Below-market leases
|
|
$
|
4,087
|
|
|
$
|
4,087
|
|
Less accumulated amortization
|
|
|
(2,720
|
)
|
|
|
(2,462
|
)
|
Below-market leases, net
|
|
$
|
1,367
|
|
|
$
|
1,625
|
|
Rental income included amortization of below-market leases of $129 and $435 for the three months ended June 30, 2020 and 2019, respectively, and $258 and $889 for the six months ended June 30, 2020 and 2019, respectively.
Below-market leases as of June 30, 2020, amortize in future years as follows:
2020 (Remainder)
|
|
$
|
259
|
|
2021
|
|
|
493
|
|
2022
|
|
|
423
|
|
2023
|
|
|
192
|
|
Total
|
|
$
|
1,367
|
|
7. Notes Payable
The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows:
Property
|
Maturity
|
|
Interest Rate
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flatbush Gardens, Brooklyn, NY (a)
|
6/1/2032
|
|
|
3.125%
|
|
|
$
|
329,000
|
|
|
$
|
—
|
|
Flatbush Gardens, Brooklyn, NY (a)
|
3/1/2028
|
|
|
3.50%
|
|
|
|
—
|
|
|
|
246,000
|
|
250 Livingston Street, Brooklyn, NY (b)
|
6/6/2029
|
|
|
3.63%
|
|
|
|
125,000
|
|
|
|
125,000
|
|
141 Livingston Street, Brooklyn, NY (c)
|
6/1/2028
|
|
|
3.875%
|
|
|
|
75,037
|
|
|
|
75,817
|
|
Tribeca House, Manhattan, NY (d)
|
3/6/2028
|
|
|
4.506%
|
|
|
|
360,000
|
|
|
|
360,000
|
|
Aspen, Manhattan, NY (e)
|
7/1/2028
|
|
|
3.68%
|
|
|
|
66,180
|
|
|
|
66,862
|
|
Clover House, Brooklyn, NY (f)
|
12/1/2029
|
|
|
3.53%
|
|
|
|
82,000
|
|
|
|
82,000
|
|
10 West 65th Street, Manhattan, NY (g)
|
11/1/2027
|
|
|
3.375%
|
|
|
|
33,960
|
|
|
|
34,295
|
|
1010 Pacific Street, Brooklyn, NY (h)
|
12/24/2020
|
|
LIBOR + 3.60%
|
|
|
|
19,880
|
|
|
|
19,457
|
|
Total debt
|
|
|
|
|
|
$
|
1,091,057
|
|
|
$
|
1,009,431
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
|
(11,380
|
)
|
|
|
(11,528
|
)
|
Total debt, net of unamortized debt issuance costs
|
|
|
|
|
|
$
|
1,079,677
|
|
|
$
|
997,903
|
|
(a) On May 8, 2020, the Company refinanced the $246,000 mortgage note at Flatbush Gardens with a $329 million, twelve-year secured first mortgage note with NYCB. The note matures on June 1, 2032, and bears interest at 3.125% through May 2027 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through May 2027, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.
(b) The $125,000 mortgage note agreement with Citi Real Estate Funding Inc., entered into on May 31, 2019, matures on June 6, 2029, bears interest at 3.63% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium.
(c) The $79,500 mortgage note agreement with NYCB matures on June 1, 2028, and bears interest at 3.875%. The note required interest-only payments through June 2017, and monthly principal and interest payments of $374 thereafter based on a 30-year amortization schedule.
(d) The $360,000 loan with Deutsche Bank, entered into on February 21, 2018, matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the loan prior to the maturity date, subject to a prepayment premium if it occurs prior to December 6, 2027.
(e) The $70,000 mortgage note agreement with Capital One Multifamily Finance LLC matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of $321 thereafter based on a 30-year amortization schedule. The Company has the option to prepay the note prior to the maturity date, subject to a prepayment premium.
(f) The $82,000 mortgage note agreement with MetLife Investment Management, entered into on November 8, 2019, matures on December 1, 2029, bears interest at 3.53% and requires interest-only payments for the entire term. The Company has the option, commencing on January 1, 2024, to prepay the note prior to the maturity date, subject to a prepayment premium if it occurs prior to September 2, 2029.
(g) On October 27, 2017, the Company entered into a $34,350 mortgage note agreement with NYCB, related to the 10 West 65th Street acquisition. The note matures on November 1, 2027, and bears interest at 3.375% through October 2022 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note required interest-only payments through October 2019, and monthly principal and interest payments of $152 thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.
(h) On December 24, 2019, the Company entered into a $18,600 mortgage note agreement with CIT Bank, N.A., related to the 1010 Pacific Street acquisition. The Company also entered into a pre-development bridge loan secured by the property with the same lender that will provide up to $2,987 for eligible pre-development and carrying costs, of which $1,280 was drawn as of June 30, 2020. The notes mature on December 24, 2020, are subject to a one-year extension option, require interest-only payments and bear interest at one-month LIBOR (with a floor of 1.25%) plus 3.60% (4.85% as of June 30, 2020).
The following table summarizes principal payment requirements under the terms of the mortgage notes as of June 30, 2020:
2020 (Remainder)
|
|
$
|
21,769
|
|
2021
|
|
|
3,777
|
|
2022
|
|
|
3,920
|
|
2023
|
|
|
4,068
|
|
2024
|
|
|
4,216
|
|
Thereafter
|
|
|
1,053,307
|
|
Total
|
|
$
|
1,091,057
|
|
8. Rental Income under Operating Leases
The Company’s commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of June 30, 2020, the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next five years and thereafter are as follows:
2020 (Remainder)
|
|
$
|
13,211
|
|
2021
|
|
|
29,977
|
|
2022
|
|
|
29,746
|
|
2023
|
|
|
27,693
|
|
2024
|
|
|
26,960
|
|
Thereafter
|
|
|
24,846
|
|
Total
|
|
$
|
152,433
|
|
The Company has commercial leases with the City of New York that comprised approximately 17% of total revenues for each of the three and six months ended June 30, 2020, and 19% of total revenues for each of the three and six months ended June 30, 2019.
9. Fair Value of Financial Instruments
GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
|
•
|
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
|
|
•
|
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
|
|
•
|
Level 3: prices or valuation techniques where little or no market data is available that require inputs that are both significant to the fair value measurement and unobservable.
|
When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.
Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.
The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, interest rate caps, accounts payable and accrued liabilities, security deposits and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, accounts payable and accrued liabilities, and security deposits reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level 2, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.
The carrying amount and estimated fair value of the notes payable are as follows:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
|
Carrying amount (excluding unamortized debt issuance costs)
|
|
$
|
1,091,057
|
|
|
$
|
1,009,431
|
|
Estimated fair value
|
|
$
|
1,219,543
|
|
|
$
|
1,058,083
|
|
The Company purchased interest rate caps in connection with the 250 Livingston Street loan obtained on December 6, 2018, and the 1010 Pacific Street loan obtained on December 24, 2019. The fair value of the interest rate caps, which are classified as Level 2, is estimated using market inputs and credit valuation inputs.
The estimated fair values of the interest rate caps are as follows:
Notional Amount
|
|
Related
Property Loans
|
Maturity Date
|
|
Strike Rate
|
|
|
Estimated Fair Value
at June 30,
2020
|
|
|
Estimated Fair Value
at December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
$75,000
|
|
250 Livingston Street
|
December 15, 2020
|
|
|
4.0
|
%
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$21,587
|
|
1010 Pacific Street
|
December 24, 2020
|
|
|
3.6
|
%
|
|
|
—
|
|
|
|
—
|
|
Total fair value of derivative instruments included in prepaid expenses and other assets
|
|
|
$
|
—
|
|
|
$
|
—
|
|
These interest rate caps were not designated as hedges. Accordingly, changes in fair value of the 250 Livingston Street instrument are recognized in earnings. Changes in fair value of the Clover House instrument which matured and was written off in May 2020, were recognized in real estate under development during construction and are recognized in earnings following completion of development. Changes in fair value of the 1010 Pacific Street instrument are recognized in real estate under development. Fair value of the 250 Livingston Street instrument did not change during each of the three and six months ended June 30, 2020 and 2019. Fair value of the Clover House instrument did not change during each of the three and six months ended June 30, 2020; decrease in fair value of the Clover House instrument of $2 and $24 for the respective three and six months ended June 30, 2019, is capitalized to real estate under development. Decrease in fair value of the 1010 Pacific Street instrument of $0 and $14 for the respective three and six months ended June 30, 2020, is capitalized to real estate under development.
The above disclosures regarding fair value of financial instruments are based on pertinent information available as of June 30, 2020, and December 31, 2019, respectively. Although the Company is not aware of any factors that would significantly affect the reasonableness of the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value may differ significantly from the amounts presented herein.
10. Commitments and Contingencies
Legal
On July 3, 2017, the Supreme Court of the State of New York (the “Court”) ruled in favor of 41 present or former tenants of apartment units at the Company’s buildings located at 50 Murray Street and 53 Park Place in Manhattan, New York, who brought an action (the “Kuzmich” case) against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law (“RPTL”) 421-g. The Court also awarded the plaintiffs-tenants their attorney’s fees and costs. The Court declared that the plaintiffs-tenants were subject to rent stabilization requirements and referred the matter to a special referee to determine the amount of rent over-charges, if any. On July 18, 2017, the Court, pursuant to the parties’ agreement, stayed the Court’s ruling; the Company subsequently appealed the decision to the Appellate Division, First Department. On January 18, 2018, the Appellate Division unanimously reversed the Court’s ruling and ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The plaintiffs-tenants thereafter moved for leave to appeal to the Court of Appeals, which motion was granted on April 24, 2018. On June 25, 2019, the New York Court of Appeals reversed the Appellate Division’s order and ruled in favor of the plaintiffs-tenants, holding that apartments in buildings receiving RPTL 421-g tax benefits are not subject to luxury deregulation. The Court of Appeals also remitted the matter for further proceedings consistent with its opinion. As a result of the Court of Appeals’ order, Company management believes that payments may be required to be made to the 41 present or former tenants comprising the plaintiff group, that other tenants may attempt to make similar claims, and that the special referee process referred to above will be used to determine the timing and the amount of any claims that must be paid. On July 25, 2019, the Company filed a motion for reargument with the New York Court of Appeals, which was denied on September 12, 2019. On August 13, 2019, the Court, in effect, reinstated its prior order and referred the calculation of rent overcharges and attorneys’ fees for a hearing before a special referee. The special referee’s hearing was scheduled for October 23, 2019. On October 17, 2019, the Company made a motion in the Appellate Division for a stay of the special referee’s hearing pending the Company’s appeal from the August 13 order. On such date, the Appellate Division granted an interim stay of the special referee’s hearing, pending the determination of the underlying motion. On January 7, 2020, the Appellate Division granted the Company’s motion for a full stay of the special referee’s hearing pending appeal. The appeal had been scheduled to be argued during the May 2020 term, but on March 16, 2020, the parties filed a stipulation adjourning the appeal to the September 2020 term. On or about July 13, 2020, the parties filed another stipulation adjourning the appeal to the October 2020 term. On October 24, 2019, the Company filed a Petition for a Writ of Certiorari with the United States Supreme Court, seeking permission to have that Court hear the Company’s appeal on Constitutional grounds from the Court of Appeals’ order. On January 13, 2020, the United States Supreme Court denied the Company’s Petition for a Writ of Certiorari, meaning that the Court of Appeals’ order is final. On November 18, 2019, the same law firm which filed the Kuzmich case above filed a second action involving a separate group of 26 tenants (captioned Crowe et al v 50 Murray Street Acquisition LLC, Supreme Court, New York County, Index No. 161227/19), which action advances the same exact claims as in Kuzmich. The Company’s deadline to answer or otherwise respond to the complaint in Crowe had been extended to June 30, 2020; on such date, the Company filed its answer to the complaint. Pursuant to the court’s rules, on July 16, 2020, the plaintiffs filed an amended complaint; the sole difference as compared to the initial complaint is that seven new plaintiffs-tenants were added to the caption; there were no substantive changes to the complaint’s allegations. On August 5, 2020, the Company filed its answer to the amended complaint. The Company cannot predict what the timing or ultimate resolution of these matters will be, and accordingly, at this time, the Company has not recorded any liability for the potential settlement of these matters.
In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business, including a claim under the Americans with Disabilities Act of 1990 at the 141 Livingston Street property. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.
Commitments
The Company is obligated to provide parking availability through August 2025 under a lease with a tenant at the 250 Livingston Street property; the current cost to the Company is approximately $205 per year.
Contingencies
The COVID-19 pandemic has adversely impacted global economic activity and contributed to significant volatility in financial markets. The COVID-19 pandemic and associated government actions intended to curb its spread are creating disruptions in, and adversely impacting, many industries and have negatively impacted, and could continue to negatively impact, the Company’s business in a number of ways, including affecting its tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. Certain of the Company’s commercial tenants have announced temporary closures of their locations and have requested rent deferrals during the COVID-19 pandemic. In some cases, the Company may restructure rent and other obligations under its leases with its tenants on terms that are less favorable to it than those currently in place. Additionally, the outbreak could have a continued material adverse impact on economic and market conditions and prolong the current period of global economic slowdown which may ultimately decrease occupancy levels and pricing across the Company’s portfolio as residents reduce their spending. The rapid development and fluidity with which the situation continues to develop precludes any prediction as to the ultimate material adverse impact of the COVID-19 pandemic. Nevertheless, COVID-19 presents uncertainty and risk with respect to the Company’s tenants, which could adversely affect the Company’s financial performance.
The Company’s properties have remained open and operational throughout the pandemic. The Company is taking the necessary steps to keep employees and tenants safe in compliance with state and local orders, and continues to provide typical services to its residents. The Company’s rent collection rate during the second quarter of 2020 was equal to 94% of its first quarter 2020 rent collection rate. At June 30, 2020, the Company’s properties were 96% leased.
Concentrations
The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.
The breakdown between commercial and residential revenue is as follows (unaudited):
|
|
Commercial
|
|
|
Residential
|
|
|
Total
|
|
Three months ended June 30, 2020
|
|
|
23
|
%
|
|
|
77
|
%
|
|
|
100
|
%
|
Three months ended June 30, 2019
|
|
|
26
|
%
|
|
|
74
|
%
|
|
|
100
|
%
|
Six months ended June 30, 2020
|
|
|
23
|
%
|
|
|
77
|
%
|
|
|
100
|
%
|
Six months ended June 30, 2019
|
|
|
25
|
%
|
|
|
75
|
%
|
|
|
100
|
%
|
11. Related-Party Transactions
The Company recorded office and overhead expenses pertaining to a related company in general and administrative expense of $45 and $84 for the three months ended June 30, 2020 and 2019, respectively, and $133 and $171 for the six months ended June 30, 2020 and 2019, respectively.
The Company paid legal and advisory fees to firms in which two of our directors were principals or partners of $0 and $313 for the three months ended June 30, 2020 and 2019, respectively, and $5 and $313 for the six months ended June 30, 2020 and 2019, respectively.
12. Segment Reporting
The Company has classified its reporting segments into commercial and residential rental properties. The commercial reporting segment includes the 141 Livingston Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties. The residential reporting segment includes the Flatbush Gardens property, the Clover House property, the 10 West 65th Street property, the 1010 Pacific Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties.
The Company’s income from operations by segment for the three and six months ended June 30, 2020 and 2019, is as follows (unaudited):
Three months ended June 30, 2020
|
|
Commercial
|
|
|
Residential
|
|
|
Total
|
|
Rental income
|
|
$
|
7,050
|
|
|
$
|
23,679
|
|
|
$
|
30,729
|
|
Total revenues
|
|
|
7,050
|
|
|
|
23,679
|
|
|
|
30,729
|
|
Property operating expenses
|
|
|
898
|
|
|
|
5,970
|
|
|
|
6,868
|
|
Real estate taxes and insurance
|
|
|
1,444
|
|
|
|
5,334
|
|
|
|
6,778
|
|
General and administrative
|
|
|
402
|
|
|
|
2,192
|
|
|
|
2,594
|
|
Depreciation and amortization
|
|
|
1,092
|
|
|
|
4,780
|
|
|
|
5,872
|
|
Total operating expenses
|
|
|
3,836
|
|
|
|
18,276
|
|
|
|
22,112
|
|
Income from operations
|
|
$
|
3,214
|
|
|
$
|
5,403
|
|
|
$
|
8,617
|
|
Three months ended June 30, 2019
|
|
Commercial
|
|
|
Residential
|
|
|
Total
|
|
Rental income
|
|
$
|
7,300
|
|
|
$
|
21,146
|
|
|
$
|
28,446
|
|
Total revenues
|
|
|
7,300
|
|
|
|
21,146
|
|
|
|
28,446
|
|
Property operating expenses
|
|
|
1,036
|
|
|
|
5,711
|
|
|
|
6,747
|
|
Real estate taxes and insurance
|
|
|
1,236
|
|
|
|
4,471
|
|
|
|
5,707
|
|
General and administrative
|
|
|
409
|
|
|
|
2,170
|
|
|
|
2,579
|
|
Depreciation and amortization
|
|
|
970
|
|
|
|
3,620
|
|
|
|
4,590
|
|
Total operating expenses
|
|
|
3,651
|
|
|
|
15,972
|
|
|
|
19,623
|
|
Income from operations
|
|
$
|
3,649
|
|
|
$
|
5,174
|
|
|
$
|
8,823
|
|
Six months ended June 30, 2020
|
|
Commercial
|
|
|
Residential
|
|
|
Total
|
|
Rental income
|
|
$
|
14,218
|
|
|
$
|
47,397
|
|
|
$
|
61,615
|
|
Total revenues
|
|
|
14,218
|
|
|
|
47,397
|
|
|
|
61,615
|
|
Property operating expenses
|
|
|
2,035
|
|
|
|
11,992
|
|
|
|
14,027
|
|
Real estate taxes and insurance
|
|
|
2,936
|
|
|
|
10,706
|
|
|
|
13,642
|
|
General and administrative
|
|
|
739
|
|
|
|
4,178
|
|
|
|
4,917
|
|
Depreciation and amortization
|
|
|
2,111
|
|
|
|
9,319
|
|
|
|
11,430
|
|
Total operating expenses
|
|
|
7,821
|
|
|
|
36,195
|
|
|
|
44,016
|
|
Income from operations
|
|
$
|
6,397
|
|
|
$
|
11,202
|
|
|
$
|
17,599
|
|
Six months ended June 30, 2019
|
|
Commercial
|
|
|
Residential
|
|
|
Total
|
|
Rental income
|
|
$
|
14,180
|
|
|
$
|
41,918
|
|
|
$
|
56,098
|
|
Total revenues
|
|
|
14,180
|
|
|
|
41,918
|
|
|
|
56,098
|
|
Property operating expenses
|
|
|
2,177
|
|
|
|
12,133
|
|
|
|
14,310
|
|
Real estate taxes and insurance
|
|
|
2,472
|
|
|
|
8,966
|
|
|
|
11,438
|
|
General and administrative
|
|
|
688
|
|
|
|
3,559
|
|
|
|
4,247
|
|
Depreciation and amortization
|
|
|
1,916
|
|
|
|
7,223
|
|
|
|
9,139
|
|
Total operating expenses
|
|
|
7,253
|
|
|
|
31,881
|
|
|
|
39,134
|
|
Income from operations
|
|
$
|
6,927
|
|
|
$
|
10,037
|
|
|
$
|
16,964
|
|
The Company’s total assets by segment are as follows, as of:
|
|
Commercial
|
|
|
Residential
|
|
|
Total
|
|
June 30, 2020 (unaudited)
|
|
$
|
281,891
|
|
|
$
|
948,558
|
|
|
$
|
1,230,449
|
|
December 31, 2019
|
|
|
285,103
|
|
|
|
881,104
|
|
|
|
1,166,207
|
|
The Company’s interest expense by segment for the three and six months ended June 30, 2020 and 2019, is as follows (unaudited):
|
|
Commercial
|
|
|
Residential
|
|
|
Total
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
2,025
|
|
|
$
|
7,954
|
|
|
$
|
9,979
|
|
2019
|
|
|
1,721
|
|
|
|
6,489
|
|
|
|
8,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
4,012
|
|
|
$
|
15,755
|
|
|
$
|
19,767
|
|
2019
|
|
|
3,455
|
|
|
|
13,029
|
|
|
|
16,484
|
|
The Company’s capital expenditures by segment for the three and six months ended June 30, 2020 and 2019, are as follows (unaudited):
|
|
Commercial
|
|
|
Residential
|
|
|
Total
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
2,611
|
|
|
$
|
5,640
|
|
|
$
|
8,251
|
|
2019
|
|
|
1,239
|
|
|
|
11,549
|
|
|
|
12,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
$
|
4,394
|
|
|
$
|
9,928
|
|
|
$
|
14,322
|
|
2019
|
|
|
2,147
|
|
|
|
21,856
|
|
|
|
24,003
|
|