Q3 2019 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Clipper Realty Freaky 19 earnings Conference call. At this time all participants are in place in listen only mode and we will open the floor for your question that comments. After the presentation and is now my pleasure for but to your host my girlfriend's, Sir the floor is yours.

Good afternoon, and thank you for joining us for the third quarter 2019, Clipper Realty Inc. earnings Conference call.

Participating with me in today's call or David Dykstra, Sir co chairman of the board and Chief Executive Officer, and JJ vicious or Chief operating officer.

Please be aware that statements made during the call that are not historical maybe deemed forward looking statements and actual results may differ materially from those indicated by such forward looking statement.

These statements are subject to numerous risks and uncertainties, including those disclosed in the Companys 2018 annual report on Form 10-K , which is accessible at www dot at DC Dot Gov and the company's website.

As a reminder to forward looking statements speak only as of the date of this call November 12, 29 team 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.

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Adjusted earnings before interest taxes, depreciation and amortization for adjusted EBITDA and net operating income or in Hawaii.

We see our press release supplemental financial information and quarterly report on 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'll now turn the call over to our co chairman and CEO , David Bishop Sir.

Thank you Michael Good afternoon, welcome to a third quarter 2019 earnings call for Clipper Realty.

Hi.

Hi, then up that business, including recent highlights in milestones.

Then turn the call over the JJ will discuss property level activity, including leasing performance and renovation projects.

Hey, Michael will speak about a quarterly financial performance. We will then take your questions.

I would like to congratulate our entire team for a very strong quarter.

See record revenues today, I mean could accomplishments a significant achievement considering some recent industry headwinds portfolio is 99%.

I think those a more recent developments we are extremely pleased the global property is stabilizing currently 91%. Please.

As a reminder, we brought this fully amenitized was 58 units remark in residential building online in August .

Second as of the property, it's amenities as location. So one of the most desirable neighborhoods and all of New York City aspects I made some of that has driven exceptional residential demand.

There was a significant milestones. This is a significant milestone for a company and we're very pleased to have the property fully operational.

We are announcing today that we refinanced global files with the $82 million attack.

Straight secured first mortgage loan with Metlife.

Investment management with bears interest at 3.53% per annum and his interest only for the entire term repaid existing loans in the properties totaling $64.7 million.

In May 2020, and bore interest at a one month LIBOR plus 385 net remain proceeds of $60 million increase I guess position.

Refinancing will save approximately 736000 of annual cash interest expense.

Based on contracts.

His entire outstanding debt balances now fixed at a blended 3.9% right.

We're also excited to announce the acquisition of Fenton Pacific Studies in Brooklyn $31 million.

Properties located in proselytize about one mile from Atlantic 10 of them Slashed Barclays Center hub.

We plan to the redevelop the property as a nice story fully amenitized multifamily rather building, including in the bargain was approximately 119000 square feet. The rentable space. We expect the billings of 175, rather than units 17 cents, which will be free market and 30% before.

The property were qualified for 35 years for 21, a tax abatements due to the affordable component.

I do this estimate is of course, approximately $85 million than total inclusive Atlantic I of course.

Take a duration of two years to construct and complete the vote to 6.5 cents stabilized cap rate.

For the that as we see this broad redevelopment project.

Attractive opportunities for our company.

We're very pleased to adds into our portfolio.

I'd like to provide an update on the office portfolio as we discuss recent earnings calls on new lease would sit in the order to 50 loses.

Which has a 10 year leases commencing August of 2020 is expected to initially we had approximately $5 million to the properties I knew and away at the neighboring 141 living since we property.

He has confirmed that it will continue to these through the expiration of the end of 2025.

In terms of lose the rent will increase 25% of end of 2020, which will then $2.1 billion that properties that you went away together. These two upcoming office lease rolls are expected the incremental $7.1 million of additional at Hawaii to our portfolio representing a 12.

So the increase in our portfolio run rate, we are proud of a multi decade working relationship with New York City I look forward to building a that bothers isn't the as that.

Got it softens Gcgs property, we are progressing.

Uniform land use review.

Seizure or you look brew brothers there with the city. We currently anticipate the bras the last thing another six to nine months approval as a significant additional floor area ratios the complex meaningfully expanding the size of property, adding significant value. It allows us to begin development there was no assurance.

With that because you will be fully or partially approved submitted.

I'd like to provide an update on Tribeca House for 21 with GE litigation as previously disclosed.

Court of Appeals rooms in June that apart visibility receiving for 21 zero tax benefits.

Not subject to luxury deregulation Israel in order to overturn the previous unanimous oppose the business. This is.

Onyx over 70 is the Bell Division granted an interim say Oh, that's referees hearing regarding the calculation.

Yes.

It's over 24.

Decision for rid of social reality with United States Supreme Court seeking permission to have the cool he our appeal unconstitutional grounds.

Court of Appeals order, we do not believe the water will happen through impact on our business.

Lastly, I'd like to comment on a third quarter results. We are proud to report record earnings record revenues of 29.4 million those strong got away of 15.4 million and strong effort you have a vote of 5.4 million well. It was reflect can do a bus robust leasing performance that expire.

Matt.

Michael will provide further detailed financial performance shortly I will now turn the call over the judge a will provide an update on operations.

Thank you we continue to perform well operationally driving ongoing cash flow through efficient leasing focused expense management and targeted capital investment clubhouses fully operational reaching stabilization. Following a three month lease up period. The properties currently over 91% leased significantly ahead of us.

<unk> projected year end timing to hit that milestone.

This out outperformance is a testament to our leasing teams efforts and inherent appeal of the fully renovated property in neighborhood in place rents are averaging approximately $73 per square foot.

So Becca house continues to perform very well the properties over 98% leased continuing its exceptionally high occupancy trends do we have seen for the last several quarters. Tribeca has remained the go to destination for young professionals and families and want to live in downtown Manhattan with full amenities, including an upgraded equinox Jim anymore attract.

If price point compared to the surrounding neighborhood.

We achieved a record blended $71 per square foot at the end of the third quarter, while maintaining essentially full occupancy and continued to have significant upside potential relative to the neighborhoods compatible $80 per square foot brands. We are proud that our targeted capital program over the last several years, which brought the property up to market.

Standards has been an effective catalyst as we continue to close the rent get.

Our success in reducing apartment turnover downtime on three months in 2018 to currently less than three weeks has helped us maintain this exceptional occupancy and continues to provide additional that vision rent discussions lastly, I note that the for 21 gene litigation, primarily pertains to certain prior timeframe specific rent.

Just for a subset of previous an existing tenants at the property most current tenants and all future movements I am not impacted by the litigation going forward as those units are free market.

Turning to flappers guns in Brooklyn, the complex continues to benefit from extremely high demand and is now over 99% leased continuing to full occupancy trends of the last several quarters with accompanying rent growth. It has been incredibly satisfying to the company's methodical multiyear efforts to upgrade the property in continuous sustainable commute.

If you have positioned slap designs as an attractive housing option say wide spectrum residents as mentioned last quarter. The recent rent stabilization low temp is the rate of future overall rent growth at the property, primarily by curtailing rent increases on legacy unit turns and limiting increases on preferential units.

Those however, I again once again reiterate four key points as it relates to the low one our current in place rents are not negatively impacted.

To the limitations on preferential rent increases applied to renewals only upon a preferential if they can see we still have the ability to increase the rent up to the maximum legal limit to help mitigate the slower preferential renewal growth rate.

Three our renewal growth on legacy units is not impacted by the little as these renewals were ready subject to rent guideline board increases.

And for the laws repeal of vacancy the control and high income deregulation does not really impacts levers dons given our tenant profile neighborhood rent levels than our prior history of not be controlled single deregulating at the property.

Overall, while the recent low tempers, our future rent growth trajectory at the property Slap is gone is and will remain a very significant part of our portfolio in growth story, but they are expansion project, an incremental value opportunity I will now turn the call over to Mike who will discuss our financial results.

Thank you Jay.

Our third quarter results clearly reflect the exceptional leasing trends and operational efficiencies highlighted by David and JJ.

But the third quarter, we achieved record revenues of 29.4 million, an increase of 1.5 million or 5.3% compared to the same period in 2018, we achieve NOI of 15.4 million, a 1.2% increase compared to the same period in 2018, and hey, AFFO of 5.4 million.

Or 12 cents per share.

The year over year total revenue increase was primarily attributable to improvements in flat Busch gardens in Tribeca House Flatbush in Tribeca residential revenues grew 7% in 3.5% year on year, respectively, reflecting increases in both rental rates and occupancy.

Flatbush was 99.5% leased at the ended the quarter and Tribeca was more than 98% leased.

Clover House generated approximately $375000 of revenue as we bought the property online during the quarter.

On the expense side key year over year changes were as follows.

Property operating expenses increased by 551000 in the third quarter year over year, primarily driven by a larger amount of make ready apartment improvements at flattish gardens in Tribeca House and commissions associated with the Clover House Lisa.

Real estate taxes, and insurance increased by $916000 in the third quarter, primarily due to property tax increases across our portfolio over the prior year and general insurance industry cost increases.

Cash general and administrative expenses increased by $130000 in the third quarter, primarily due to bringing Clover house online and an increase in legal expenses related to the for 21 GE litigation that Tribeca House.

Interest expense increased by $639000 in the third quarter, primarily as a result of higher interest costs from the recent to 50 living since three refinancings, including noncash loan cost amortization.

As mentioned, we expect a new Clover has refinancing to reduce annual interest expense by $736000 based on current rates.

Turning to Capex, we incurred $13 million of Capex in the third quarter. The majority of which was were related to the Clover House renovation other capital projects included unit upgrades at Tribeca House.

Lastly, today, we are announcing a dividend a 9.5 cents per share for the third quarter. The dividend will be paid on December threerd to shareholders of record on November 25th.

Let me now turn the call back over to David for concluding remarks.

Thank you Michael we're very pleased with our results portfolio continues to perform very well. We are excited about our future growth Global house, the upcoming office lease Rolls and 10 10 Pacific through the acquisition the redevelopment.

Very well positioned to continue to execute strategic initiatives and drive value to four shows that there would like to open up the life for questions.

Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that will pose. Your question you. Please pick up your handset listened and speaker phone to provide optum sound quality.

I told them on the only poll for questions.

[noise] [noise], we have no questions from the lines at this time.

Thank you. Thank you for joining us today.

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.