Q4 2019 Earnings Call

Our patients is appreciated please hold the line and we'll be right back with you.

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Good afternoon, ladies and gentlemen, and welcome to the Corporately. Okay for Q 19 earnings call. At this time, all participants have been placed on to listen only mode and we will open the floor for your questions and comments. After the presentation. It's now my pleasure to turn the floor, but to your host Michael friends, Sir the floor is yours.

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

Participating with me in today's call our David This reserve co chairman of the Board and Chief Executive Officer, JJ ambitious or Chief operating officer. Please.

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 statements.

These statements are subject to numerous risks and uncertainties, including those disclosing the company's 2019 annual report on form 10-K, which is accessible at www Dot FCC dot Gov and our website.

As a reminder, the forward looking statements speak only as of the date of this call March 12, 2020, and the company undertakes no duty to update them.

During this call management may refer to certain non-GAAP financial measures, including adjusted funds from operations for AFFO.

Adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA and net operating income or an ally.

We see our press release supplemental financial information and annual report on form 10-K 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 distressed.

Thank you Michael good afternoon.

For 2019 earnings calls with real.

I'm pleased to provide an update on our business, including recent highlights the milestones.

Turning the call over the JJ will discuss property level activity.

The leasing performance and capital projects.

Finally, Michael will speak about our quarterly financial performance.

Then take your questions.

I want to gradually the entire team for a very strong performance, we are announcing record quarterly and annual revenues record annual income from operations record quarterly revenue in a wide and record annual a oh all significant achievements considering some of the recent industry headwinds.

Portfolio is 90% leased.

Turning to some recent developments, we're extremely proud that our global house properly.

Completed is still a lease up building was 98% leased within the federal.

As a reminder that wasn't fully amenitized one other just joined us from market residential building.

Well it online in August of last year, the attractiveness of the properties amenities as locations one of the most desirable neighbors and all the city and assuming demand continues to drive resident demand.

Contract with redevelopment recently, and then Pacific Street acquisition, which is located in prospects hides Brooklyn about one month from the Atlantic Terminal and Barclays Center.

As mentioned previously we estimated the bottom of course 85 million in totality. Thank to use the complete and developed to 6.5 stabilized cap rate.

They will provide some further details on the project shortly.

Office portfolio, we are steadily approaching a book lease rolls.

This is David I Love, what do I live is probably a new lease with the city of Tuesday, Linzess is expected to initially had.

Absolutely $5 million that of properties annualized beginning in August as what we want movies is through the rest will increase 25%.

And this 2020, which will add $2.1 million of properties I knew went away together. These these lease rolls are expected to add incremental 7.1 million of annualized NOI to our portfolio, representing 11% increase on a portfolio run rate.

We look forward to building a multi decade partnership in the city in the U.S.

Fathers gallons property, we are progressing on the Europe.

Procedure.

Approval process, which will take another several months, we anticipate that an approval will add significant fluctuations of the complex meaningful expense side that are properly, adding significant value is allowing us to begin developing however, there was no assurance that the application will be fully or partially approved.

It was submitted.

I like to provide an update on the Tribeca House for 21, GE litigation as previously disclosed the court of New a court of Appeals rules in June that apartments and buildings receiving for 21 gene tax benefits are not subject to luxury de regulation.

To that overturned the previous unanimous appellate division decision.

The seven to seven the appellate division granted a full stuff, especially referees hearing regarding the calculation of potential rental which are the spending appeal. We do not believe that the oil will have a material impact on our business Lastly, I would like to comment on our fourth quarter results. We're very proud to report.

Record quarterly revenue of $30.6 million record alive $16.9 million as strong have a five point threemillion all of which reflect continued are both.

These it goes home as an expense Matt Michael for the provides additional details I'll now turn over the goal to JJ who'll provide an update on operator.

Thank you we continue to leverage our strong operating performance driving ongoing cash flow improvements through efficient leasing focused expense management and targeted capital investment.

We are delighted to complete the lease up its culverhouse being 98% leased and accomplishing it during the generally slow fall winter leasing season is a testament to our leasing teams efforts and inherent appeal of the sleep innovative property in neighborhoods in place rents are in the $70 plus per square foot range, we are well positioned to live.

Just a strong occupancy in future rent discussions and look forward to global houses ongoing contribution to overall portfolio growth.

At 10, 10 Pacific Street, we are moving ahead with development existing warehouse structure on site is in the process of being demolished. We have filed plans for the new building and we know now working through the associated regulatory processes, we expect to develop and nine story fully amenitized multifamily rental building, including in the talking with approximately 119th.

I wasn't rentable square feet, and 175 total residential units, 70% of which will be free market and 30% affordable as mentioned previously the properties eligible for 35 year for 21, a tax abatement due to the affordable component. We will continue to provide updates as we proceed and are excited to add this asset to our.

Portfolio.

Rebecca continues to perform very well, we increased residential revenue by 6% in 2019 over 2018.

And by occupancy and rent per square foot gains during the year.

Properties, 99.8% leased at the end of February maintaining its exceptionally high occupancy trends.

The results confirm yet again that you're back houses a go to destination for young professionals in the families who want to live in downtown Manhattan, offering and luxury experience and more attractive price when compared to the surrounding neighborhoods.

Our confidence in the properties overall growth trajectory is driven by three factors one full occupancy to very tight apartment turnaround times that strengthen our rent negotiations and three significant remaining upside potential between our current $71 per square foot blended rents and the neighborhoods comparable $80 per square foot rents.

[noise] near term, we're excited to enter the spring in early summer leasing season, our most active time of the year.

Offers guns in Brooklyn, the complex continues to benefit from extremely high demand and is 98% leased at the end the February continuing to full occupancy trend over the last several quarters with accompanying rentals, we increased revenue by 7% in 2019 over 2018 reaping the benefits of this exceptionally high occupancy and rents per square foot gains.

During the year.

The complex is multi year upgrade the community. If you will continue to attract a broad spectrum of residents importantly, our focus on expense management drove a 140 basis points improvement in NOI margin at the property during the year as mentioned on prior earnings calls.

The June 2019 rent stabilization law somewhat tempered the properties future rent growth trajectory. However, rents have continued to increase future renewals will move in tandem with annual rent guideline both increases at preferential units. They can see still offer the ability to increase the new ran up to the maximum legal limit.

I push guns remains a very significant part of our portfolio.

Growth story with the ethylene expansion project going incremental value opportunity.

I'll now turn the call over to Michael who will discuss our financial results.

Thank you Jay our fourth quarter and full year results demonstrate the robust leasing trends and operational efficiencies highlighted by David engines.

For the fourth quarter, we achieved record revenues of $30.6 million, an increase of $2.7 million or 9.8% compared to the same period in 2018.

Cheap to record an ally of 16.9 million, 9.4% increase compared to the same period in 2018, and AFFO of 5.3 million or 12 cents per share.

For full year 2019, we achieved record revenues of $116.2 million, an increase of 6.2 million or 5.6% compared to 2018.

We achieved record annual ally of 62.8 million.

4.7% increase compared to 2018 and record annual FFO of $22 million or 50 cents per share an 11.2% increase compared to 2018.

Focusing on the fourth quarter the year over year total revenue increase was primarily attributable to improvements at Flatbush gardens in Tribeca House, and a fully online Clover house.

Pushing tribeca residential revenues grew 4% and 7.9% year on year, respectively.

Both properties were approximately 98% leased at the end of the year.

Clover House generated 1.4 million of revenue during the quarter and as mentioned earlier the property was 90% leased at the end of February.

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

Real estate taxes, and insurance increased by approximately $1 million in the fourth quarter year over year due to property tax increases across the portfolio and general insurance industry cost increases.

Cash general and administrative expenses increased by $691000 in the fourth quarter, primarily due to bringing Clover house online and nonrecurring litigation related expenses. Excluding these expenses cash DNA decreased by $180000 year over year.

Interest expense increased by $1.8 million in the fourth quarter due to the recognition of interest expense in connection with bringing clever house online and higher interest costs, resulting from recent refinancings of the two 250 learning from Street property.

Turning to Capex, we incurred $5.7 million of capital expenditures in the fourth quarter is 56% decrease from recent quarters. The crop primarily resulted from the completion of the Clover House renovation.

Lastly, today, we are announcing a dividend I'm not gonna have cents per share for the fourth quarter. The dividend will be paid on March 30, onest to shareholders of record on March 24.

Let me now turn the call back over to David for concluding remarks. Thank you Michael we're very pleased with our results for the fourth quarter full year 2019, our portfolio continues to perform well.

Basically look forward to a myriad of growth opportunities, including global hows, the upcoming office lease rolls and Fenton Pacific soon redevelopment remain well positioned to execute strategic initiatives and drive value for our shareholders that I 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 Touchtone phone at this time, we ask that well posing your question you. Please pick up your handset uplisting on speaker phone to provide optimum sound quality. Please hold while we pull for questions.

It looks like your first question is coming from Greg Kucera, Greg Your line is life.

Yes, Thanks, Hey, guys.

Let's talk about your your Gionee expense nice to see it trending down obviously, you had the litigation costs, but sort of on a normalized basis.

Can you talk about your expectations for 2020 are they going to be reasonably flat or how are you thinking about that.

Sure I think it's good question as you know Craig over the last couple of years, our cash DNA is sort of it's been between you know kind of six to $6.5 million to $7 million.

As we sit here today I think we will continue that trend for full year.

2019, or cashing area was.

Roughly 7 million. So again I think it's pretty flat we've focused on it obviously and.

I expect that to continue.

Okay, great and as far as the litigation.

Are there are there next steps there kind of how should we think about how that's going to play out going forward.

Good where the for 21 day.

Yes.

Yes, basically basically the.

Heavy lifting of the litigation is over and then again as we said I said in my remarks that we've said this on the over previous calls we were like 40, some odd lantus in that case after them more than half of them don't live in the building anymore. Nobody else has joined the case and our analysis of the of the.

Cases, it impacts the company.

I would say not material at all.

I think that exiting is going to happen is the judges opinions decision that was upheld recently.

Very vote for unclear.

I would guess gets decided or calculated.

Going back now for some more.

Motion practice on that and that's going to get flushed out I guess the next several several months.

Okay.

I appreciate the color I guess, one more for me now that said that Clover house is stabilized.

Do you anticipate being able to push rents pretty aggressively at that property as as leases term out over the next year. So.

Thank you know.

We did I think that leasing team and management team did an excellent job and bringing the.

Very quickly off too.

No, 97% occupancy that obviously they didn't want to raise the rents the Max Max and that was like in those mid seventys, though as the leases roll I think we'll see some increases more closer to that we said in my comments upper Seventys Louise.

Okay, great. Thanks, guys.

Thanks.

Once again, if there any remaining questions or comments. Please indicate so now by pressing star one on your Touchtone phone.

[noise], Okay, we appear to have no further questions in queue at the moment.

Great.

I think we'd like to thank everybody for joining us today, and we look forward to speaking to you at the end of first quarter.

Thank you becoming booked in the next time bye bye.

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.

Okay.