Q4 2021 Clipper Realty Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to the Clipper Realty fourth quarter earnings call.

At this time all participants are in a listen only mode and the floor will be opened for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host Lawrence crater Sir the floor is yours.

Thank you good afternoon, and thank you for joining us for the fourth quarter 2001, Clipper Realty, Inc. Earnings Conference call participating with me on today's call are David <unk> Co Chairman of the Board and Chief Executive Officer, and JJ Vista Research 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 statements. These statements are subject to numerous risks and uncertainties, including those disclosed in the company's 2021 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 15th 2022, and the company undertakes no duty to update them. During this call management may refer to certain non-GAAP .

Actual measures, including adjusted funds from operations or <unk> adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA.

And net operating income or NOI.

Press release supplemental financial information in Form 10-K posted today for a reconciliation a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures with that I will now turn the call over to our co chairman and CEO David <unk>.

Thank you.

Ladies and gentlemen, and welcome to the fourth quarter of 2021 earnings call for Clipper Realty.

I will provide an update on our business performance, including recent highlights and milestones as well as the company's progress and will then turn the call over to J J, who will discuss property level activity include.

Leasing performance finally, Larry will speak about our quarterly financial performance. We will then take your questions.

I'll begin again by extending my thanks to the entire team.

Team for their ongoing hard work aggressive moves as we progress out of the pandemic and onto 2022, we remain grateful for that.

The new efforts and are proud of their continued dedication to our residents our community and our business. We continue to see positive operational trends as we look forward. The residential leasing activity continues to improve and has as both the city and the economy in general for the strength in the New York City.

We expect rental demand to remain strong and pricing to improve.

New York City has reopened P equals <unk> <unk>.

Back to the city of employees increasingly return to their offices at the end of the fourth quarter of properties was 95% leased new leases at our properties are reaching or exceeding pre pandemic levels, including Tribeca house gravity with new leases raise in October exceed.

$80.

Before 10% better improvement that would be great.

Our balance sheet continues to be well positioned from a liquidity perspective.

Approximately $53 million of cash consisting of $35 million of unrestricted cash.

Finance, our portfolio on a asset by asset basis.

It is non recourse subject to limited standards.

And it is not cross collateralized, we have no debt maturities on any of the operating properties into 2020.

Turning to some recent developments essentially ground up development assistance emphasis big acquisition is moving along very well.

Getting substantial completion in the fourth quarter. The property is located and is located in prospect Heights, Brooklyn about a mild winter Atlantic Terminal Barclays Center.

As previously discussed we estimated the project to cost $85 million and develop to six and a half stabilized cap rate more than 95% of our construction contracts are signed and we are drawing steadily on the 52 and a half million dollars construction loan facility that will provide us with the financing through completion.

<unk> provides.

On the project shortly.

The end of the year, we purchased 90 <unk> Street in Brooklyn, and intend to devote some ground, though when completed the purchase of land will cost approximately $48 million and the acquisition financing of $40 million, we expect to build a nine story fully amortize residential building the other 60000 resident.

Rentable square feet.

With 240 units, 70% with free market and 30%.

Notable which will provide us with a 30 year 421 tax abatement 8500 square feet of commercial rental square feet.

Our office portfolio is 121 and 250 Livingston are operating as expected. So all of the new lease entered at the end of 2020 in August 2020, together. These renewed leases have added $7 $1 million to the net operating income.

Compared to previous lease rates and increase of over 10%.

In regard to our fourth quarter results, we are reporting quarterly revenue of $38 million net operating income of $16 $4 million.

So a $4 4 million all of these results represent an improvement over the third quarter as Larry will further detail.

I'll now turn the call over.

We will provide an update on operations.

Thank you I begin by again, extending our thanks to the company's employees for their continued inspiring efforts as we progress out of this unprecedented period return to normality, we are grateful for their ongoing commitment to our tenants and communities.

Our new residential leasing activities that began towards the end of last year continues to improve.

At the end of the fourth quarter of all residential properties released in the mid to high 90% range, new rental rates per square foot in January and February are reaching or exceeding pre pandemic levels and all exceeding present average rates.

For example, new leases in February at the Tribeca House with $83 per square foot.

I understand $2 per square foot has been $52 per square foot.

Clover House $73 per square foot 10, West 60, <unk> Street $59 per square foot.

We continue to work our pandemic will come your strategy at all the Tribeca House property to first optimize occupancy and then grow rental rates year on year and leased occupancy has increased to 98% 89% in December last year with average occupancy of 97% over the full year.

In 2021.

As occupancy increase to the high 90% Mark we were then able to begin achieving higher rent per square foot, which now have reached an excess of $80 per square foot in February 2022, more than 15% higher than the pre pandemic levels nearly double rates in December 2020.

As a result average rent per square foot levels over the whole property have increased nearly $63 in December and $64 per square foot last week we.

We expect rent per square foot levels to continue to grow steadily higher.

It's not a one and two year leases entered into last year and the year before turnover.

Revenue at the <unk> complex in Brooklyn held up well in the fourth quarter nearly level with the third quarter throughout the pandemic to properly maintained leased occupancy between 90% to 93% and rent per square foot remained steady at $25 per square foot.

Throughout 2021, a near record level we.

We are taking steps to increase occupancy to the historically typical level above 95%.

Lastly, we continued to benefit from the 2020 reorganization of the property's operations that created nearly $800000 in annual savings.

Rent collections across our portfolio remained strong despite the challenges of the pandemic.

Our overall collection rates in the fourth quarter was 98%.

<unk> 2021 we found some rent relief under the New York Emergency rental assistance program or Iraq, and received $2 $5 million in the fourth quarter 2021, and $240000 this quarter so far.

We understand the program has caused the lack of funding, but understand that there may be some resumption depending on actions taken enormous.

We have also filed over $1 million of applications under the related landlord rental assistance program or <unk>.

Relating to tenants, who did not file for assistance on the EBIT.

If and when that program becomes operational for larger limits.

On the development side, we are moving well on construction at 10 10 specific street and on target we have finalized the approximately 95% of our construction contracts and begun steadily drawing on our $52 $5 million construction loan, which should provide us with funds throughout completion that we're targeting in the fourth.

Got it.

All the important change on all the important trades are engaged on site and I'm moving efficiently toward trade finishes. The development is a nine story 119000 rentable square foot fully amortize multifamily rental buildings with underground indoor parking the property is expected to have 175 total.

Units, 70% of which will be free market and 30% affordable and is eligible for a 35 year for 'twenty one apex debate.

Looking ahead, we remain focused on optimizing occupancy pricing and expenses across the business to best position ourselves as New York City continues to recover from the pandemic.

I will now turn the call over to Larry who will discuss our financial results. Thank you.

Thank you J J for.

For the fourth quarter, we achieved revenues of $38 million virtually level with last quarter at higher than the $33 billion for last year's fourth quarter for the same periods of time, we achieved NOI of $16 $4 million at <unk> of $4 $4 billion this quarter increased.

Proximately from 0.3 point.

$3 million from the third quarter of this year and improved from NOI of $14 7 million and <unk> 3 million in the fourth quarter last year.

Year over year revenue increase was primarily due to increased occupancy and or rental rates at the Tribeca House, Aspen and Clover House properties, partially offset by lower occupancy at the Flatbush gardens property as compared to the fourth quarter of 2020.

At this point, we are achieving higher rates on new residential leases that before the pandemic. Although the effect will take the next few quarters to evidence itself as leases executed at lower rates during the pandemic through the second quarter of 2021 take full term to roll off in February 2022.

As J J has articulated for example at the Tribeca House property, new residential rental rates were above $80 per square foot.

Well above new leases at the beginning of last year with similar increases at our other properties as well.

On the expense side key year over year changes were as follows property operating expenses decreased by $1.5 million in the fourth quarter year on year, primarily driven by a decrease in the provision for bad debt, resulting primarily from the $2 $5 million of E rate funds received in the fourth quarter at <unk>.

Additional $240000 in 2022, and a decrease in property level staffing costs at Flatbush gardens, resulting from the realignment of operating activities last year at Flatbush Gardens.

Real estate taxes, and insurance increased by approximately $700000 in the fourth quarter year on year due to increased insurance costs across the portfolio and to a lesser extent annual real estate tax increases inter.

Interest expense increased only slightly in the fourth quarter year on year, primarily due to the refinancing of the 141 Livingston Street property in February 2000.

'twenty, one with regard to our balance sheet as David mentioned earlier, we are well positioned from a liquidity perspective, we have $52 million of cash consisting of $34 million of unrestricted cash and $18 million of restricted cash.

The development of the 10, 10 Pacific Australia, Dean Street acquisitions will be largely financed with construction financing.

Refinance our portfolio on an asset by asset basis, and our debt is nonrecourse subject to limited standard carve outs. It is not cross collateralized, we have no debt maturities on any operating properties until 2027 today, we are announcing a dividend of $9.05 per share for the fourth quarter.

Same amount as last quarter, the dividend will be paid on March 31 to shareholders of record on March 25th.

I'll now turn the call back over to David for concluding remarks, Thank you Larry.

They are focused on efficiently operating our portfolio with the safety of our tenants and employees our highest priority. We continue to take the necessary steps to navigate through the current challenges buttressed by a strong balance sheet.

Through our continued operating improvements to accelerate through 2021 and beyond.

We look forward to capitalizing on a myriad of growth opportunities, including 210 10.

Pacific <unk>, and <unk> development and other possibilities that may present themselves.

Now I'd like to open up the line for questions.

Ladies and gentlemen, the floor is now open for questions.

You have any questions or comments. Please press star one on your phone now.

We ask that while posing your question you. Please pickup your handset at Lasalle speaker phone to provide optimal sound quality.

Again, if you have any questions or comments. Please press star one on your phone now please hold them moment, while we poll for questions.

Yes.

Your first question is coming from Craig to Sarah with B Riley.

Your line is live.

Yeah, yeah. Thanks.

Hey, guys.

You had some.

Hey, you've had some elevated litigation expense for a while and.

I'm just curious will that.

With the settlement of effectively and litigation are you expecting any additional spending for the rest of the year.

We don't expect any additional litigation.

What you were referring to the 421 G.

Litigation now settled.

We don't expect anybody else to come out of it.

Okay, great and with the new acquisition of land parcels.

Dean.

I'm curious do you have a rough idea.

The total size of that project.

Wind up looking like.

As you as you continue to work on that for the next few years or is that still TBD.

So to be these days, but it's going to be very much in line with what they are doing a tender.

Close by and proximity.

Basically the same type of construction as far as the trucks production materials.

A bit larger so.

It will be commensurate with the size of the largest in the budget.

But basically the same plan.

Okay, and just one more for me.

I haven't seen the supplement filed yet and are you guys still planning on putting that out at some point in near term.

Is should be now.

We'll check on it but it's.

Pursue.

Yeah.

Okay. That's why we had a couple hiccups, but yeah, no it's going to be opposed to it should've been posted by now I'm a little.

It is not actually.

Okay. Thanks, I'll, let I'll keep my eyes open for that I appreciate that yeah it'll.

That'll be it thank you very shortly.

Sure.

Okay.

Sure.

Once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone now.

Your next question is coming from Buck Horne with Raymond James.

Your line is hey, you got it.

Hey, good afternoon guys.

Just curious about Flatbush, a little bit maybe you could just add a little bit of context around the.

The occupancy level, there and why it seems to be a little slow to recover relative to the rest of the portfolio and really the rest of the market. There is there anything specific.

Going on at the property and how youre targeting occupancy levels going forward and you're just also curious about the strategy around the staffing decision.

No.

It's a much larger property than anything else is 25 units those is over four times the size of a largest property in tribeca. So it takes a little bit longer to get it to get it going as you say when it was pretty much so leasing.

Really slow during the pandemic, but we expect it to catch up with the other with the other properties.

Okay.

And onto the Dean Street transaction, just a rough timeline that you would expect.

Construction to start when you would expect to be able to get the completion at this point and any expectation for yield on cost at this stage.

Sure, we expect cap rates to be about six 5% a little bit better than that.

Q3, 22, we should have all the approvals ready to break ground.

24 months construction time zone timeline.

We hope to do a little bit better.

And again it will be for 'twenty one.

Tax abatement qualified 17th century market, 30% affordable.

35 year tax abatement.

We say that.

Very good results.

Close to 10 Pacific booths.

What we think will be the.

Economic benefits to us and also.

Geographic proximity so we saved.

Both of these projects will be very very handsome designs and it's going to be a good addition to our portfolio.

Okay, great. Thanks for the color thanks, guys.

Thank you.

We have no further questions coming from the lines at this time.

Thank you very much and we look forward to speaking to you again next quarter, you will say well everybody.

Thank you.

Thank you ladies and gentlemen. This concludes today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.