Clipper Realty Inc. Q1 2023 Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the Clipper Realty first quarter 2023 earnings call. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Larry Kreider the floor is yours.
Thank you and good afternoon. Thank you for joining us for the first quarter of 2023 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 <unk> 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.
2022 annual report on Form 10-K, and updated in the 2023 first quarter report on Form 10-Q, which are 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 May four 2023, and the company undertakes no duty to update them. During this call management may refer to certain non-GAAP financial measures, including adjusted funds from operations or <unk> adjusted earnings before interest taxes depreciation and.
Amortization or adjusted EBITDA.
And net operating income or NOI. Please see our press release supplemental financial information in our Form 10-Q posted today for a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures.
With that I will now turn the call over to our co chairman and CEO , David <unk>. Thank you, Larry and good afternoon, and welcome to the first quarter 2023 earnings call for Clipper Realty.
An update to our business performance.
Regarding recent highlights and milestones as well as the company's progress.
And then turn the call over to J, J, who will discuss property level activity, including leasing performance and finally, we will speak about our quarterly financial performance. We will then take your questions.
Operating results continue the positive trends essentially leasing activity continues to improve based on strong rental demand at our properties in New York city's fully reopen people C. C to relocate back to the city and employees increasingly return to their offices.
At the end of the first quarter, our properties were 99% leased and new leases at all our properties continues to exceed pre pandemic levels as the Tribeca House for example, new leases in the first quarter exceeded $77 was 17% better than the previous threads and overall right.
Levels were a record $75 a foot 19.
19% better than the $63.
The end of December 2022.
At the Flatbush gardens.
<unk>, new leases averaged $36 this quarter and overall red levels rose to $26 17 per foot.
With respect to interest rate increases we believe we are buttressed by the relatively long duration of our debt on our operating properties of which 94% is fixed at an average of three point 72.
Interest with an average duration of six or seven years and is nonrecourse.
Subject to limited standards carve outs.
Not cross collateralized with respect to inflation, we took.
Do the short duration and high demand for our residential leases to allow us to cover the increase in expenses other operating properties and higher construction costs and development process.
<unk> continues to be well positioned from a liquidity perspective, we have a total of 30.
$8 million of cash consisting of $19 million of unrestricted cash and 19 million of cash we finance our portfolio.
Asset by asset basis.
We are pleased to announce that as of today, we have completed on schedule.
The Pacific Street.
<unk> now branded specific house refinance it with permanent debt and began leasing in anticipation of full operation in the second quarter. The property is located in prospect Heights, Brooklyn about one month of Atlantic Terminal Slash Barclays Center hub comprises 175 units became a N a.
AD budget of $85 million, so goes and as leasing two cap rate above 7% due to the excellent progress construction and leasing in February we replace the construction loan ahead of schedule.
Five year $80 million loan $60 million.
It's already drawn at closing $20 million available upon achievement of certain financial targets. It has an initial interest rate of five.
Five 7% reduced by another 25 basis points upon full lease up and also we have begun to develop the land parcels. We bought in 2021 and two a zoo at these rates. We also intend to developed from the ground up and I saw it fully and monetize residential building with $160.
Residential rentable square feet to 140 total units, 70% of which are free market and the balance is affordable along with 85 under commercial rental square feet, we paid $56 $5 million for the puzzles, partially funded the acquisition financing of $36 million and we tell.
To fund the development of the destruction.
With regard to our first quarter results, we are reporting record quarterly revenue of $33 7 million.
NOI of $17 1 million, both exceeding pre pandemic levels.
So $1 5 million.
As a result of improved leasing I mentioned above.
These results represent significant improvements over the first quarter last year, a testament to the growers of the management and executive team.
J J, who will further detail.
I'll now turn the call over J, J, who will provide an update on operations.
Thank you I am pleased to report that our residential leasing performance at all our properties continues to improve.
At the end of the first quarter, all our residential properties occupancy and rent levels are exceeding pre pandemic levels overall, new lease rental rates in the first quarter exceeded previous rents by almost 14% and renewal rates by over 8%.
Experiencing particularly strong rental demand at our tobacco house property.
While leasing and leased occupancy has averaged 98% over the last 12 months, we have steadily increased average rent.
Per square foot to $75 from $63 over that same period.
In the first quarter rents on new leases was $77 per square foot, a 17% increase over previous rents and rents on renewals were $74 per square foot, a 14% increase over previous rents.
We expect rent per square foot to continue to grow for at least another quarter as a result of turnover of a one and two year leases entered into last year in response to pandemic conditions and as a result of continued strong overall leasing conditions.
We also continued to benefit from the new leases are retail properties at such a big <expletive> property. The four new leases, we entered into last year at substantially higher rates are cash flowing and we are actively seeking to lease the last remaining retail space vacated in the pandemic.
At the Flatbush Gardens complex in Brooklyn, we are focused on maintaining high occupancy at 99% level in keeping up with maintenance activities new leases in the first quarter have averaged nearly $36 per foot.
Ms Li 40% higher than the units previously rented as a result overall average rent for the property have begun to increase again rising to 26017 per square foot at the end of the quarter versus $25.12 at the end of last year.
We are not benefiting from the guidelines put forth by the rent stabilization board in October 2023, which allowed increases on rent stabilized units, a 3.25% to one year leases and 5% to two year leases such increases have limited.
Had been limited to zero percent and 2% for the last couple of years. These increases will help offset that with continued capital investment nephropathy, which has amounted to $900000. So far this year and our continued aggressive spending on maintenance and supplies.
Our other residential properties Clover House 10, West 60, <unk> history has been in 2015 Livingston Street.
<unk> continued to perform well while average leased occupancy for these properties has maintained.
At 99% average rental rates have increased 11% from a year ago.
Rent collections across our portfolio remain strong.
Despite the residual challenges of the pandemic. The overall collection rate in the first quarter was over 98%.
Rising we have continued to benefit but at a lower rate from remittances other than New York Emergency rental assistance program or Iraq, and the landlords rental assistance program or L. A that we receive remittances this quarter of $500000 versus average 2022 quarterly amount of $776000.
A fourth quarter 2021 amount of $2 5 million.
On the development side, the construction of Pacific House, and the Prospect Heights area of Brooklyn is completed.
Significant bankruptcy issued by the new city building upon it we began leasing in the first quarter and have already leased 60% of the 122 free market leases as of today, we expect to be substantially leased in the third quarter. The development is a nine story 119000, rentable square foot fully monetized multifamily rental building.
With underground in the parking the property is 175 total units, 70% free market and 30% affordable and has a 35 year for 'twenty. One apex debate looking ahead, we remain focused on optimizing activity pricing in expenses across the business.
Best position ourselves for growth I will now turn the call over to Larry who will discuss our financial results.
Thank you J J for the first quarter, our reported revenues increased by $1 $6 million to a record $33 7 million from $32 $1 million last year first quarter on a more comparable basis after eliminating a onetime recovery of previously written off receivables of $1 1 million.
Under the new accounting standard implemented last year revenue last year was $31 million, representing an increase of $2 7 million or 9%.
NOI this quarter was $17 $1 billion or $6 million better than last year as reported and $1 $7 million better after adjusting for the onetime revenue recovery. Similarly, a SFO. This year was $4 $7 million, an increase of <unk> $2 million.
From the $4 $5 million reported last year or $1.3 million better after adjusting for the onetime recovery items. The revenue increase was due to the higher residential revenue rates from continued strong leasing as mentioned by J J and higher occupancy at the Flatbush Gardens property.
Bad debt expense was substantially level with last year, reflecting the high end stabilized collections as JJ also discussed on the expense side key year over year changes were as follows property operating expenses were $600000 higher than last year due primarily to increased utility gas heating prices compared to <unk>.
Last year and higher repair costs at Flatbush gardens from our increased focus on maintenance.
But real estate taxes and insurance increased by approximately $600000 in the first quarter year on year $500000 due to the regular increase in real estate taxes mid year last year at $100000 due to insurance cost increases.
General and administrative costs increased by 350000 in the first quarter year on year, primarily due to extra auditor transition.
Transition costs.
And higher amortization cost of <unk> issued after the first quarter last year.
Interest expense increased by $200000 in the first quarter year on year due to conversion of the data at the Ted was 70 is 10 West Street.
Pretty two variable rate. According to its terms, partially offset by additional capitalization of interest associated with the Pacific has at 953 Dean Street development projects.
With regard to our balance sheet as David mentioned earlier, we have $18.8 million of unrestricted cash and $19 million of restricted cash. We initially funded development of our Pacific has and Dean Street acquisitions substantially with construction financing in February we refinanced the Pacific <unk>.
Construction loan with an $80 billion mortgage that provided initial funding of $60 million and a further $20 million subject to achievement of certain financial targets. The loan has a five year term and an initial interest rate of five 7% subject to a reduction by up to 25 basis points upon achievement.
A certain financial objectives. The loan is interest only for the first two years and principal and interest thereafter based on a 30 year amortization schedule.
We finance our portfolio on an asset by asset basis.
And our debt is nonrecourse subject to limited standard carve outs and is not cross collateralized, we have no debt maturities on any operating properties until 2027 with average overall duration.
<unk> 6.47 years at the end of 2023.
Currently 99, 4% of debt at our operating properties is fixed at an average rate of $3 seven 2% today, we are announcing a dividend of nine and half cents per share for the first quarter. The same amount as last quarter. The dividend will be paid on may 24th to shareholders of record.
On may 15th.
I'll now turn the call back over to David for concluding remarks. Thank you Larry we remain focused on efficiently operating our portfolio.
We look forward.
Current operating improvements who continue to accelerate through the next quarter and into 2023, we look forward to capitalizing on a myriad of growth opportunities, including Pacific Oz and these three developments at other possibilities that may present themselves.
I would now open the line for your 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 while posing your question you. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.
Thank you. The first question comes from Buck Horne with Raymond James. Please proceed.
Hey, thanks good.
Good afternoon, and congrats on the progress.
I'm wondering if we could just revisit flatbush and going back.
Late last year.
I would like.
You guys were marketing the property or at least taken some indications of interest in the market to see if there was.
Potential buyer or transaction that might be possible for flat Bush I'm. Just wondering if you can give a progress update or.
Is flat Bush still.
Potentially on the market.
Club, which is no longer on the market, we took it off the market.
We have some other plans when the property, which we cannot talk about at the moment.
Hopefully next quarter, we should be in a better position to discuss what direction, we're going at the moment.
Considering a sale of the property.
Okay Alright.
The update.
And for this year it sounds like there is new.
It gets new discussions and proposals from the rent guideline board about potential increases for rent stabilized units.
Just read articles talking about.
Of the 2% to 5% increases onto one year leases and higher than that on two yearly. So it sounds like there may be some additional.
Progress a rent increases coming up I was just wondering if.
I guess my question would be.
You know related to Flatbush and those properties do you think.
I don't know if.
You can opine on in terms of what do you think that the likelihood of those types of increases being pushed through would be.
Okay.
There is a guidance, which is usually is there will be some increase.
If you read the news reports about how they conduct these meeting as well.
The circus than anything else, but there will be I think good possibility that there will be an increase it's too early to tell until we know.
As a result on a couple of them.
Because of.
And stay tuned.
But there'll be something coming I think.
Seems to be the indications yeah Buck as I also noted we've already started to benefit from the increases that were permitted effective October of last year.
Yes.
Naturally it's a large property in turnovers reasonably slow.
Okay.
I appreciate that and just last one for me.
Just kind of thinking higher level in terms of where the stock prices at relative to.
What do you guys.
Do you guys consider the NAV of the company materially higher than these levels.
Did you guys give any thought to.
Other strategic transactions or potentially one of the smaller.
Properties potentially.
Monetizing a property to to fund either debt repayment or stock repurchases at these levels.
That's something which we have not considered at the present time.
The climate is not ripe I think will that take.
Taking a moment where interest rates are.
With the pause in interest rates seemingly as opposed to an interest rate.
After that it comes.
Sort of a.
I think the rest will come back the other way around and probably be a better time to explore what you're suggesting.
Got it got it alright, guys I appreciate the time and good luck and thanks for the update.
Thank you and I talked to.
Once again, if there are any remaining questions or comments. Please press star one on your phone at this time.
There are no further questions in queue.
Do you have any closing comments you'd like to finish with.
Thank you for joining us today, we look forward to speaking with you again soon.
Please stay healthy.
Have a good night thank you.
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.
Thank you.
Thanks, John .
Thank you gentlemen take care.