Q3 2023 Clipper Realty Inc Earnings Call

Okay.

Good day and welcome to the Clipper Realty quarterly 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 Kramer, Sir the floor is yours.

Thank you John Good afternoon, and thank you for joining us for the third quarter 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.

J J Mr. <unk>, our 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.

Flows in the company's 2022 annual report on Form 10-K, and updated in 2023 third quarter report on Form 10-Q, which are accessible at www dot FCC that Gov and our website as a reminder, the forward looking statements speak only as of the date of this call them.

<unk> 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 for <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 and 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 third quarter of 2023 earnings call for Clipper Realty.

I will provide an update of our business performance and some exciting new developments after which Ajay will discuss property level activity, including leasing performance.

We'll speak to our quarterly financial performance and will then take your questions.

I am pleased to report that we have record.

Operating results, most key metrics and continuing the positive trends from previous quarters rental demand has been very strong in all our properties in the third.

It was new leases exceeding prior rents with 12%.

Across the entire market based portfolio and our properties are 98% leased.

<unk>.

Manhattan and clubhouse in Brooklyn, New leases were $91 per square foot and overall rent levels reached a record $78 per foot on average 40% better than the 63 per foot at the end of 2021.

Our swap is gone as we have begun operating.

As of July one under the previously announced for the agreement with New York City's housing preservation departments. So called article 11 of the private housing finance law under this agreement the elimination of real estate taxes in hand.

So recoveries are assisted tenants.

Will allow us to profitably provides for a commitment for property improvements tenants assistance and higher wages for everyone's benefit.

Those were the early stages of moving forward our progress as we move forward.

Operationally. We are also very pleased with our new ground up development project specific as that.

Pacific, which we came online last quarter and budgets.

93% leased.

Target to yield a 7% cap rate.

<unk> is located in prospect.

Brooklyn, one mile from the Atlantic Terminal Barclays Center properties of 175 units, 70% of free market, 30% affordable.

Those as a tax abatement for 30 years under the 401 program and recognition of that property has excellent prospects. We completed the final $20 million draw from a bank in the third quarter on the $80 million loan against it early in the year.

<unk> 953 this round.

The development project.

We have completed the foundation bought out 80% of the.

The vendors are going to work on the project finalize the under $23 million construction loan, which will enable us to complete the project.

On time.

We did with Pacific <unk> III project.

Because of the land in 2021.

Out in 'twenty two.

To build a nine story fully monetize residential building the other 60 threes.

160000 residential square feet.

For the units 73 buckets.

Notable which will again provide us with a 401.

Tax abatement for the next 30 years.

And 8500 commercial square feet.

Rental space.

We ask you to continue higher interest rate environment.

We believe the high rates.

High demand for our rental product, hence the high rents that we've been reporting.

And it will be soft.

Longer.

Operations most of our debt is fixed at nine.

94% of our debt is fixed at 382%.

Duration of six.

To use the recourse subject to limits and Cabos.

Cross collateralized so each property stands on its own.

We finance our portfolio and asset by.

That's the basis.

With respect to inflation, we look to short short duration and high demand for our residential leases to allow us to cover the increase expenses.

We're seeing the increases the Reds.

A product of inflation.

With regard to our third quarter results, we are reporting record quarterly revenue of $35 1 million.

Record NOI of $20 million and <unk> of $6 3 million as a result of improved leasing I. Just mentioned these results represent significant improvements over the third quarter.

Yes.

JJ and I will give you further detail I will now turn the call over to Jay Who'll provide.

On the operations.

I am pleased to report that our residential leasing performance.

And all of our properties continues to improve.

At the end of the third quarter, all our residential properties had very high occupancy, averaging 98% and rents are at record levels overall, new lease rental rates in the third quarter exceeded previous rents by over 12% and.

In renewal rental rates of over 6% at our free market properties, we continue to see particularly strong rental demand at Tribeca House and clubhouse properties, both free market buildings at Tribeca House, we have maintained leased occupancy between 90, 799% and increased average rent per square foot to $78.

Square foot from $71 over the last 12 months and $62 per square foot near the end of the pandemic in the third quarter rent on new leases were $91 per square foot, a 13% increase over previous rents and rent on renewals was $87 per square foot and 8% increase over previous rents.

The rental rates have continued to increase even after the COVID-19 pandemic low rates turned over.

Leasing at specific house, almost fully stabilize the 70% free market and 30% affordable property came online at the beginning of the second quarter and was 93% leased at the end of this quarter.

We expect the property to achieve a cap rate of over 7% in 2024 in line with original underwriting at.

At the Flatbush Gardens property. We are also very excited to begin operating under the New article 11 agreement made with the housing Preservation Department of New York City that we completed in June 2019. This agreement that is intended to facilitate ongoing capital requirements and allow for much needed affordable housing in New York City.

We received a full abatement of real estate taxes, beginning July one and have submitted the initial planning for the capital projects, we committed and are in the process of obtaining the enhanced reimbursement for tenants receiving assistance that we're committed to us under the agreement.

Leasing is lapping bonds, we expect global overall rents to continue to increase modestly.

As before on the rent guideline board limits. These have now recommence over the last two years to allow annual increases of roughly 3% per annum.

This compares to the more generous five 8% increases in area median income otherwise known as the 2023 provided by the article 11 agreement overall.

Overall, we are looking for at our leasing activities to proceed smoothly under the modestly change guidelines or the article 11 agreements, including incorporating the 249, new subsidized residents as vacancies arise.

In the quarter, new lease leases averaged $31 per square foot, 10% higher than previous rents and renewals averaged $25 per square foot, 5% higher than previous rents as a result overall average rent for the property have begun to increase again rising to $26 60, 62 cents per square foot.

At the end of the quarter versus 25012 cents at the end of the last quarter last year.

Operationally.

Our other residential properties at 10 West 60, <unk> Street has been in 250 Livingston Street continues to perform well average leased occupancy at these properties have been above 96% and average rental rates have increased 11% from a year ago.

Rent collections across our portfolio remained strong and steady despite the lingering challenges of the pandemic. The overall collection rates in the third quarter was over 98% and we have continued to benefit but at a lower rate from the remittances under the New York Emergency rental assistance program, Iraq, and the landlord the rental assistance program will wrap which tow.

<unk> $280000 this quarter versus $400000 last quarter.

<unk> ahead, we remain focused on optimizing occupancy pricing and expenses across the business expeditiously completing.

Completing.

Development projects in fully implementing article 11 transaction to best position ourselves for growth I will now turn over the call to Larry who will discuss our financial results.

Thank you J J.

For the third quarter revenues increased to a record $35 1 million from $32 $8 million last year third quarter by $2 $3 million or excluding the impact of Pacific cost that came online in the second quarter, an increase of $1 2 million NOI. This quarter was 20.0 million.

Dollars.

And increased dollars, an increase of $2 $6 million from last year.

For one $9 million, excluding the impact of specific house.

<unk> this year was $6 $3 million, an increase of $1 $2 million from last year or $1 $4 million, excluding the impact of Pacific House.

Which reflects the full interest expense in the quarter, but only partial initial lease up the $1 $2 million or 4% revenue increase excluding the impact of Pacific House was primarily due to higher residential rental rates from our properties drove continued strong leasing as previously discussed bad debt expense.

<unk> was substantially the same as last year, reflecting high and stabilized collections on.

On the expense side key year year over year changes were as follows property operating expenses were approximately $400000 higher than last year, excluding the impact of Pacific House, primarily due to higher repairs and maintenance and supplies at the Flatbush gardens property to make the necessary repairs.

And higher payroll at Flatbush gardens to comply with the new living wage requirements under the article 11 agreement.

Real estate taxes, and insurance decreased by approximately $1 million in the third quarter year on year, excluding the impact of Pacific has one $8 million due to elimination of real estate taxes at Flatbush gardens, partially offset by $200000 increase due to routine increase.

As in real estate taxes midyear last year at the other properties and $600000 due to insurance cost increase.

General and administrative costs increased by $100000 in the third quarter.

Year on year, primarily due to regular payroll increases interest expense increased by $300000 in the third quarter year on year, excluding the impact of Pacific has due to conversion of debt at the west.

The 10 west.

60, <unk> Street property to variable rate. According to its terms and the elimination of capitalized interest for Pacific has partially offset by additional capitalization of interest associated with the 953.

<unk> III Dean Street development projects and higher interest income on cash deposits.

With regard to our balance sheet, we have $22 $5 million of unrestricted cash in $2014 $9 million of restricted cash in September we borrowed the last $20 million tranche under the Pacific Haus $80 million mortgage loan that we entered in February of this year and we successfully completed the.

$123 million construction loan for the Dean Street ground up development that should see us through completion projected mid 2025.

Finance our portfolio on an asset by asset basis, and our operating debt is nonrecourse subject to limited standard carve outs.

Not cross collateralized, we have no debt mature maturities on any properties until 2027 with average overall duration of six two or three years and 94%.

Debt at our operating properties was fixed at an average rate of 387% today today, we are announcing a dividend.

Nine five cents per share for the third quarter, the same amount as last quarter the dividend will be paid on November 22nd.

<unk> to shareholders of record on November 14th.

Let me now turn the call back over to David for concluding remarks. Thank you Larry we remain focused on efficiently operating our portfolio we look.

Who is your current.

For our current operating improvements have continued to accelerate through the next quarter and into 2023, and we look forward to capitalizing on a myriad of growth opportunities.

Optimizing.

The article 11 transactions.

Because 90% through these redevelopments and other possibilities that may present themselves. So I would like now to open the line to questions.

Thank you 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 pick up your handset if listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.

Once again Thats Star one if you have a question or comment.

Okay.

Once again, ladies and gentlemen, please press star one if you have a question or comment.

Yes.

Currently no questions in queue.

I would now like to turn the floor back to management for any closing remarks.

Thank you for joining us today, we look forward to speaking with you again.

So.

Have a pleasant evening.

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.

You for your participation.

Thank you John.

You're very welcome take care.

Sure.