Q4 2023 Clipper Realty Inc Earnings Call
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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 your questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Larry credit Sir the floor is yours.
Good afternoon, and thank you for joining us for the fourth 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 this call that are not historical maybe deemed forward looking statements and actual results may differ materially 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 2020.
<unk> annual or 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 14th 2024.
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 the 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 will now turn the call over to our chairman and our.
Co chairman and CEO David businesses. Thank.
Thank you Larry Good afternoon, welcome to the fourth quarter of 2023 earnings call for questions.
I will provide a summary of some of our business performance in some existing new developments.
Residual discuss property level activity, including leasing performance.
We will speak to our quarterly financial performance.
Thank you a question.
Im pleased to report that we have recorded.
Our record operating income.
Continuing the positive trends from previous quarters rental demand continues to be strong at all our properties.
In the fourth quarter, Moody's has exceeded drive rents by 6% across the entire market based portfolio and our properties were 98% leased.
At the Tribeca House revenue that Hasnt been the Clover House property in Brooklyn, New leases were $88 per square foot.
Overall rent levels remain at record levels.
Rebecca has 81.
40% better than the 63 square foot at the end of December 2021.
And so that has gone since July.
As previously announced we are operating on a four year agreement. According to the article that was in the prior to the housing finance law.
Yeah.
<unk> development.
Under this agreement.
The article 11.
Elimination of real estate taxes and it has.
Recoveries will assist incentives.
Should allow us to profitably.
For our communities for property improvement.
Assistance and higher wages.
Of course, we had the early stages of important progress as we move forward.
Operationally, we are pleased to report.
Ground.
Development of Pacific.
Pacific Street in Brooklyn came online this quarter, the 100% leased and on target.
To yield a 7% cap rate properties located in Brooklyn.
Brooklyn about one mile.
Box of incentive hub drop any of the other 70, 570% free market.
Affordable.
As tax abated for 35 years.
The nearby <unk>.
This rebound the development, which is underway we have completed the superstructure has scheduled expects to complete the construction time.
2025 leasing season, utilizing the $123 million construction loan closed last quarter.
Purchased the land 2021 and 'twenty two.
Which to build a nine story fully in minutes.
And with others.
The rest of us.
Two other fourth use 70% three market, 30% affordable 85 under the commercial vessels.
And again this is also.
Tax rate is 35 years.
As the continued high interest rate environment, we believe the higher rates.
Hi.
Also product.
Versus the purchase option.
Voters by the relatively long duration of debt.
Operating profit this is Nathan.
Fixed at an average rate of three.
On.
And the average duration of five five years non recourse subject to limited.
And it's not cross collateralized by any one of the processes.
Our properties on an asset by asset basis with respect to inflation, we look through the short duration and either minutes as residential leases with others to.
To cover the increased operating expense.
With regard to our fourth quarter results were in.
Quoting quarterly revenue at $34 9 million recognized in the NOI of 20 million a record half ago of $6 3 million as a result of the strong leasing and cost reduction that I just mentioned.
These results represent significant improvements over the fourth quarter of last year.
JJ and Larry will further detail I will now turn the call over to J J, who will provide.
An update on operations.
Thank you.
I'm pleased to report that our residential leasing performance at all our properties continues to improve.
At the end of the fourth quarter, all our residential properties at very high occupancy, averaging 98% and rents are continuing at record levels, while still recording increases over previous levels overall, new lease and rent in renewal rental rates in the fourth quarter exceeded previous rents by over 6% and our free market properties.
We expect leasing to remain very strong in the foreseeable future.
Demand remains high and the overall rental housing supply remains constrained and the absence of significant new developments as widely publicized.
It's Rebecca housing Clover House, we have maintained leased occupancy between 96% to 99% and increased average rent per square foot to $78 per square foot from $71 over the last 12 months and $63 per square foot near the end of the pandemic.
At our new development property Pacific House is almost fully stabilized.
The 70% free market and 30% affordable property came online at the beginning of the second quarter and was 100% leased at the end of this quarter.
We expect the property to achieve a cafe over 7% in 2024 and in line with the original underwriting.
At the <unk> property, we are pleased to be operating under the New article 11 agreement made with the housing Preservation Department of New York City that was completed on June 29, 2023, we received a full abatement of real estate taxes, beginning July one have begun completing the capital projects, we committed have begun placing formerly homeless resident.
And have begun obtaining the enhanced reimbursement under section <unk>.
The private housing finance loss of tenants receiving assistance.
The benefits, we receive will allow us to profitably improves the property. We are also getting increases from non assist attendants were increases have been permitted on the rent guideline Board guidelines board for the last couple of years at the 3% level per annum. As a result overall average rents of the property are increasing rising to $26.
69 per square foot at the end of the quarter versus $25.
97% at the end of the last year.
<unk> our other residential properties at 10, West 60, <unk> Street Aspen into 250, Livingston Street continues to perform well average leased occupancy for these properties has been above 96% and average rental rates have increased 11% from a year ago.
Rent collections across our portfolio remain as expected as seasonally high levels. The overall collection rate in the fourth quarter was over 95%. Despite the lingering challenges of the pandemic. Looking ahead, we remain focused on optimizing occupancy pricing and expenses across the business expeditiously completing our development projects.
Fully implementing the article 11 transaction to the best to best position ourselves for growth I will now turn the call over to Larry who will discuss our financial results. Thank.
Thank you JJ.
For the fourth quarter revenues increased to a record 3.9 million from $33 million last fourth quarter Bye.
One 9 million.
Excluding the impact of Pacific House that came online in the second quarter, an increase of <unk> 7 million.
NOI this quarter was $20 million, an increase of $2 $8 million from last year or $2 million, excluding the impact of Pacific crest.
<unk> this year was $6 $3 million, an increase of $1 $6 million from last year or $1.9 million, excluding the impact of Pacific has which reflected the full interest expense.
Since going online, but only partial initial lease up.
For the fourth quarter residential revenue increased to $25 $1 million by $2 1 billion.
We're a $1 billion revenue increase excluding the impact of Pacific has this 4% increase was primarily due to higher residential rental rates for all properties for continued strong leasing previously discussed bad debt expense was substantially the same as last year, reflecting higher stabilized collections 300.
Dollars decline in commercial rental income was caused by a couple of leases at the Aspen property that are being replaced.
On the expense side key year over year changes quarter on quarter were as follows.
Property operating expenses were flat compared to last year, excluding the impact of Pacific has primarily due to lower utilities costs, mostly offset by higher repairs and maintenance and payroll at the Flatbush gardens property to make necessary repairs and to comply with Frazier wage requirements.
Under the article 11 transaction.
Real estate taxes, and insurance decreased by approximately $1 $3 million in the fourth quarter year on year, excluding the impact of Pacific has $1.8 million due to elimination.
Real estate taxes at Flatbush gardens, partially offset by $200000 for routine increases in real estate taxes at the other properties.
$300000 for insurance cost increases.
General and administrative costs decreased by $300000 in the fourth quarter year on year, primarily due to lower audit costs and compensation related expenses.
Interest expense increased by 300000 in the fourth quarter year on year, excluding the impact of Pacific House due to conversion of the debt at the 10 West 60, <unk> property to variable rate. According to its terms and the elimination of capitalized interest for Pacific has.
With regard to our balance sheet.
We have $22 $2 million of unrestricted cash and $14 1 million of restricted cash in the fourth quarter, we had no new debt activity other than draws under the construction loan.
That we closed last quarter for our Dean Street property development.
Finance our portfolio on an asset by asset basis, our operating debt is non recourse subject to limited standard carve outs and is not cross collateralized the average duration of our debt.
Our operating properties is $5 5 million or five five years and 93% of our debt at our operating properties is fixed rate at an average rate of 387%.
Today, we are announcing a dividend of.
995 cents per share for the fourth quarter, the same amount as last quarter.
Dividend will be paid on April four 2024 to shareholders of record on March 27th 2024.
Let me turn the call back to David for concluding remarks. Thank you, though we remain focused on efficiently operating our portfolio.
Look for our current offering grew as we continue through 2024 into 'twenty five we look forward to capitalizing a myriad of growth opportunities, including optimizing leprechaun article 11 transaction specific out of nitrogen into these new developments.
Capitalizing other possibilities that may present itself, we look forward to the transition of the two office buildings and tenant.
Ed.
And the <unk> lease, which is coming up at the end of 2025.
Thank you.
We look forward to see you in the next quarter.
Okay.
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 we're posing your question you. Please pickup your handset up listing on speaker phone to provide optimal sound quality. Please hold while we poll for questions.
Once again, please press star one if you have any questions or comments.
First question comes from Buck Horne with Raymond James. Please proceed.
Hey, good afternoon guys.
I was wondering if we could start with just 250 Livingston and the situation with the lease and the notification that.
The New York City in New York plants to vacate.
Just can you walk us through what you know.
What the next steps are in terms of.
Would either trying to re tenant the building or.
What are your options or is it.
Re leasing the space is not realistic.
Do you you have $125 million mortgage out on the property.
Does it make sense at some point to consider just handed the keys back.
We think that the premature.
Compensation.
The city.
Basically <unk> organizes all the reasons for the city is looking as in the marketplace for a new building.
Patient.
300, and some 2000 square feet, but wanted to do the agencies.
We are told that building.
Building that 250.
The other building that we had 121 of the prime care in this world There's no guarantee obviously.
B, what does that opportunity.
We're working diligently to try to get the tenants into mobility.
B.
Improvement of what we have right now.
We are in a position to be able to.
Renovate the buildings that we had to.
We have excellent relationship with because over the many millions of years.
And in that particular marketplace I think we're in a good position the cost basis that we have in the bill.
To be able to compete.
Yes, very aggressively in the <unk>.
Marketplace.
The rent that they are looking for that's only one option and thats. The one that we're most focused on at the moment.
Okay I appreciate that.
Do you have any idea realistically what.
The cost too.
Put into tenant improvements or additional capex into 250 Livingston.
Range divestment of what that would cost to get that ready for a new tenant.
We don't know yet because we haven't we haven't yet got that granular with this conversation.
Usually the way we work with them.
And wouldn't be met but obviously, we're making that $50 a foot.
Particularly the tenancy.
Very high rents for the marketplace.
So the conditions of the building.
Any money that we invest in the property will be always tested by return on equity commensurate.
Need for that investment.
And the money for the building.
It looks like a fair return on it so it will be a long term lease.
Accredited lease tenant because the leases are all creditors.
So that will be commensurate with that those two things the creditors.
Also in the amount of money.
Usually they are looking to do is not.
Most commercial.
Oh boy.
These types of improvements.
Really.
I think <unk> kind of operation.
Agencies look forward.
So.
More details than that right now.
We will report when we have something to report.
Got it got it and for now.
Any.
Income and revenue from the building goes into an escrow account is that is that how this works until.
What what requirements may be satisfied before you can start.
Continued booking revenue from the building again.
The revenues the revenues.
Nothing can stop the revenue so that it leaves the revenues will be reported by the company is a taxable but income.
Taxes.
Revenue.
Whether there is going to be an escrow account.
That has been determined.
Okay.
Got it and my last one is just simply yes.
A larger or a bigger picture I guess.
Noting where shares are trading and relative to our estimates of what the company is.
Is there a.
Consideration or longer term thought of.
Does it make sense to look at a potential property sale.
To try to you.
Either de lever the balance sheet and or potentially deploy some proceeds in the stock repurchases.
We haven't yet.
The property the value of the stock price of the stock has been with us for quite some time.
Obviously I.
Think indicative with the overall market.
The discussion is not yet.
Yes.
Then.
Consider this.
Okay.
Got it alright, guys. Thanks.
Thank you.
If there are any remaining questions. Please indicate so by pressing star one.
I would now like to turn the floor back to management for closing remarks.
Thank you for joining us today, we look forward to speaking with you again soon.
Okay.
Yes.
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.