Q1 2024 Clipper Realty Inc Earnings Call

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Operator: Good day, and welcome to the Clipper Realty quarterly earnings call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Larry Kreider. Sir, the floor is yours.

Operator: Thanks, Mark and good day and welcome to the Clipper Realty quarterly earnings call. At this time, all participants have been placed on 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, Sir the floor is yours.

Lawrence E. Kreider: Thank you, John, and good afternoon, and thank you for joining us for the first quarter 2024 Clipper Realty Inc. Earnings Conference Call. Participating with me on today's call are David Bistricer, Co-Chairman of the Board and Chief Executive Officer, and J.J. Bistricer, Chief Operating Officer.

Lawrence E. Kreider: Thank you John.

Lawrence E. Kreider: Good afternoon, and thank you for joining us for the first quarter 2020 for 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.

Lawrence E. Kreider: Please be aware that statements made during the call that are not historical may be 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 2023 annual report on Form 10-K, which is accessible at www.sec.gov and on our website. As a reminder, these forward-looking statements speak only as of the date of this call, May 7, 2024, and the company undertakes no duty to update them.

Lawrence E. Kreider: That are not historical maybe deemed forward looking statements and actual results may differ materially from those indicated by such forward looking statements.

Lawrence E. Kreider: Payments are subject to numerous risks and uncertainties, including those disclosed in the company's company's 2023 annual report on Form 10-K, which is accessible at www Dot SEC Dot Gov and our website as a reminder, the forward looking statements speak only as of the date of this call are based.

Lawrence E. Kreider: <unk> 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.

Lawrence E. Kreider: During this call, management may refer to certain non-GAAP financial measures, including adjusted funds from operations, or AFFO, 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 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 Bistricer. Thank you, Larry.

David Bistricer: 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 Bistricer: David <unk>. Thank you Larry good afternoon, and welcome to the first quarter 2024 earnings call for Clipper Realty I will provide an update on our business performance in some of the losses have the residual will discuss property level activity, including leasing performance and Larry will speak to our quarterly financial performance.

David Bistricer: Thank you, Larry. Good afternoon.

David Bistricer: Welcome to the first quarter of 2024, and it's called Clipper Realty. I will provide an update on our business performance and some new developments, after which JJ will discuss property level activity, including leasing performance, and Larry will speak to our quarterly financial performance. We will then take your questions. I'm pleased to report that we are reporting record revenue and net operating income, continuing the positive trends from previous quarters for our residential property.

David Bistricer: We'll then take your questions.

Speaker Change: I am pleased to report that we are reporting record revenue and net operating income continuing the positive trends from previous quarters for our residential properties better demand continues to be strong at all our properties and overall.

David Bistricer: Rental demand continues to be strong at all our properties, and overall rents are stabilizing as COVID-era rents are replaced with current rents. In the first quarter, new leases exceeded prior rents by 6% across the entire market-based portfolio, and our portfolio was 98% leased. For example, at the Trubaker House in Manhattan and the Clover House in Brooklyn.

David Bistricer: Stabilizing let's go over to <unk>.

David Bistricer: Place with current trends in the first quarter of the new leases exceeded prior rents by 6% across the entire market based portfolio and our portfolio.

David Bistricer: 98% leased.

David Bistricer: At the Tribeca House in Manhattan, the clubhouse in Brooklyn, New leases were over $80 per square foot.

David Bistricer: New leases were over $80 per square foot. Overall, rental revenues remained at record levels, $78 at Tribeca, $81 at Clover House, 40% better than the $63 at the end of December 2021. At Flappage Gardens, we continue to be pleased by our results.

David Bistricer: Over all rental levels remained at record levels 78.

David Bistricer: Tribeca anyone the clubhouse, 40% better than the $63 at the end of December 2021.

David Bistricer: <unk> lab is guns, we continue to be pleased by our results since last July we have operated under a 40 year.

David Bistricer: Since last July, we have operated under a 40-year agreement according to Article 11 of the Private Housing Finance Law with New York City's Housing and Preservation Department, which eliminated real estate taxes on the property and provided for enhanced rental recoveries for assisted tenants. This should allow us to profitably operate after providing for our commitments for property improvements, tenant assistance, and higher wages. We are meeting all our commitments and are beginning to meaningfully receive and enhance rental income for assisted tenants.

David Bistricer: Agreement. According to the article 11, private housing Finance law with New York City's housing and preservation Department, which eliminated without property real estate taxes at the property.

David Bistricer: Provide us with enhanced recoveries for assistance.

David Bistricer: Yes.

David Bistricer: This should allow us to profitably operate after providing for our commitments were properly brewers tens of systems and higher wages.

David Bistricer: All our commitments and beginning to meaningfully receive an enhanced rental income for assistance.

David Bistricer: Operationally, we are also very pleased with our new ground-up development, known as Pacific House and 1010 Pacific, at 1010 Pacific Street in Brooklyn. It is nearly fully stabilized and meaningfully contributing to cash flow. It is now 100% leased, yielding the projected 7% cap rate. The property is located in Prospect Heights. About one mile from the Atlantic, Barclays Center property is 175 units, 70% free market, and 30% affordable, which allows us not to pay any taxes.

David Bistricer: Operationally. We are also very pleased with our new ground up development known as specific house and Tencent Pacific at Edison and Pacific series of Brooklyn.

David Bistricer: This is nearly fully stabilized and meaningfully contributing to cash flow as our 100% leased yielding the projected 7% cap rate.

David Bistricer: Property is located in prospect Heights.

David Bistricer: About one mile from the Atlantic Barclays Center hub property is 175 units 70 sensitive market.

David Bistricer: Affordable, which allows us to pay any taxes.

David Bistricer: At nearby 2953 Dean Street, Ground Up Development, construction is proceeding ahead of schedule. We completed the superstructure ahead of schedule and expect to complete construction in time for the 2025 leasing season, utilizing the $12.3 million construction loan that we closed on last quarter. We bought the land in 2021-22 on which to build a nine-story, fully amortized residential building with 160,000 square feet of rentable space, 240 units, 70% free market and 30% affordable, and an 8,500 square foot commercial center at 250 Livingston Street.

David Bistricer: At nearby to 943, the industry's ground up development construction is proceeding ahead of schedule. We completed the superstructure ahead of schedule and we expect to complete construction.

David Bistricer: In time for 2025 leasing season utilizing.

David Bistricer: 12 $23 million construction loan that we closed on this quarter.

David Bistricer: We bought the land in 2021, and twenties, who I wish to build design story fully monetized residential building the 160000 square feet the rest of the square feet.

David Bistricer: The unit is 70% of free market, and 30% affordable and 85000 square foot commercial.

David Bistricer: Cynthia.

David Bistricer: 250 Livingston Street.

David Bistricer: As previously disclosed, New York City notified us of their intention to vacate the premises in August of 2025. We are seeking solutions and pursuing opportunities supported by cash flows from other properties. Of course, we will keep you informed of our progress regularly.

David Bistricer: We have previously disclosed the New York City notified us of their intention to vacate the premises in August of 2025, we are seeking solutions and pursuing opportunities supported by cash flows from other properties of.

David Bistricer: Of course, we will keep you informed of our plan.

David Bistricer: With regularly.

David Bistricer: After the continued higher interest rate environment, we believe the higher rates make for higher tenant demand for our rental product versus the purchase option. We are also buttressed by the relatively long duration of debt at our operating properties. Our operating debt is 92% fixed, an average of $3.87 billion, interest rates. Average duration is 5.2 years, non-recourse, subject to limited standard carve-outs, and is not course collateralized.

David Bistricer: Continued high interest rate environment, we believe the higher rates make for higher tenant demand for our rental.

David Bistricer: Right versus the purchase option.

David Bistricer: We are also buttressed by the relatively long duration of debt at our operating properties are operating debt is 92% fixed.

David Bistricer: <unk> 3.8.

David Bistricer: Interest rates average duration is 5.2 years nonrecourse artists other bits and carve outs and is not.

David Bistricer: We finance our portfolio on an asset by asset basis. With respect to inflation, we looked at the short duration and high demand for residential leases to allow us to cover increased operating expenses. With regard to our first quarter results, we are reporting record quarterly revenue of $35.8 million, record NOI of $20.2 million, and AFFO of 5.9 million, as a result of the strong leasing and cost reductions I just mentioned. These results represent improvements over the first quarter of last year, as JJ and I will further detail. I will now turn the call over to JJ, who will provide an update on operations.

David Bistricer: Cross collateralize, whereas our portfolio on an asset by asset basis with respect to inflation, we look through the short duration and high demand for our residential leases will allow us to cover.

JJ: Increased operating expenses with regard to offers.

JJ: Results, we are reporting record quarterly revenue of $35 8 million record of NOI.

JJ: $22 million.

JJ: <unk> of $5 9 billion as a result of the strong leasing cost reductions I just mentioned.

David Bistricer: These results represent improvements over the first quarter last year, JJ and I will further detail without the Colo.

JJ: Ill provide an update on operations.

Jacob Joseph Bistricer: Thank you. I am pleased to report that our residential leasing performance at all our properties continues to improve, while rent approaches full stabilization and full recovery following the end of the COVID period. At the end of the first quarter, all our residential properties had very high occupancy, averaging 98 percent, and rents are continuing at record levels while still recording increases over previous levels. Overall, new lease and renewal rental rates in the first quarter exceeded previous rents by over 6% at our residential properties.

JJ: Thank you.

JJ: I'm pleased to report that our residential leasing performance at all our properties continues to improve.

Jacob Joseph Bistricer: While rent approaches full stabilization in full recovery following the end of the Covid period.

Jacob Joseph Bistricer: At the end of the first quarter, all our residential properties had very high occupancy, averaging 98% and rents are continuing at record levels, while still recording increases over previous levels overall, new lease and renewal rental rate in the first quarter exceeded previous rents by over 6% and our residential properties.

Jacob Joseph Bistricer: We expect leasing to remain very strong in the foreseeable future as demand remains high and the overall rental housing supply remains constrained, as widely publicized. We are continuing to increase rents even after the COVID pandemic, when lower rates have turned over. At Chebeca House, we have maintained lease occupancy at over 97% and increased overall average rent per square foot to $78 per foot, versus $63,000 near the end of the pandemic. At our Clover House property, lease occupancy is over 97%, and average rents are nearly $83 per square foot.

Jacob Joseph Bistricer: We expect leasing to remain very strong in the foreseeable future as demand remains high and the overall rental housing supply remains constrained as well.

Jacob Joseph Bistricer: Widely publicized.

Jacob Joseph Bistricer: We are continuing to increase rents.

Jacob Joseph Bistricer: Even after the Covid pandemic lower rates have turned over.

Jacob Joseph Bistricer: At Tribeca House, we have maintained leased occupancy at over 97%.

Jacob Joseph Bistricer: And increased overall average rent per square foot to $78 per foot.

Jacob Joseph Bistricer: Versus $63, but near the end of the pandemic.

Jacob Joseph Bistricer: Clover House property leased occupancy is over 97% and average rents are nearly $83 per square foot.

Jacob Joseph Bistricer: At our recently completed Pacific House property, we are 100% leased with a blend of free market and rent-stabilized tenants, and rents are now fully stabilized, with free market rents above $78 per square foot and operating cash flows achieving the projected 7% cap rate in the original underwriting. Similarly, our other residential properties at 10 West 65th Street, Aspen, and 250 Livingston Street continue to perform well. Average lease occupancy for these properties has been above 98%, and average rental rates have increased 6% from a year ago.

Jacob Joseph Bistricer: Our recently completed Pacific as property, we are 100% leased with a blend of free market and rent stabilized tenants and rents are now fully stabilized.

Jacob Joseph Bistricer: With free market rent rents above $78 per square foot than operating cash flow of achieving projected 7% cap rate and the original underwriting.

Jacob Joseph Bistricer: Similarly, our other residential properties at 10, West 65th Street, Aspen and 250 Livingston Street continues to perform well.

Jacob Joseph Bistricer: Average leased occupancy for these properties has been above 98% and average rental rates have increased 6% from a year ago.

Jacob Joseph Bistricer: Lastly, at the large Flapper Gardens property, we continue to be pleased with our performance operating under the new Article 11 agreement made with the Housing Preservation Department of New York City on June 29th of last year. We received the full abatement of real estate taxes beginning last July, have begun completing the capital projects we committed to, and have begun placing formerly homeless residents. We have also begun to meaningfully obtain enhanced reimbursement under Section 610 of the Private Housing Finance Law for tenants receiving assistance, as we fill vacancies with formerly homeless residents and renew leases with assisted tenants.

Jacob Joseph Bistricer: Lastly, at the Lodge Flatbush Gardens property, we continue to be pleased with our performance operating under the New article 11 agreement made with the housing Preservation Department of New York City on June 29 last year, we received the full abatement of real estate taxes, beginning last July have begun completing the capital projects we committed.

Jacob Joseph Bistricer: And have begun placing formerly homeless residents.

Jacob Joseph Bistricer: <unk> also begun to meaningfully obtained enhanced reimbursement under section <unk> of the private housing finance law for tenants receiving assistance.

Jacob Joseph Bistricer: As we fill vacancies with formerly homeless residents and renewing leases with assisted tenants.

Jacob Joseph Bistricer: These benefits should steadily increase over the next couple of years and allow us to profitably improve the property. We are also getting increases for non-assisted tenants, where increases have been permitted under rent guideline boards for the last couple of years at the 3% level per annum. As a result, overall average rents for the property are increasing, rising to $26.80 per square foot at the end of the quarter versus $26.17 at the end of the first quarter last year.

Jacob Joseph Bistricer: These benefits should steadily increase over the next couple of years and allow us to profitably improve the property.

Jacob Joseph Bistricer: We are also getting increases for non res assisted tenants were increases had been permitted on the rent guideline board for the last couple of years at the 3% level per annum.

Jacob Joseph Bistricer: As a result overall average rents for the property are increasing rising to $26 80 per square foot at the end of the quarter versus 26017 cents at the end of the first quarter last year.

Jacob Joseph Bistricer: Ranked collections across our portfolio remain as expected at seasonally high levels. The overall collection rate in the first quarter was over 100 percent, bolstered by seasonally high first quarter collections at Flappish Gardens and month-end prepayments at Chebeca House. Looking ahead, we remain focused on optimizing our occupancy, pricing, and expenses across the business, expeditiously completing our development projects, and fully implementing the Article 11 transaction to best position ourselves for growth. I will now turn the call over to Larry, who will discuss our financial results.

Jacob Joseph Bistricer: Rent collections across our portfolio remain as expected.

Jacob Joseph Bistricer: Seasonally high levels. The overall the overall collection rate in the first quarter was over 100%.

Larry: By seasonally high first quarter collections established gardens and month and prepayments at Tribeca House. Looking ahead, we remain focused on optimizing occupancy pricing and expenses across the business expeditiously completing our development projects and fully implementing the article 11 transaction to best position ourselves.

Lawrence E. Kreider: Thank you, JJ. For the first quarter, revenues increased to a record $35.8 million from $33.7 million last year, an increase of $2.1 million, or excluding the impact of Pacific House that came online in the second quarter, an increase of $0.4 million. NOI this quarter was $20.2 million, an increase of $3.1 million from last year, or $1.5 million, excluding the impact of Pacific House. AFFO this year was $5.9 million, an increase of $1.4 million from last year, or $0.9 million, excluding the impact of Pacific House.

Jacob Joseph Bistricer: For growth I will now turn the call over to Larry who will discuss our financial results.

Lawrence E. Kreider: For the first quarter, residential revenue increased to $26.1 million by $2.1 million, or $0.4 million excluding the impact of Pacific House. This increase was primarily due to higher residential rental rates for all properties from continued strong leasing previously discussed, partially offset by some temporary concessions at Tribeca House. Bad debt expense was $0.2 million better than last year, reflecting improved collections at all properties despite lower ERAP reimbursements at Fletch Gardens. The slightly lower commercial rental income was caused by a couple of leases at the Aspen property, one of which has been replaced.

Larry: Thank you J J for the first quarter revenues increased to a record $35 $8 million from $33 $7 million last year first quarter, increasing by $2 $1 million or excluding the impact of Pacific House that came online in the second quarter, an increase of <unk> $4 million NOI. This.

Lawrence E. Kreider: Quarter was $22 million, an increase of three $1 million from last year or one $5 million, excluding the impact of Pacific has a S. F. O. This year was $5 $9 million, an increase of $1 $4 million from last year or $9 million, excluding the <unk>.

Lawrence E. Kreider: Pact of specific costs.

Lawrence E. Kreider: For the first quarter residential revenue increased to $26 $1 million by $2 $1 million or $4 million, excluding the impact of Pacific House. This increase was primarily due to the higher residential rental rates for all properties from continued strong leasing previously discussed partially.

Lawrence E. Kreider: We offset by some temporary concessions at Tribeca House bad debt expense was $2 million better than last year, reflecting improved collections at all properties displayed despite lower Iraq reimbursements at Flatbush gardens to slightly lower commercial rental income was caused by a couple of lease.

Lawrence E. Kreider: At the Aspen property, one of which has been replaced.

Lawrence E. Kreider: On the expense side, key year-over-year changes quarter-on-quarter were as follows. Property operating expenses increased by $0.5 million year-on-year, or $0.3 million excluding Pacific House, primarily due to higher payroll requirements at Flatbush Gardens to comply with wage requirements under the Article 11 transaction, partially offset by lower utility costs. Real estate taxes and insurance decreased by $1.4 million in the first quarter of the year-on-year, or $1.2 million excluding the impact of Pacific House, primarily due to $1.8 million from the elimination of real estate taxes in Flatbush Garden, partially offset by $0.3 million of routine increases in real estate taxes at the other properties and $0.2 million of insurance cost increases.

Lawrence E. Kreider: On the expense side key year over year changes quarter on quarter were as follows property operating expenses increased by $5 million year on year or $3 million, excluding Pacific House.

Lawrence E. Kreider: Barely due to higher payroll requirements at Flatbush gardens to comply with wake wage requirements under the article 11 transaction, partially offset by lower utility costs.

Lawrence E. Kreider: Real estate taxes, and insurance decreased by $1 $4 million in the first quarter year on year or $1 $2 million, excluding the impact of Pacific House, primarily due to $1.8 million from the elimination of real estate taxes at Flatbush Gardens.

Lawrence E. Kreider: Surely offset by $3 million of routine increases in real estate taxes at the other properties and $2 million of insurance cost increases.

Lawrence E. Kreider: General and administrative expenses increased by $0.3 million in the first quarter year-on-year, primarily due to higher compensation expenses taken as cash, partially offset by lower audit fees. Interest expense increased by $1.6 million in the first quarter year-on-year, or $0.4 million excluding the impact of Pacific House due to the elimination of capitalized interest for Pacific House, which came into service in the second quarter last year.

Lawrence E. Kreider: General and administrative expenses increased by <unk> $3 million in the first quarter year on year, primarily due to higher compensation expenses taken it as cash.

Lawrence E. Kreider: Partially offset by lower audit fees.

Lawrence E. Kreider: Interest expense increased by $1 6 million in the first quarter year on year.

Lawrence E. Kreider: $4 million, excluding the impact of Pacific has due to elimination of capitalized interest for Pacific <unk>, which came in service in the second quarter of last year.

Lawrence E. Kreider: With regard to our balance sheet, we have $21.9 million of unrestricted cash and $18.3 million of restricted cash. In the first quarter, we had no new debt activity other than draws under the Dean Street property construction loan we closed in the third quarter of 2023. Today, we are announcing a dividend of 9.5 cents per share in the first quarter, the same amount as last quarter. The dividend will be paid on May 30, 2024, to shareholders of record on May 21, 2024. Let me now turn the call back over to David for his concluding remarks. Thank you, Larry.

Lawrence E. Kreider: With regard to our balance sheet, we have $21 $9 million of unrestricted cash and $18 3 million of restricted cash in the first quarter, we had no new debt activity other than draws under the Dean Street property construction loan we closed in the third quarter of 2023 today, we are announcing a dividend.

Lawrence E. Kreider: Nine and half cents per share in the first quarter. The same amount as last quarter. The dividend will be paid on may 32024 to shareholders of record at May 21, 2024, Let me now turn the call back over to David for concluding remarks. Thank you Larry we remain focused on efficiently.

David Bistricer: Thank you, Larry. We remain focused on efficiently operating our portfolio. We look for your current operating improvements to continue through 2024 and 2025. We look forward to optimizing Flatbridge Garden's Article 11 transaction, 953 Dean Street developments, and other growth opportunities, managing the New York leasing issues at the Livingston Street properties, and capitalizing on other opportunities that may present themselves. I would now like to open the line for questions. Thank you.

Lawrence E. Kreider: Operating a portfolio.

Lawrence E. Kreider: We look for your current operating improvements to continue through 2024 and 25, we look forward to optimizing Flatbush gardens.

David Bistricer: Transaction.

David Bistricer: Through the industry developments and other growth opportunities managing renewals leasing issues, let me see three properties and capitalizing on other opportunities that may present themselves I would now like to open the line for questions.

Operator: Thank you. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while asking your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Once again, please press star 1 if you have a question or a comment. We currently have no questions in queue.

Speaker Change: Thank you.

Speaker Change: Or 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 listing on speaker phone to provide optimal sound quality. Please hold while we poll for questions.

Operator: Once again, please press star one if you have a question or comment.

Operator: Okay.

Operator: We currently.

Operator: We have no questions in queue.

Operator: Thank you for joining us today. I look forward to speaking with you again soon.

Operator: Thank you for joining us today and look forward to speaking with you again soon.

Operator: 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.

Speaker Change: 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.

Operator: The patient.

Operator: Okay.