Q3 2024 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 list and only mode in the floor will be open for questions and comments after the presentation. And it's now my pleasure to turn the floor over to your host, Lawrence Sava, Corporate Controller, Sir of the Floor is yours.

Good afternoon. And thank you for joining us for the third quarter 2024 Clipper Realty Inc. Hernings Conference School.

Lawrence Sava: participating with me on today's call our David Bistricer, Coach Chairman and Board of the Board and Chief Executive Officer, JJ Bistricer, Chief Operating Officer and Larry Kreider, Chief Financial Officer.

Please leave me 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.

Lawrence Sava: and the company's 2020-23 annual report on Form 10K, which is accessible at www.sac.gov and on our website.

and the reminder that the forward-looking statements speak only as of the date of his call, October 31, 2024, and the company undertakes no duty to update them.

Lawrence Sava: During this call, management may refer to certain non-gap financial measures, including adjusted funds from operations or AFFO.

A Justice Earnings before interest taxes, depreciation, amortization, or a Justice of EBITDAF.

and Net Operating and some or NOI. Please see our press release, supplemental financial information and form TM2 posted today for a reconciliation of those non-gap financial measures with the most directly comparable gap financial measures.

With that, I will turn our call over to Larry Kreider, our chief financial officer, as Mr. Bistricer has learned guidance.

Larry Kreider: Thank you, Lawrence. Good afternoon and welcome to the third quarter of 2024 earnings call for Clipper Realty. I will provide an update on our business performance in some new developments after which JJ will discuss property level activity including the release of performance and Lawrence Saver will speak to our quarterly financial performance.

We will then take your questions.

I'm pleased to report that we are reporting, record operating results once again, including record revenue, net operating income and AFFO based on excellent residential activity. Rental demand continues to be strong at all of our properties.

Larry Kreider: Overall, rents are generally at all-time highs and continuing to increase and we are nearly fully least.

In the third quarter, New Leases exceeded prior rents by over 9.5% across the entire market-based portfolio, led by Tribeca House, property in Manhattan, and the Clover House property in Brooklyn, where new leases were over 95 dollars.

and $87 per square foot and overall rents were over $82.85 per square foot. All compared to roughly $63 per square foot at the end of December 2021.

Larry Kreider: Results that are stabilized property flat push gardens property are also strong and improving.

We are expeditiously fulfilling our commitments for property improvements, tentative assistance, and higher wages supported by the full abatement of real estate taxes and enhanced recoveries under Article 11 of the private.

Housing Finance Law with New York City's Housing and Preservation Department that began in July 2023.

Operationally, we are very pleased with our Ground Up Development Project.

Larry Kreider: Pacific House at 10th Pacific Street in Brooklyn after a year of full operation is fully stabilized and is contributing to cash flow. It is now 100% least in yielding the projected 7% cap rate.

at the nearby Dean Street Roundup Development Construction is proceeding ahead of schedule.

Larry Kreider: We completed the Super Structure ahead of schedule and expected complete construction in time for the 2025 leasing season utilizing the $123 million construction alone we entered last year.

We bought the land in 2021 and 2022 in which to build a nine-story fully-eminitized residential building with 160,000 residential rental rentable square feet.

Larry Kreider: 240 total units, 70% free market and 30% affordable, and 8500 square feet of commercial rental space.

Larry Kreider: at our 250 Livingston Street property, where as previously the skills, as the disclose, New York City notified, notified us of their intention to vacate in August 2025. We are seeking solutions and pursuing opportunities supported by cash flows from our other properties.

Of course we will keep you informed of our progress regularly.

Larry Kreider: and our other New York City property 141 Livingston Street. We are actively negotiating a five year extension to a currently split expires December 2025, but we cannot assure that this will be completed today. Thank you. Excuse me.

Also, as announced last quarter, we have begun the process of recycling properties in our portfolio to maximize performance and improve cash flow.

As such, we continue to market some of our properties, including our 10 was 65th Street property, which while potentially resulting in some loss compared to book value would allow us to achieve better overall returns going forward. No definitive agreements as yet, and we will announce properly when done.

As through the high interest rate environment we believe the higher rates make for higher demand.

Rental demand for our rental product. We are also buttressed by the relatively long duration of debt at our properties. Our operating debt is 91% fixed and an average rate of 3.87%.

and an average duration of 4.9 years. It is non-recourse subject of limited standard carve outs and is not cross-collateralized. We find answer portfolio on an asset by asset basis.

Regarding a third quarter results, we are reporting record quarterly revenue of 37.6 million and a Y of 21.8 million and AFFO7.8 million as a result of the strong leasing and cost reduction mentioned.

and the Israelis J.J. and Lawrence Wilfriger detail. And we'll not turn the call over to JJ who will provide enough data on operations.

Thank you Larry. I am pleased to report that our residential leasing at all our properties is very strong and continues to improve. At the end of the third quarter, our residential properties were 99% leased and rents were at record levels and still recording increases over previous levels.

Overall, new lease and renewal rental rates in the third quarter exceeded previous rents by over 9.5% and 5.6% at our residential properties.

The expect-letting to remain strong in the foreseeable future as the man remains high and the over rental housing supply remains constrained as widely publicized.

Larry Kreider: at the end of September.

Larry Kreider: Trabeka House had least occupancy of nearly 100%.

Larry Kreider: Renpris Square foot over 82 dollars.

and New Rent's over $95 per square foot. The Clover House property had least occupancy of 97% average rent of $85 and new pieces of $87 per square foot.

Larry Kreider: Our recently completed Pacific House property consisting of a blend of three market and rent stabilized tenants As least occupancy of 97% three market rents of 76,000 per foot This property is now fully stabilized with operating cash flows achieving the projected 7% cap rate

in the original underwriting.

Our other residential property at 10 West 60th Street has been in 250 living ministry to continue to perform at record levels.

With average least occupancy above 98% and new rents and renewals 11% higher compared to previous leases.

Larry Kreider: Lastly, at our workforce housing, Flapper's Gondos property, we continue to be pleased with our performance.

operating under the new article Web and Agreement made with the housing preservation Department of New York City on June 29th last year. Using the full abatement of River State taxes beginning last July, we are completing the capital projects we committed.

Larry Kreider: Expoorically dealing with maintenance issues.

Larry Kreider: We have begun to uniquely obtain the enhanced reimbursement on the section 610 of the private housing finance law of the tenants receiving assistance.

As we still vacancy with formally homeless residents and communities with assistive tenants. These benefits should steadily increase over the next couple of years and facilitate profitable improvements to the property.

We are also getting increases of non-assisted tenants, where increases have been permitted under the rent guideline the board, for the last couple of years at the 3% level plan.

As a result, together with the six-ten section, six-ten benefits for assisted tenants, overall average rents with a property have risen to $29.7 per square foot at the end of the quarter.

Ren Collection's across output for the remains strong. The overall collection rate in the third quarter on all residential properties was 95%. Collection that Lappers Gons, which has been, which had been his head a historically high 97% level for the last two quarters without the benefit of your appainment.

As in prior years, dipped to 90% in the third quarter, as we work with New York City and collection procedures for assisted tenants. And additionally, we are responsibly and steadily working through the court system to minimize their fears.

Looking ahead, we remain focused on optimizing occupancy, pricing and expense across

Larry Kreider: to Business Expeditions, we are 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 Lawrence who will discuss our financial results. Thank you.

Lawrence: Thank you, Jacob. For the third quarter of the achieved record results in three measures important to us. We're having you increased to 37.6 million from 35.1 million last year and increased of 2.5 million or 7.1 percent.

and OI increased to 21.8 million from 20 million last year and increased up 1.8 million or 9%. And AFOP AFFO increased to 7.8 million from 6.3 million and increased up 1.5 million or 24%.

Lawrence: for the third quarter, residential revenue increased to 27.8 million by 2.3 million dollars. This increase was due to strong leasing for all properties as previously discussed.

and rental rates were at all time highs in the quarter. The revenue was partially offset by increased bad debt resulting from lower collection rates at Flapish Gardens that JJ mentioned earlier this year. Commercial revenue was flat in the quarter compared to last year.

I'm the expense side, T-year over your changes quarter on quarter were at the follows.

Property, Operating Expenses, Increased by 551,000 year on year, substantially all that flapper's garden due to prevailing wage requirements under the Article 11 Agreement. We also experience slightly higher utility costs and legal costs related to collection activities, partially offset by lower repairs and maintenance costs.

Lawrence: Real Estate Taxes and Insurance increased by 188.

and the others in the third quarter, you're in here. Due to routine increases in real estate tax to the property other than flat-based gardens, which had its taxes fully abated in July 2020-23.

Lawrence: and Churren calls for the new fiscal year we're flat.

Lawrence: General and Administrative at the cost increased nominally by $30,000 in the quarter year over year.

Lawrence: and interest expense increased by $313,000 in the third quarter year on year. Due to additional 20 million borrowers at the 10, 10 specific pro-street property in the third quarter of last year.

With regard to our balance sheet, we have 18.6 million of unrestricted cash and 17.5 million of restricted cash. In the third quarter we had no new debt activity other than draw 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 for the third quarter, the same amount as last quarter. The dividend would pay at November 27, 2024, for shareholders of record at November 13, 2024.

Let me now turn the call over to Larry for concluding remarks.

Thank you Lawrence. We remain focused on efficiently operating our portfolio. We look for our current operating improvements to continue through 2024-25.

We look forward to optimizing the Flatbridge Gardens property under the Article 11 transaction, 953 Dean Street developments and other growth opportunities.

Managing the New York City, leasing issues in street properties and to capitalizing another opportunity, other possibilities that may present them. I would like to open the line up 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 hand-set up listening on speaker phone to provide optimum sound quality. Please hold while we pull for questions.

First question comes from Bucorn with Raymond James, please proceed.

Hey, good afternoon guys. Can we start with the bad death issue with Flatbush? Is there an event that's going on at Flatbush that would cause that?

Collections rate to drop so precipitously there to 90% have you seen events like that in the past where it's going down to that level.

Speaker Change: No, not particularly, I think it appears to be a temporary issue where we negotiate and are our procedures with New York City.

Speaker Change: and we think it should reverse itself shortly.

Speaker Change: So this is a negotiation for reimbursement directly with the city or the area. Are these enemies? Yeah, it's really just, with the city, it's really just procedural with, we believe, for the most part.

Okay, all right, thanks. Then let's dive a little bit further on the Livingston buildings and the status there.

Speaker Change: believe in the 10Q, it says at least for the 250 living to then property U in 10 to establish a cash management account.

Speaker Change: for that revenue, I guess quote shortly, does that mean in the fourth quarter, what's the timing for establishing the cash management account?

I would say it's fourth order.

Okay, and should we would that mean for accounting purposes the revenue and in a why 250 livinston would get taken out of the consolidated result?

No, it really would not, it would result, no, it doesn't change the accounting for on the income statement.

Speaker Change: What a will change, a little bit on the cash flow. The money is well, instead of going into operating cash accounts, we'll go into the restricted cash accounts.

Speaker Change: and the restructur. So it...

Speaker Change: So there's no real change to the profitability based on entering into this DACA at these DACA arrangements.

Speaker Change: and the purpose of your report at AFFO or Caselo metrics, you would not change the way you're currently doing it.

Yeah, it wouldn't show up, it wouldn't even show up in the cash flow, because now the cash flow statement is for both operating cash and restricted cash.

and I don't know if you were aware of that change was made a couple years ago, but you will see it may be down at the bottom of the cash flow statement. You'll see a more enhanced growth of restricted cash versus the operating demand.

Lawrence: Okay.

Lawrence: and on 141 Livingston.

Speaker Change: Sounds like you guys have an issue with the special service server. I was wondering if you could just give us an update or your take on the situation with the special service service and what their interpretation of the loan agreement is.

Speaker Change: on 141 Livingston.

Lawrence: Well...

Speaker Change: briefly, yours, the 10Q is remarkably up to date because we just got this notice on Monday.

Speaker Change: You know, of this week but...

Speaker Change: Basically, our take is, we're disputing their interpretation of the agreement which required, which would require us to begin establishing an escrow account of that built up to $10 million by the end of next year.

over an 18-minute would have begun from July. The way we read the agreement is that the escrow account is not required.

Right, so I guess you guys are going to not make that the payment as the man that or is there an arbitration that goes to?

We're not quite sure what the next step is, so we think we can negotiate a proper solution. We're now working with the special service or who we feel to be in a better position to interpret the agreement properly.

Okay, okay, and so now there's the special service, sir involved, does it mean there's a I guess this this

Lawrence: I guess not quite the same type of cash management account to 50 living sentence is getting but it's just a different escrow account I guess is that being sent to people there.

Yeah, it gave thanks for some reason this loan was structured a little differently.

Alright guys, thanks, I appreciate the color. Thanks, good luck.

Once again, if there are any remaining questions, please press star 1.

Lawrence: [inaudible]

Speaker Change: Okay, look like we have no further questions in Q. I'd like to turn the floor back to management for any closing remarks

Thank you for joining us today and we look forward to speaking to you again soon.