Clipper Realty Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2025

There are 4 speakers on the call.

Operator

Good afternoon, and welcome to today's Clipper Realty Q1 Earnings Call. At this time, all participants have been placed on a listen only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Lawrence Saba. Lawrence, the floor is yours.

Speaker 1

Good afternoon, and thank you for joining us for the first quarter twenty twenty five Clipper Realty Inc. Earnings conference call. Participating with me on today's call are David Bissister, Co Chairman of the Board and Chief Executive Officer JJ Bissister, Chief Operating Officer and Larry Clyder, Chief Financial Officer. 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 2024 annual report on Form 10 ks and the first quarter twenty twenty five quarterly report on Form 10 Q, which is accessible at www.sec.gov and on our website.

Speaker 1

As a reminder, the forward looking statements speak only as of the date of this call, 05/12/2025, 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 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 and Form 10 ks posted last Friday for a reconciliation of those non GAAP financial measures posted earlier today for a reconciliation of those non GAAP financial measures with the most directly comparable GAAP measures. With that, I will now turn the call over to our Co Chairman and CEO, David Distasser.

Speaker 2

Thank you, Lauren. Good afternoon, and welcome to the first quarter twenty twenty five earnings call for 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 we are reporting excellent operating results once again, including record revenue and record residential rents.

Speaker 2

And seasonally adjusted, we had near record net operating income and AFFO in the first quarter, which always has lower income levels due to higher winter heating costs. The main driver was high rental demand. Overall rents are generally at all time highs and continuing to increase, and we are nearly fully leased. In the first quarter, new leases exceeded dry rents by over 15% across the entire portfolio, as Jesu will enumerate in detail. Construction on 953 Dean Street, a ground up development in Brooklyn, is substantially complete, on time and on budget.

Speaker 2

Heating will commence June 1 in time for the summer season. The land was purchased in 02/2122 to build a nine story fully amenitized building, 160,000 residential rentable square feet, two forty units, 70% free market and 30% affordable, 57 parking spaces and 19,000 commercial rental square feet. Last week, the company refinanced the construction loan at this property with a new loan of $160,000,000 and fully funded. The new loan will provide $18,200,000 of excess proceeds to be used for interest, operating expenses and working capital. Our underground development project, Pacific House at 1010 Pacific Street in Brooklyn, has stabilized, contributing to cash flow after a year of full operation.

Speaker 2

We have also entered into definitive contract to sell 10 West 60 Fifth Street in Manhattan for $45,500,000 which we expect will generate approximately $12,000,000 after the payment of debt and costs. We expect the transaction to close in the second quarter. We have sought to sell the property because of our 2017 purchase acquisition plan. The growth managed units to free market will be restricted by the 2019 Housing Stability and Protection Act. At 141 Livingston Street, leased to the city, we have received a five year renewal, which the company is processing.

Speaker 2

Regarding our first quarter results, we are reporting record quarterly revenue of $39,400,000 a 10.2% increase over last year, excellent NOI of $21,800,000 an 8% increase in AFFO of $8,000,000 a 36% increase as a result of strong leasing I just mentioned. These results represent improvements over the first quarter of last year, and JJ and I will go further details. I will now turn the call over to JJ, who will provide an update on operations. Thank you. I'm pleased to report that our residential leasing at all properties is very strong, and they are 99% occupied.

Speaker 2

Rents are at record levels and recording increases are over previous levels. Overall, new lease rental rates at residential properties in the first quarter exceeded previous rents by over 15% and renewals by 8%. We expect residential leasing to remain strong in the foreseeable future as demand remains high and the overall rental housing supply remains constrained. As of the December, Chewbacca House had occupancy of 99%, overall rent per foot over $83 per foot and new rents at $90 per foot. The Clover House property had occupancy of 99%, average overall rent of $87 per foot and new leases of $94 per foot.

Speaker 2

Our recently completed Pacific House property consisting of a blend of free market and rent stabilized tenants had occupancy of 98% and free market rents of $70 per foot on new leases. Our other residential properties at 10 West 60 Fifth Street, Aspen and 250 Livingston Street continue to perform at record levels with average occupancy above 98% and new rents and renewals 4% higher compared to previous leases. We also look forward to beginning leasing at the newly completed 953 Dean Street ground up development described earlier. Lastly, at the largest La Bazan property, property, we had good performance operating under the agreement made with the Housing Preservation Department of New York City at the June 2023. Using the full abatement of real estate taxes beginning last July and other rent supplements, we are aggressively dealing with the maintenance issues and capital improvements.

Speaker 2

Overall average rent at the property collected from all sources for the property have risen 15% to 30.8 per foot at the end of the quarter. Rent collections across our portfolio remained strong with overall collection rates in the first quarter on all residential properties at nearly 98%. Collections at Flatbush Gardens were over 95% as we responsibly and steadily work through the system to minimize arrears. Looking ahead, we remain focused on optimizing occupancy, pricing and expenses across the business to best position ourselves for growth. I will now turn the call over to Larry, who will discuss our financial results.

Speaker 3

Thank you, JJ. For the first quarter, we achieved record revenues, which increased to $39,400,000 from $35,800,000 last year, an increase of $3,600,000 or 10%. NOI increased $21,800,000 from $20,200,000 last year, an increase of $1,600,000 or 8%. And AFFO increased to $8,000,000 from $5,900,000, an increase of $2,100,000 or 36%. For the first quarter, residential revenue increased to $29,200,000 by 3,100,000 This increase was due to strong leasing for all properties as previously discussed.

Speaker 3

Occupancy and rental rates were at all time highs in the quarter. Commercial revenue was higher by $600,000 in the quarter compared to last year as we continue to sell smaller retail vacancies at Tribeca House and Aspen Properties all at favorable rates. On the expense side, the year over year changes in the quarter were as follows: Property operating expenses increased by $1,500,000 year on year substantially all at Flatbush Gardens. The increase is due to higher payroll costs for newly hired repairs and maintenance workers, substantially offset by lower third party repairs and maintenance expense, higher legal costs for tenant collections and higher utilities costs. Real estate taxes and insurance increased by $293,000 in the first quarter year on year due to routine increases in real estate taxes and insurance at properties other than Flatbush Gardens for property taxes, which were fully abated under our agreement with New York City in July 2023.

Speaker 3

General and administrative expenses were higher by $274,000 due to higher noncash amortization of executive long term incentive securities, partially offset by lower legal costs. Interest expenses decreased by $216,000 in the first quarter year on year due to slightly lower rates on our limited amount of variable rate debt. The 33,800,000 charge of impairment of long lived assets results from the assessment of the high likelihood of selling the 10 West 60 Fifth Street property that David described earlier based on a contract signed in early April expected to close in the second quarter. The transaction should generate $12,000,000 after paying existing debt and closing costs. As a result of the 2019 New York City Rent Act, he mentioned we were not able to raise rents as expected following the two set 2017 acquisition despite investing in the property.

Speaker 3

With regards to our balance sheet, we have $21,300,000 of unrestricted cash and $17,800,000 of restricted cash. In the first quarter, we had no new debt activity other than the last draws under the Dean Street property construction loan we entered in the February. However, as David mentioned in April, we closed a two year bridge loan for the Dean Street property. That bears a lower interest rate and should provide funds to cover carrying costs through stabilization and put working capital on the balance sheet. As to the continued high interest rate environment, we believe the higher rates make for higher tenant demand for our rental product.

Speaker 3

We are also buttressed by the relatively long duration of debt at our operating properties. Our operating debt is 89% fixed at an average rate of 3.87 and average duration of four point one years. Is nonrecourse, subject to limited standard carve outs and is not cross collateralized. We finance our property on an asset by asset basis. Today, we are announcing a dividend of $0.95 per share for the first quarter, the same amount as last quarter.

Speaker 3

The dividend will be paid on 07/11/2025 to shareholders of record on 05/27/2025. Let me now turn the call back to David for concluding remarks.

Speaker 2

Let me just correct the statement. Dividend will be paid on 06/11/2025. Thank you, Ron. June eleven. Yeah.

Speaker 2

We we remain focused on effectively operating our portfolio. We look for our current operating improvements to continue through 02/2025. We look forward to the opening of the increase development, finalizing the 10 West 6050 sales, finalizing the 141 Livingston Street lease, resolving the 250 Livingston Street, upcoming vacancy, and capitalizing on other possibilities that may present themselves. I would now like to open the line for questions.

Operator

Thank you. The floor is now open for questions. We do ask if listening on speakerphone today that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star one on your telephone keypad at this time if you wish to join the queue And we have a question from Buck Horne from Raymond James. Buck, your line is live.

Operator

Please go ahead. Hey. Thanks. Good afternoon, guys, and congratulations. Just wondering if you'd like to comment on the 141 Livingston lease and just in terms of you add any additional color or details on the the renewal, you know, and and, you know, potential new lease rates and or additional tenant improvements that may be required for the building?

Speaker 2

The current proposal, there's no TI that's gonna be necessary, and we hope to get that finalized in the next couple of weeks.

Speaker 3

Okeydoke. Thank you, guys. You're welcome. Thank you. And

Operator

there are no further questions in queue. I'd now like to turn the floor back to management for closing remarks.

Speaker 2

Thank you for joining us today. We look forward to speaking with you again soon.

Operator

Thank you so much. 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.

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Key Takeaways

  • Clipper Realty reported record Q1 revenue of $39.4 million (up 10.2% YoY), with net operating income of $21.8 million (+8%) and AFFO of $8 million (+36%), driven by robust rental demand.
  • Residential properties are ~99% leased, with new leases averaging 15% above prior rents and renewals up 8%, reflecting record rent levels across the portfolio.
  • Construction at 953 Dean Street is substantially complete, on time and on budget, and a new $160 million loan provides $18.2 million in excess proceeds for interest, operating expenses and working capital.
  • The company entered a definitive contract to sell 10 West 60th Street for $45.5 million (netting ~$12 million after debt and costs) and secured a five-year renewal at 141 Livingston Street with no tenant improvements required.
  • Liquidity remains strong with $21.3 million of unrestricted cash ($39.1 million total) and 89% of debt fixed at a 3.87% average rate, while the quarterly dividend was maintained at $0.95 per share.
AI Generated. May Contain Errors.
Earnings Conference Call
Clipper Realty Q1 2025
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