Clipper Realty Inc.

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.

Good afternoon, and thank you for joining us for the first quarter 2025 Clipper Realty Inc. earnings conference call. Participating with me on today's call are David Bissetter, co-chairman of the board and chief executive officer, JJ Bissetter, chief operating officer, and Larry Kleider, 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 covered in numerous risks around currencies, including those disclosed in the company's 2024 annual report on form 10K, and the first quarter 2025 quarterly report on form 10Q, which is acceptable at .fec.gov and on our website. As a reminder, the forward-looking statements speak only as of the date of the call, May 12, 2025, and the company underpins no duty to update them. During the call, management may refer to certain non-GAAP financial measures, including adjusted funds from operations, or AFFO, adjusted earnings before interest taxes, depreciation, and mortgages, or adjusted EBITDA, and net operating income, or AOI. Please see our press release, supplemental financial information, and form 10K posted last Friday for our reconciliation of those non-GAAP financial measures, posted earlier today, for our 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 of CEOs, David Dissenter.

Thank you, Lauren. Good afternoon, and welcome to the first quarter of 2025 running call for Clipper Realty. I will provide an update on our business performance and some new developments, after which they deal with the self-dropping level activity, including recent 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 records, revenue, and records residential rentals. Seasonally adjusted, we have year-record net operating income and AFL in the first quarter, which always has lower income levels with the higher winter heating costs. The main driver was high rental demand. Overall rents are generally at all-time high, and continue to increase, and we are nearly fully leased. In the first quarter, new leases exceeded prior rents by over 15%, across the entire portfolio, and J.J. will enumerate in detail. Construction on 953 Dean Street, a ground-up development in Brooklyn is substantially complete, on time, and on budget. Heating will commence June 1st, in time for the summer season. The land was purchased in 2021 and 2022 to build a nine-story, clearly-meditized building, 160,000 residential rentals, square feet, 240 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 of this property with a new loan of $160 million, or $300. The new loan will provide $18.2 million extra taxes 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. We have also added as a definitive contract to sell 10165th Street in Manhattan for $45.5 million, which we expect will generate approximately $12 million after 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, east of the city, we have received a five-year renewal, which the company is processing. Regarding our first quarter results, we are reporting record quarterly revenue of 39.4 million, a .2% increase over this year, excellent NRI of 21.8 million, an 8% increase, an AFL flow of $8 million, 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 further detail. Now it's time to call over to JJ, who will provide an update on operations. Thank you.

I am pleased to report that our residential leasing at all properties is very strong, and they are 99% occupied. Rent 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 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 end of this December, Chebakka House had an accuracy of 99%, overall rent per foot over $83,000 per foot, and new rent at $90,000 per foot. The Clover House property had an accuracy of 99%, average overall rent of $87 per foot, and new leases of $94 per foot. Our recently completed specific house property consisting of a blend of free market and rent stabilized tenants had an accuracy of 98%, and free market rent of $70 per foot on new leases. Our other residential properties at 1065th Street, Aspen, and 250 Livingston Street continue to perform at record levels, with average occupancy above 98% and new rent 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 Area. Lastly, at the larger Clover House property, we had good performance operating under the agreement made with the Housing Preservation Department of New York City at the end of June 2023. Using the full abatement of new estate taxes beginning last July and other rent supplements, we are aggressively dealing with the maintenance issues and capital improvements. Overall average rent at the property collected from all sources for the property have risen 15% to $30.80 per foot at the end of the quarter. Rent collections across the whole portfolio remain strong with overall collection rates in the first quarter on all residential properties at nearly 98%. Collections have flattened down to over 95%, as we responsibly and steadily work through the system to minimize the use. 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.

Thank

you, JJ. For the first quarter, we achieved record revenues, which increased to $39.4 million from $35.8 million last year, an increase of $3.6 million, or 10%. NOI increased to $21.8 million from $20.2 million last year, an increase of $1.6 million, or 8%. And ASFO increased to $8 million from $5.9 million and increased to $2.1 million, or 36%. For the first quarter, residential revenue increased to, $29.2 million by $3.1 million. This increase was due to strong leasing for all properties as previously discussed. Occupancy and rental rates were at all time highs in the quarter. Commercial revenue was higher by $0.6 million in the quarter compared to last year, as we continued 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 $1.5 million a year on year, substantially all at Flatbush Gardens. The increase was 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 was fully debated under agreement with New York City in July, 2023. General and administrative expenses were higher by $274,000 due to higher non-cash amortization of executive long-term and sentence 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 a limited amount of variable rate debt. The $33.8 million charge of impairment of long-lived assets results from the assessment of the high likelihood of selling the 10 West 65th 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 million after paying existing debt and closing costs. As a result of the 2019 New York City Rent Act, you mentioned we were not able to raise rents as expected following the 2017 acquisition, despite investing in the property. With regards to our balance sheet, we have $21.3 million of unrestricted cash and $17.8 million of restricted cash. In the first quarter, we had no new debt activity other than the last was under the Dean Street property construction loan. We entered in the first quarter of 2023. However, as David mentioned in April, we closed a two-year bris run for the Dean Street property that bears a lower interest rate and should provide funds to cover tearing costs through stabilization and put working capital on the balance sheet. As through the continued high interest rate environment, we believe the higher rates make for higher tenant demands for our rental product. We are also buttressed by the relatively long duration of debt of our operating properties. Our operating debt is 89% fixed at an average rate of .87% and average duration of 4.6%. The one year is non-recourse subject to limited standard car vests and is not cross-collaborate. We finance our property on an asset by asset basis. Today, we are announcing a dividend of 9.5 cents per share for the first quarter of the same amount as last quarter. The dividend will be paid on July 11, 2025 to shareholders of records on May 27, 2025. I'll be now turning the call back to David for concluding remarks.

Let me just correct the statement. The dividend will be paid on June 11, 2025. Thank you, Warren. We remain focused on effectively operating our portfolio. We look for our current operating improvements to continue through 2025. We look forward to the opening of Dean Street development, finalizing the 10th West 65th retail, finalizing the 141st Dean Street release, resolving the 250th Dean Street upcoming vacancy and capitalizing on other possibilities that may present themselves. I would now like to open the line for questions.

Thank you. The floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star one on your telephone keypad. 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 to ask a question. Please hold a moment while we pull for questions. And we have a question from Buck Horn from Raymond James. Buck, your line is live. Please go ahead. Hey, thanks. Good afternoon, guys,

and congratulations. Just wondering if you'd like to comment on the 141st Livingston release and just in terms of add any additional color details on the renewal, you know, and, you know, potential new lease rates and or additional tenant improvements that may be required for the building.

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

Thank you,

guys.

You're welcome. Thank you. Once again, it'll be star one at this time if you wish to join the queue to ask questions. And there are no further questions in queue. I'd now like to turn it over to Madison for closing remarks.

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