Clipper Realty Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Recorded near‐record Q2 results with $39 M revenue (up 4.5%), $22.1 M NOI (up 5%), and $8.3 M AFFO (up 17%).
  • Positive Sentiment: Completed the Prospect House development at 953 Dean Street on time and budget, now 33% leased at over $88/SF with a $160 M refinancing yielding ≈$10 M in upfront proceeds.
  • Positive Sentiment: Sold 10 West 60th Street for $45.5 M, generating ≈$13 M net cash to strengthen the balance sheet for capital spending and corporate needs.
  • Negative Sentiment: New vacancy at 250 Livingston Street as NYC tenant departs month-end, risking ~$4.6 M quarterly revenue; management is in discussions to secure new leases or lender solutions.
  • Neutral Sentiment: Declared a $0.95/share Q2 dividend, payable 09/05 to holders of record on 08/21, consistent with the prior quarter.
AI Generated. May Contain Errors.
Earnings Conference Call
Clipper Realty Q2 2025
00:00 / 00:00

There are 4 speakers on the call.

Operator

Good day, and welcome to the Clipper Realty Q2 Earnings Conference Call. At this time, all participants have been placed on a listen only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Loren Saba, Corporate Controller at Clipper Realty. Sir, the floor is yours.

Speaker 1

Thank you. Good afternoon, and thank you for joining us for the second quarter twenty twenty five Clipper Realty Inc. Earnings conference call. Participating with me on today's call are JJ Bisister, our Chief Operating Officer and Larry Prider, Chief Financial Officer. Please be aware that statements made during this call are not historical, may be deemed forward looking statements, and actual results may differ materially from those indicated by such forward looking statements.

Speaker 1

These statements are subject to numerous risks and uncertainties, including those disclosed in the company's 2024 annual report on Form 10 ks, which is filed which is filed and is accessible at www.sec.gov and on our website and the second quarter twenty twenty five quarterly report on Form 10 Q, which will be filed on the same site shortly. As a reminder, the forward looking statements speak only as of the date of this call, 08/07/2025, 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 k or and and and with the 10 Q that will be filed shortly for reconciliation of these non GAAP financial measures with directly comparable GAAP measures. With that, I will now turn the call over to our Co Chairman and CEO, Dave sorry, to our Chief Operating Officer, JJ Bischister.

Speaker 2

Thank you, Lawrence. Good afternoon, and welcome to the second quarter twenty twenty five earnings call for Clipper Realty. I will provide an update on our business performance and some new developments, after which Larry will speak to our quarterly financial performance. We will then take your questions. I am pleased to report that we are reporting excellent operating results once again, including near record revenue and record residential rents, and we had record net operating income and AFFO in the second quarter.

Speaker 2

The main driver was high residential rental demand. Overall rents are generally at all time highs and continuing to increase, and we are nearly fully leased. In the second quarter, new leases exceeded prior rents by over 14% across the entire portfolio, as I will further detail. We have completed construction on our prospect house development at 953 Dean Street in Brooklyn on time and on budget. Leasing commenced at the July, and we are presently 33% approximately leased with gross rent in excess of $88 per square foot.

Speaker 2

This project was a ground up development in Brooklyn where we bought the land in 2021 2022 and built a nine story fully monetized residential building with a 160,000 square feet residential rentable square feet and 240 total units made up of 70% free market and 30% affordable, 57 parking spaces, and 19,000 square feet of commercial rental fee. In the quarter, the company refinanced the construction loan at this property with a new loan of up to $160,000,000 when fully funded. The new loan provided the excess proceeds at closing of over $10,000,000 and should provide excess proceeds going forward of $12,000,000 for interest and operating expenses through stabilization and working capital. On our other ground up development project, Pacific House at 1010 Pacific Street in Brooklyn, is stabilized and is contributing to cash flow after a full after a year of full operation. In the quarter, as previously announced, we sold 10 West 60 Fifth Street property for $45,500,000 which generated approximately $13,000,000 after payment of debt in court.

Speaker 2

We have sought to sell the property because our 2017 purchase acquisition plan to convert many units to free market was restricted by the 2019 Housing Stability and Protection Act. As for the office property, at the 141 Livingston Street property leased to New York City, we have received a five year renewal, which the company is processing. At the 250 Livingston Street property, New York City is vacating at the end of the month, and we are actively seeking solutions, including having discussions with our lenders. Regarding our second quarter results, we are reporting near record quarterly revenue of $39,000,000 a 4.5% increase over last year, record NOI of $22,100,000 a 5% increase and record AFFO of $8,300,000 a 17% increase as a result of the strong leasing I just mentioned. These results represent improvement over the second quarter last year, as Larry referred to the detail.

Speaker 2

To provide more details on leasing, we expect residential leasing to remain strong in the foreseeable future as demand remains high and overall rental housing supply remains constrained as new development is discouraged. All our residential rents are now at record highs. As of the December, Chabecca House had leased occupancy of a 100%, overall rent per foot of over $86 per foot, and new rents on average at $93 per foot. The Clover House property had occupancy of 98% average overall rent of $88 per foot and new leases of $96 per foot. Our recently completed Pacific House property, consisting of a blend of free market and unstabilized tenants, had occupancy of 96% and free market rent of $82 per foot on new leases.

Speaker 2

Our other residential properties at Aspen and 250 Livingston Street continue to perform at record level with average occupancy above 99% and new rent and renewal 14% higher compared to previous leases. We have begun leasing at the newly completed Prospect House ground up development at 953 Green Street and are now 33% leased at $88 per square foot gross. And finally, at the Flatbush Gardens property, overall average rents were $31.27 per square foot at the end of the quarter, an increase of 11% over last year. As previously disclosed, we have been operating under the forty year article 11 agreement made with the housing preservation development of New York City in June 2023. Since the beginning of the agreement in July 2023, we have spent nearly $14,000,000 towards fulfilling our capital improvement commitments in the agreement and other related capital projects and provided additional housing funded principally by a full abatement of the real estate taxes and other rent supplements.

Speaker 2

Rent collections across our portfolio remain strong. The overall collection rate in the second quarter on all residential properties was approximately 97%, including flattish bonds of 95%. We are responsibly and steadily working through our legal 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 second quarter, we achieved near record revenues, which increased to $39,000,000 from $37,300,000 last year, an increase of $1,700,000 or nearly 5%. NOI increased to a record $22,100,000 from $21,100,000 last year, an increase of $1,000,000 or 5%. And AFFO increased to a record 8,300,000 from $7,100,000 an increase of $1,200,000 or 17%. For the second quarter, residential revenue increased to $29,100,000 by $1,300,000 This increase was due to strong leasing for all our properties as previously discussed.

Speaker 3

Occupancy and rental rates were at all time highs in the quarter. Commercial revenue was higher by $400,000 in the quarter compared to last year due to filling smaller retail vacancies at Tribeca House and Aspen properties, all at favorable rates. On the expense side, key year over year changes in the quarter were as follows: property operating expenses increased $1,500,000 year over year, substantially all at Flatbush Gardens. The increase was due to higher payroll costs for newly hired repairs and maintenance workers and most other operating expenses, partially offset by lower utilities. Real estate taxes and insurance increased by $80,000 in the second quarter year on year due to routine increases in real estate taxes and insurance at properties other than Flatbush Gardens, whose property taxes have been fully abated under our agreement with New York City since July 2023.

Speaker 3

General and administrative expenses were higher by $360,000 due to higher noncash amortization of executive long term incentive securities, partially offset by lower legal costs. Interest expense decreased by $262,000 in the second quarter year on year due to the sale of the 10 West 60 Fifth Street property and slightly lower rates on its variable rate debt. The $685,000 loss on disposal of long lived assets resulted from the sale of the 10 West 60 Fifth Street property, which generated approximately $13,000,000 in net cash after paying existing debt and closing costs. At the future period, the New York City lease at our 250 Livingston Street property ends later this month by terms as previously disclosed. On a quarterly basis, as reported in our supplemental data report on our website, the property has consistently generated quarterly revenue of approximately $4,600,000 including $400,000 of residential revenue and incurred quarterly operating expenses of approximately $1,700,000 and quarterly interest expense of approximately $1,200,000 As JJ mentioned, we are actively seeking solutions, including having discussions with our lenders.

Speaker 3

With regard to our balance sheet, we have $32,000,000 of unrestricted cash and $28,800,000 of restricted cash at the end of the quarter. In the second quarter, we completed the sale of the 10 West 60 Fifth Street property and closed a two year bridge loan for the Dean Street property, both of which put significant cash on the balance sheet for capital spending and general corporate purposes. Additionally, the bridge loan provides for additional future borrowings to cover carrying costs of the property through stabilization and put working capital cash on the balance sheet. At the end of the quarter, our operating debt is 88% fixed at an average rate of 3.87% and average duration of four point one years. Our debt instruments are nonrecourse subject to limited standard carve outs and are not collateralized.

Speaker 3

We financed our portfolio on an asset by asset basis. Today, we are announcing a dividend of $0.95 per share for the second quarter, the same amount as last quarter. The dividend will be paid on 09/05/2025, to shareholders of record on 08/21/2025. And to conclude, we remain focused on efficiently operating our portfolio. We look forward to our current operating improvements to continue in 2025.

Speaker 3

We also look forward to leasing the 953 Dean Street Prospect House development, finalizing the 141 Living Ston Street lease, resolving the 250 Livingston Street upcoming vacancy and capitalizing on other possibilities as they may present themselves. I would like now like to open the line for questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. 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 listening on speakerphone to provide optimum sound quality. Once again, please press star one on your phone at this time if you wish to ask a question.

Operator

Once again, that will be star one on your phone at this time if you wish to ask a question. K. There were no questions in in queue at this time. I will turn the call back over to the management team for closing remarks.

Speaker 2

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

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.

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