Clipper Realty Inc (CLPR) 2017 Q4 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to the Clipper Realty 4Q '17 Earnings Call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Michael Frenz, Head of Capital Markets. Sir, the floor is yours.

Thank you. Good afternoon, and thank you for joining us for the Fourth Quarter 2017 Clipper Realty Inc. Earnings Conference Call. Participating in today's call will be David Bistricer, Co-Chairman of the Board and Chief Executive Officer; Lawrence Kreider, Chief Financial Officer, and J.J. Bistricer, Chief Operating Officer.

Before we begin, 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 2016 annual report on Form 10-K, which is accessible at www.sec.gov and the company's website. As a reminder, the forward-looking statements speak only as of the date of this call, March 8, 2018, 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 and depreciation, or EBITDA; and net operating income, or NOI. Please see Clipper's press release and supplemental financial information posted today for 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 David Bistricer.

Thank you, Michael. Good afternoon, and welcome to the fourth quarter 2017 earnings call for Clipper Realty. I'm pleased to discuss with you the state of affairs at Clipper. I will provide a few highlights and our recent activity and then turn the floor over to J.J., who will update you on our portfolio, including leasing and ongoing repositioning projects. Finally, Larry will discuss our quarterly results and our balance sheet, and we will then take your questions.

Regarding our recent activity. In February of 2018, we are pleased to announce that company completed refinancing of existing debt on Flatbush Gardens and Tribeca House that lower the interest rate on both loans, fixed almost all the company's variable rate debt, reduced annual debt service and provide additional liquidity and will allow us to execute our value-added strategic plan. These transactions demonstrate the confidence that our lenders continue to have in our business and our outlook moving forward. Larry will provide some of the details on the transaction a little later.

Asset acquisitions. In late October, we completed the acquisition of 10 West 65th Street in Manhattan, $79 million or $585 a foot property, comprises approximately 82,000 square feet of residential plus 53,000 square feet of air rights. The 82-unit building is located near Lincoln Center, less than a block from Central Park and the Upper West Side. We financed the acquisition with $34,350,000 loan, property-level mortgage loan and cash on hand. We plan to invest incremental capital to enhance the property.

In May, we completed the acquisition of 107 Columbia Heights in the historic district of Brooklyn Heights for $87.5 million or $569 per foot. Property is near various subway and bus lines, the famous promenade Brooklyn and comprises approximately 154,000 square feet. Renovations are well underway to create a 59-unit well-appointed studios of 1, 2 bedrooms, with the parking lot for 68 cars. We are funding the improvements with a $14.7 million construction loan, and we expect to complete that work in 2018.

As mentioned on previous earnings calls, we continue to make progress on our plan to build out 500,000 square feet of additional FAR at Flatbush Gardens complex. We are working diligently to obtain the required regulatory approvals to expand the Flatbush Gardens FAR on top of existing buildings in an attractive, cost-effective manner, which will provide additional rentable units without using any additional land, thus preserving the ultimate physical layout of our complex while enhancing its cash flows. We are pleased with our progress on the project, and we will continue to provide updates as the process moves forward.

As to ongoing operating results, overall, we continue to be very pleased with the performance of our portfolio, which delivered the quarterly record earnings revenue of $27.3 million, record NOI of $14.8 million, and our AFFO of $4.5 million.

I'll now turn over the call to J.J., who'll update you on the leasing.

Thank you. We continue to make excellent progress in improving operations at all of our properties, as we seek to drive long-term cash flow growth through targeted capital investments and strong property management. At Flatbush Gardens workforce housing property, we continue to experience high demand for our units and solid revenue growth. Our efforts to reposition the property are focused on improving the physical appearance and function of the 59 buildings as well as the overall living environment. We have completed several important capital projects: a beautiful new 40,000-square-foot landscape terrace that fronts several buildings, which enhances the overall community feel of the complex and allows reutilization of approximately 100 self-parking spots. Installation of over 1,500 security cameras and improved outdoor lighting fixtures, which significantly enhance the safety of our residence; highly convenient newly decentralized laundry, storage and mailboxes that will provide additional revenue.

Ongoing capital projects include modernization of individual building lobbies and front entrances as well as relocation of current leasing and management offices, which will free up 10 additional revenue-producing units. We remain extremely pleased with the leasing demand and cash collections at the property. The complex was 97% leased at the end of December. And during the quarter, we signed new leases at $33 per square foot and $31 per square foot for the whole year. These rates were more than 20% higher than previous rates for the same units. As a result of this and 4% increases in renewals, rent per square foot for the entire property continues to steadily increase.

At Tribeca House in downtown Manhattan, catering to working professionals, our leasing team continues to make excellent progress. Occupancy and rents have maintained their upward trend as we continued to close the gap between approximate $60 per square foot average in-place rent when we purchased the property less than 3 years ago and the above $80 per square foot prevailing rent in the neighborhood. During the year, we have achieved average rents on movements of $70 per square foot and renewals of approximately $68 per square foot. The property was 91% leased at the end of December and is now 96% leased, and we are well positioned going into the traditional high rental season.

We continue to selectively renovate and upgrade apartment units and common areas, including a new leasing office in children's play room to further drive rent, growth and improve the look and feel of the property.

Our Aspen property located on the Upper East Side of Manhattan continues to be a strong performer. The building was 96% leased at December 31 -- December 2017 and 98% as of now, with rents per square foot trending higher. We continue to see the benefit of the recently completed Second Avenue subway line on the neighborhood and expect to selectively make prudent capital investments to the building over time, including a refresh of all common area hallways to further enhance revenue growth.

At the 141 Livingston Street commercial property in downtown Brooklyn, we are nearing completion of the capital improvements required under our lease with the New York City. These have included modernizing elements, replacing the boiler and restoring a modern building management system. At 107 Columbia Heights property in Brooklyn Heights, renovations are well underway to create 159 well-appointed studio 1- and 2-bedroom units with the parking -- underground parking for 68 cars. Lastly, at the 10 West 65th Street property in new Lincoln Center, which we most recently acquired, we make -- we plan to make selective improvements to enhance value, including bringing online 10 units.

I will now turn over the call to Larry, who will discuss our financial results.

Thank you, J.J. Our fourth quarter results demonstrated improvements in operations, as David and J.J. have just described. For the fourth quarter, we reported record revenues of $27.3 million, up approximately $3.1 million or 12.8% from the fourth quarter last year. Net loss for the fourth quarter was $1.5 million or $0.04 per share compared to net loss of $3.1 million or $0.09 per share recorded in the fourth quarter last year.

And we reported AFFO in the fourth quarter of $4.5 million or $0.10 per share compared to AFFO of $2.8 million or $0.07 per share in the fourth quarter last year. To detail the quarterly revenue increase of 12.8%, at the 250 Livingston Street property, revenues increased 33% year-on-year as a result of the new release with the City of New York covering approximately 1/3 of the building that commenced in January 2017. The next leasing milestone at the latest is the August 2020 -- is August 2020, when we have an opportunity to renegotiate both this lease and the lease covering the remaining office space in the building with the City.

At the 141 Livingston Street properties -- property, revenue increased $766,000, primarily due to a onetime $600,000 prior year billing for common area maintenance resulting from resolution of a lease interpretation. At Flatbush Gardens, revenues increased nearly 7% year-on-year, reflecting steady -- steadily increasing average rents for move-ins, which increased an average of 27% and renewals which increased an average of 4%, continuous high occupancy in the 96% to 97% range and the presence of air conditioning charges now being billed monthly.

At Tribeca House, revenues increased 6% year-on-year, primarily driven by gains in leasing and rent per square foot. At the Aspen property purchased in late June 2016, revenues have remained strong compared to last year based on increasing rents and continuously high occupancy.

Operating expenses increased $1,246,000 in the quarter year-on-year, due primarily to $962,000 of higher property taxes at Tribeca House, Flatbush Gardens and Aspen based on increases in assessed values and gradual -- and scheduled gradual reductions of long-term abatements at the Aspen property. Remaining operating expenses increased $284,000, primarily due to timing of supplies deliveries and increased collection cost at Flatbush Gardens.

General and administrative expenses increased $573,000 for the quarter year-on-year, primarily due to higher noncash amortization of LTIP awards, the cost of litigating the Tribeca House tenant lawsuit, which the company may be able to recoup and to a lesser extent higher public company costs from our IPO in February 2018 -- 2017. Interest expense, which includes both cash expense and amortization of loan costs decreased by $397,000 for the quarter year-on-year. The decrease was primarily due to lower amortization of loan cost and cash interest expense resulting from the November 2016 refinancing of Tribeca House debt, capitalization of interest expense from the 107 Columbia Heights property under development, all partially offset by new interest expense on the 10 West 65th Street property acquisition.

Going forward, as a result of the February 2018 refinancing described by David, we expect quarterly cash interest expense to decrease by approximately $900,000 and scheduled principal amortization to decrease by approximately $800,000.

To provide further details of the transactions, the company refinanced Flatbush Gardens with a 10-year $246 million initial fixed rate secured first mortgage loan with New York Community Bank, the properties current lender, which matures in March 2028. There is interest at a fixed rate of 3.5% per annum for the first 5 years and its interest only for 30 months.

The company refinanced Tribeca House with a 10-year $360 million fixed rate secured loan, which matures March 2028, bears interest at a fixed rate of 4.506% per annum as interest-only for the entire term. With the proceeds, the company repaid both the Tribeca House loans totaling $410 million that were due November 2018, which bore interest a blended LIBOR plus 3.75% rate. And both the Flatbush Gardens mortgage loans totaling approximately $168 million due October 2024, which bore about interest at a fixed rate of 3.875% annual rate.

Net proceeds from the refinancings of $21.5 million increased the company's cash position. And the refinancings fixed all debt at our operating properties not underdevelopment. Depreciation expense was flat. This reflects a $500,000 increase in depreciation from fixed assets all offset by $500,000 decrease at Aspen purchase accounting amortization.

And as a result of this, for the quarter, year-on-year net loss improved to $1.5 million or $0.04 per share, an improvement of 51%. AFFO improved $4.5 million or $0.10 a share, an increase of 61%. And NOI improved $14.8 million, an increase of 13%.

And lastly, today, we announced the distribution -- we are announcing a distribution of $0.095 per share and unit for the fourth quarter of 2017, equal to the previous quarters of 2017, a 11.8% higher than the 8.5% -- $0.085 per share for the fourth quarter of 2016. This dividend will be paid on March 29, 2018, to shareholders of record on March 22, 2018.

Let me now turn the call back to David for concluding remarks.

Thank you, Larry. We're extremely pleased with our results in 2017 and with the February 2018 refinancings. Portfolio is performing well. We continued to grow our company with new acquisitions and add to our platform and often meaningful upside through capital enhancements and focused management. As we look forward to 2018 and beyond, we are well positioned to continue to execute on our strategic growth initiatives and drive value for our shareholders.

With that, I would like to open up the line for questions.

(Operator Instructions) And our first question today is coming from Buck Horne.

This is Buck Horne from Raymond James. Quick question. Do you guys have any budget for CapEx for 2019? Maybe I missed that in the prepared comments. But any sort of detail you could give us in terms of how you plan renovation CapEx or any other additional spending needs for the year?

Probably going through spend closely what we did last year. And I think on the (inaudible) going forward, we'll give you more details -- detailed budget for property.

Okay, and can you walk us through maybe the milestones or the schedule that you would expect to follow to obtain all of the remaining approvals needed for the Flatbush FAR?

Sure. Flatbush FAR so far where we are, we've managed again most recently with city planning. And we introduced the new design that's (inaudible) came up with a beautiful rendering of the project. Everybody who sees it, including city planning, is really excited about it. So right now, we're waiting for the head of the city planning office and the Department of Buildings to come back with any comments that they have. We've interviewed VHB, which is a provider of monumental studies that will need for us to be able to execute on this application, which is a unique application. We believe that we will only need EAS, which is a more limited scope of environmental studies, traffic patterns and other kinds of environmental studies, and is opposed to a more encompassing EAS. So we're satisfied so far with our progress and the reception that we're getting, and also the new design is something that we think will enhance the entire complex. Close for about 500 apartments, over 10 buildings. It's in the interior of the complex, not on the borders of the complex as was requested by the city planners. So it has less impact on any of our neighbors. So we continue to pursue that expansion plan.

So is that something that you think you might get approval one way or the other done by sometime this year?

We are cautiously optimistic that we can do that.

(Operator Instructions) We have no further questions in the queue at this time.

Thank you. Good night.

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.