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Operator: Good day, ladies and gentlemen, and welcome to the Clipper Realty First Quarter 2023 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Larry Kreider. The floor is yours.

Larry Kreider: Thank you, and good afternoon. Thank you for joining us for the first quarter of 2023 Clipper Realty, Inc. earnings conference call. Participating with me on today’s call are David Bistricer, Co-Chairman of the Board and Chief Executive Officer; and J.J. Bistricer, Chief Operating 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 2022 annual report on Form 10-K and updated in the 2023 first quarter report on Form 10-Q, which are accessible at www.sec.gov and our website.

As a reminder, the forward-looking statements speak only as of the date of this call, May 4, 2023, 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-Q posted today for a 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 our Co-Chairman and CEO, David Bistricer.

David Bistricer: Thank you, Larry. Good afternoon, and welcome to the first quarter 2023 earnings call for Clipper Realty. I will provide an update to our business performance, including recent highlights and milestones as well as our company’s progress. I will then turn the call over to J.J., who will discuss property level activity, including leasing performance. Finally, Larry will speak about our quarterly financial performance. We will then take your questions. Our operating results continued their positive trends. Residential leasing activity continues to improve based on strong rental demand at our properties as New York City is fully reopened, people seek to relocate back to the city and employees increasingly return to their offices.

At the end of the first quarter, our properties were 99% leased. And new leases at all our properties continue to exceed pre-pandemic levels. At the Tribeca House, for example, new leases in the first quarter exceeded $77 per foot, 17% better than in the previous rents. And overall rent levels were a record $75 per foot, 19% better than the $63 at the end of December 2022. And at the Flatbush Gardens complex, new leases averaged $36 this quarter and overall rent levels rose to $26.17 per foot. With respect to interest rate increases, we believe we are buttressed by a relatively long duration of our debt on our operating properties, of which 94% is fixed at an average of 3.72% interest, with an average duration of 6.47 years and is nonrecourse subject to limited standard carve-outs and is not cross-collateralized.

With respect to inflation, we look at the short duration and high demand for our residential leases to allow us to cover increased in expenses on our operating properties and higher construction cost on our development properties. Our balance sheet continues to be well positioned from a liquidity perspective. We have a total of $38 million in cash consisting of $19 million of unrestricted cash and $19 million of restricted cash. We finance our portfolio on an asset-by-asset basis. We are pleased to announce that as of today, we have completed on schedule 1010 Pacific Street ground-up development, now branded Pacific House, refinanced with permanent debt and begun leasing in anticipation of full operation in the second quarter. The property is located in Prospect Heights Brooklyn, about 1 mile from the Atlantic Terminal/Barclays Center Hub and comprises 175 units.

It came on in a budget of about $85 million total cost and is leasing to a cap rate above 7%. Due to the excellent progress of construction and leasing in February, we replaced the construction loan ahead of schedule with a five-year $80 million loan, $60 million is already drawn at closing, $20 million available upon achievement of certain financial targets. It has an initial interest rate of 5.7%, reduced by another 25 basis points upon full lease-up. Also, we have begun to develop the land parcels we bought in 2021 and 2022 at Dean Street. We also intend to develop from the ground up a nine story fully amenitized residential building with 166,000 residential rentable square feet, 240 total units, 70% of which are free market and the balance is affordable, along with the 8,500 commercial rental square feet.

We paid $56.5 million for the parcels, partially funded from acquisition financing of $36 million now, and we intend to fund the development with construction loan. With regard to our first quarter results, we are reporting record quarterly revenue of $33.7 million; NOI of $17.1 million, both exceeding pre-pandemic levels; and AFFO of $4.5 million as a result of improved leasing I mentioned above. These results represent significant improvements over the first quarter of last year and a testament to the progress of the management executive team, and J.J. and Larry will further detail. I will now turn the call over to J.J., who will provide an update on operations.

J.J. Bistricer: Thank you. I’m pleased to report that our residential leasing performance at all our properties continues to improve. At the end of the first quarter, all our residential properties occupancy and rent levels are exceeding pre-pandemic levels. Overall, new lease rental rates in the first quarter exceeded previous rents by over 14% and renewal rate by over 8%. We are experiencing particularly strong rental demand at our Tribeca House property. Our leased occupancy has averaged 98% over the last 12 months. We have steadily increased average rent per square foot to $75 from $63 over that same period. In the first quarter, rents on new leases were $77 per square foot, a 17% increase over previous rents. And rents on renewals were $74 per square foot, a 14% increase over previous rents.

We expect rent per square foot to continue to grow for at least another quarter as a result of turnover of our one and two year leases entered into last year in response to pandemic conditions and as a result of continued strong overall leasing conditions. We also continue to benefit from the new leases on retail properties at the Tribeca House property. The four new leases we entered into last year have substantially higher rates or cash flowing, and we are actively seeking to lease the last remaining retail space vacated during the pandemic. At the Flatbush Gardens complex in Brooklyn, we are focused on maintaining high occupancy at the 99% level and keeping up with maintenance activities. New leases in the first quarter have averaged nearly $36 per foot, approximately 40% higher than the units previously rented.

As a result, overall average rents for the property have begun to increase, again, rising to $26.17 per square foot at the end of the quarter versus $25.12 at the end of last year. We are now benefiting from the guidelines put forth by the rent stabilization board in October 2022, which allows increases on rent stabilized units of 3.25% for one year leases and 5% for two year leases. Such increases have been limited to zero percent and 2% for the last couple of years. These increases will help offset our continued capital investment in the property, which has amounted to $900,000 so far this year and our continued aggressive spending on maintenance and supplies. Our other residential properties, Clover House, 10 West 65th Street, Aspen and 250 Livingston Street continued to perform well, while average leased occupancy for these properties has maintained at 99%, average rental rates have increased 11% from a year ago.

Rent collection across our portfolio remains strong despite the residual challenges of the pandemic. The overall collection rate in the first quarter was over 98%. Surprisingly, we have continued to benefit but at a lower rate from remittances under the New York Emergency Rental Assistance Program, or ERAP, and the Landlord Rental Assistance Program, or LRAP. We received remittances this quarter of $500,000 versus average 2022 quarterly amount of $776,000 and a fourth quarter 2021 amount of $2.5 million. On the development side, the construction of Pacific House in the Prospect Heights area of Brookline is completed, with a certificate of occupancy issued by the New York City building department. We began leasing in the first quarter and have already leased 60% of the 122 fee market leases as of today.

We expect to be substantially leased in the third quarter. The development is a nine-story 119,000 rentable square foot fully amenitized multifamily rental building with underground indoor parking. The property has 175 total units, 70% free market and 30% affordable and has a 35-year 421(a) tax abatement. 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.

Larry Kreider: Thank you, J.J. For the first quarter, our reported revenues increased by $1.6 million to a record $33.7 million from $32.1 million last year first quarter. On a more comparable basis, after eliminating a one-time recovery of previously written-off receivables of $1.1 million under the new accounting standard implemented last year, revenue last year was $31 million, representing an increase of $2.7 million or 9%. NOI this quarter was $17.1 million or $0.6 million better than last year as reported and $1.7 million better after adjusting for the one-time revenue recovery. Similarly, AFFO this year was $4.7 million, an increase of $0.2 million from the $4.5 million reported last year or $1.3 million better after adjusting for the one-time recovery items.

The revenue increase was due to the higher residential revenue rates from continued strong leasing, as mentioned by J.J., and higher occupancy at the Flatbush Gardens property. Bad debt expense was substantially level with last year, reflecting the high and stabilized collections, as J.J. also discussed. On the expense side, key year-over-year changes were as follows. Property operating expenses were $600,000 higher than last year due primarily to increased utility gas heating prices compared to last year and higher repair costs at Flatbush Gardens from our increased focus on maintenance. The real estate taxes and insurance increased by approximately $600,000 in the first quarter year-on-year, $500,000 due to the regular increase in real estate taxes midyear last year and $100,000 due to insurance cost increases.

General and administrative costs increased by $350,000 in the first quarter year-on-year, primarily due to extra auditor transition costs and higher amortization cost of LTIP issued after the first quarter last year. Interest expense increased by $200,000 in the first quarter year-on-year due to conversion of the debt at the 10 West Street property to variable rate according to its terms, partially offset by additional capitalization of interest associated with the Pacific House and 953 Dean Street development projects. With regard to our balance sheet, as David mentioned earlier, we have $18.8 million of unrestricted cash and $19 million of restricted cash. We initially funded development of our Pacific House and Dean Street acquisitions substantially with construction financing.

In February, we refinanced the Pacific House construction loan with an $80 million mortgage and provided an initial funding of $60 million and a further $20 million subject to achievement of certain financial targets. The loan has a five-year term and an initial interest rate of 5.7%, subject to a reduction by up to 25 basis points upon achievement of certain financial objectives. The loan is interest only for the first two years and principal and interest thereafter based on a 30-year amortization schedule. We finance our portfolio on an asset-by-asset basis. And our debt is non-recourse, subject to limited standard carve-outs and is not cross-collateralized. We have no debt maturities on any operating properties until 2027 with average overall duration of 6.47 years.

At the end of 2023, currently 9.4% of debt at our operating properties is fixed at an average rate of 3.72%. Today, we are announcing a dividend of $0.095 per share for the first quarter, the same amount as last quarter. The dividend will be paid on May 24 to shareholders of record on May 15. Let me now turn the call back over to David for concluding remarks.

David Bistricer: Thank you, Larry. We remain focused on efficiently operating our portfolio. We look forward to our current operating improvements to continue to accelerate to the next quarter and into 2023. We look forward to capitalizing on a myriad of growth opportunities, including Pacific House and Dean Street developments and other possibilities that may present themselves. I will now open the line for your questions.

Operator: Thank you. [Operator Instructions] Thank you. The first question comes from Buck Horne with Raymond James. Buck, please proceed.

Operator: [Operator Instructions] There are no further questions in queue. Do you have any closing comments you’d like to finish with?

David Bistricer: Thank you for joining us today. We look forward to speaking with you again soon, and please stay healthy. Have a good night.

Operator: 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.

Larry Kreider: Thanks, John

David Bistricer: Thank you.

Operator: Thank you, gentlemen. Take care.