Clipper Realty Inc. (CLPR) Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the Clipper Realty Q2 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Lawrence Sava, Corporate Controller. Lawrence, the floor is yours.

Good afternoon, and thank you for joining us for the Second Quarter 2026 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 Larry Kreider, 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 2025 annual report on Form 10-K and 2026 second quarterly report on Form 10-Q just filed today, which are accessible at www.sec.gov and on our website. As a reminder, the forward-looking statements speak only as of the date of this call, August 6, 2026, and the company undertakes no duty to update them. During this call, management may refer to certain nonfinancial -- 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.

Thank you, Lawrence. Good afternoon, and welcome to the second quarter 2026 earnings call for Clipper Realty. I will provide an update on our business performance, some new developments, after which J.J. will discuss property level-activity, including leasing performance, and Larry will speak to our quarterly financial performance. We will then take your questions. I am pleased to report that our residential properties continue to perform very well due to continued high residential rental demand, generating excellent cash flow, demonstrating the professionalism of our leasing and management teams. Overall rents are generally at all-time highs and continue to increase, and we are nearly fully leased. In the second quarter, new free market leases exceeded prior rents by over 13% across the entire portfolio. We're in the final quarter of initial lease-up at our Prospect House development of 953 Dean Street. We brought the property online in August, on time and on budget and placed the bridge-loan last year and provided some new stabilization. We are presently fully leased with free market rents of $78 a foot. This property was a ground-up development in Brooklyn, where we bought the land in 2021 and '22. Built a 9-story amenitized residential building with 162,000 a (sic) [ 160,000 ] residential square feet, 240 units, 70% free market, 30% affordable, 31 parking spaces and 19,000 commercial square feet. At 250 Livingston Street, New York City vacated in mid-August 2025, as more fully described in the 10-Q and press release. We have entered into a consent and cooperation agreement with the lender to sell the property loan, and they are actively marketing the loan. Also, the lender is currently funding all expenses. We await the results of the lender's auction. I will now turn the call over to Larry.

Thank you. I am pleased to report that residential leasing at all our stabilized properties is very strong, and they are 99% leased overall. Rents are at record levels and continuing to increase. Overall new rental rates at residential free market properties in the second quarter exceeded previous rents by 13% and renewals by 6%. We expect demand for our residential leasing product to remain strong in the foreseeable future as the overall rental housing supply in New York City remains constrained and new development discouraged. Our residential free market rents are now at record highs. In the second quarter, Tribeca House had leased occupancy of 99%, overall rent per square foot of $92 per square foot and new rents at $97 per foot. The Clover House property had occupancy of 98%. Average overall rents of $92 per foot a (sic) [ $82 per foot ] and new leases of $95 per foot. The Pacific House property consisting of a blend of free market and rent stabilized tenants had lease occupancy of 99% and free market rents of $78 per foot on new leases. Our Aspen property continues to perform at record levels with average occupancy above 98% and new rents 11% higher than compared to previous leases. We have completed leasing at the newly completed Prospect House ground-up development that David just described at 953 Dean Street with free market units at $78 per square foot. As to our commercial leases, at the Tribeca House property, we entered to one new lease in the second quarter for 2,063 square feet, in addition to a long-term renewal in the fourth quarter for 33,000 square feet last year for a new -- for the fitness facility at the building. At Flatbush Gardens property, we substantially completed the 3-year capital spending requirements, required by the Article 11 agreement with New York City and look forward to continuing managing the property in a responsible manner. At the 141 Livingston Street property, we continue to operate the property fully occupied by New York City Brooklyn Court House, which is leasing from us, pending finalization of a 5-year lease as previously agreed. We expect this to be completed effective 2027, although there can be no assurance. Rent collections versus billings across our portfolio remains strong. The overall collection rate in the second quarter for all residential properties was approximately 96%. Looking forward, 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 Lawrence, who will discuss our financial results.

Thank you, Larry. For our ongoing properties, our results for the current quarter versus last year reflect the continuation of very strong residential leasing at all residential properties. The progression to full occupancy at the new Prospect House property put in service in Q3 last year, some new commercial leases at Tribeca House and the continuation of operations at the 141 Livingston property. At the 250 Livingston property, the principal tenant, New York City vacated in August 2025, where upon the company notified the lender that it would no longer support the property's operations. The lender has funded all expenses and placed all rents in escrow subsequent to the lease termination. And on June 4, 2026, we entered into a consent and cooperation agreement to market and sell the loan on the property that allows us to bid, but which puts us in receivership. We continue to accrue all expenses and record the relatively small residential revenue. However, despite the likelihood, we will not fund the recorded expenses at the completion of the loan sale process. The following details our results, revenues. For the second quarter of 2026, revenues were $38.6 million as compared to revenues of $39 million during the second quarter of 2025, a decrease of $0.4 million. The decrease was primarily due to the termination of the New York City lease in August 2025 of $4.1 million. The sale of the 10 West 65th Street property, which had revenues in the second quarter of 2025 of $0.7 million, revenues of $2.3 million in this quarter for the Prospect House property placed in service in August of 2025 and still in its lease-up period and increases of $2.1 million on all other properties. The increase at all other properties was due to record residential rental rates and occupancy and some new commercial leases at Tribeca House. For the second quarter of 2026, net loss was $6.3 million, $0.19 per share compared to a net loss of $1.4 million, $0.07 per share for the second quarter of 2025, an increase of $4.9 million. The increase in net loss was primarily due to the termination of the New York City lease at 250 Livingston office property of $5.7 million, substantially all of which is noncash, whereby the lender has funded all expenses and collected all the residential rents since termination of the New York City lease. The net loss in the second quarter of 2025 for the 10 West 65th Street property was $0.7 million. The new Prospect House property placed into service in August '25 and still in its final lease-up period had a net loss of $1.4 million in the second quarter of 2026. All other residential properties and the 141 Livingston property had increased net income of $1.5 million, resulting from strong residential leasing and some new commercial leases at Tribeca House, somewhat offset by annual increases in real estate taxes and insurance at all of our properties and some increased legal expenses and settlement costs. For the second quarter of 2026, AFFO was $3.8 million or $0.09 per share compared to $8.3 million a (sic) [ $8.4 million ] or $0.20 per share for the second quarter of 2025, a decrease of $4.6 million. The decrease was primarily due to the termination of the New York City lease at 250 Livingston Office property, $5.8 million, substantially all of which is noncash in 2026 as described above. AFFO in the second quarter of 2025 for the 10 West 65th Street property was negligible. AFFO at the new Prospect House property still in the final lease-up period was $0.2 million, negative. AFFO at the remaining residential properties and 141 Livingston Street office property improved by $1.4 million due to strong residential leasing and some new leases at Tribeca House, somewhat offset by annual increases in real estate taxes and insurance at all properties and some legal expenses. With regard to our balance sheet, we have $37.7 million of unrestricted cash and $24.9 million restricted cash at the end of the quarter, benefiting from strong cash flow from residential properties and 141 Livingston office property. As of the end of the quarter, our operating debt is 88% fixed at an average rate of 3.87%, average duration of 3.2 years. Our debt instruments are nonrecourse, subject to limited standard carve-outs and noncross-collateralized. We finance our portfolio on an asset-by-asset basis. Today, we are announcing a dividend of $0.095 per share for the second quarter, the same as last quarter. The dividend will be paid on August 26, 2026, to shareholders of record on August 18, 2026. Let me now turn the call back to David for some concluding remarks.

Thank you, Lawrence. We remain focused on efficiently operating our portfolio. We look forward to the full stabilization of the Prospect House property and capitalizing on other possibilities that may present themselves. I would now like to open the line for questions.

Thank you.