Clipper Realty Inc Q4 2025 Earnings Call - Residential Rent Strength Masks Office Fallout from 250 Livingston Lease Loss
Summary
Clipper Realty leaned into what it does best, residential rentals, and the numbers show it. Record rents, near full occupancy across stabilized properties, and a 13% increase on new leases drove revenue gains in the housing portfolio and kept cash flow healthy. The company also brought its Brooklyn development online on time, with Prospect House now about 78% leased and funded with a bridge loan through stabilization.
But the call was defined by the office headache at 250 Livingston Street. New York City terminated its lease in August, and management has stopped paying interest and real estate taxes while it engages lenders and considers restructuring. That single event knocked AFFO down sharply to $1.7 million from $8.1 million a year ago, and management flagged the possibility that it may not fund continuing expenses as distribution discussions proceed. Cash and a largely fixed, nonrecourse debt profile offer some buffer, but the office exposure is an immediate, material wildcard.
Key Takeaways
- Residential portfolio is the engine, with new leases in Q4 ~13% above prior rents and renewals up about 7% across the stabilized book.
- Overall residential occupancy was roughly 99% for stabilized properties, rent collections about 98% in Q4, signaling strong cash flow from the housing segment.
- Prospect House (referred to as Pacific House at points in the call) was placed in service in August, is about 78% leased, and management closed a bridge loan to fund it through stabilization.
- The 250 Livingston Street office loss was the quarter killer, New York City terminated its lease mid-August, and management stopped making interest and real estate tax payments while pursuing lender reimbursement and debt restructuring.
- AFFO plunged to $1.7 million in Q4 versus $8.1 million a year ago, with a roughly $6.1 million hit attributed to the 250 Livingston lease termination and related expense accruals.
- NOI was $20.7 million versus $22.6 million a year ago, with residential NOI growth more than offset by the office decline tied to 250 Livingston.
- Revenue from residential properties rose about $2.7 million year over year, helped by ongoing rent-stabilized increases and initial lease-up at Prospect/Pacific House, but was offset by a $4.0 million decrease tied to the NYC lease termination.
- Management reported $30.8 million unrestricted cash and $27.3 million restricted cash at quarter end, and operating debt that is 89% fixed at a 3.87% average rate and 3.7 year average duration.
- Debt is structured asset by asset, non-recourse except for standard carve-outs, which limits cross-portfolio contagion but leaves single-asset failures painful and localized.
- Management secured a 5-year lease extension and settled lender claims at 141 Livingston Street, showing some office remediation work completed elsewhere in the portfolio.
- Flatbush Gardens shows the distortion of affordable portfolios, with overall average rents around $32 per foot due to Article 11 obligations, but new leases at $54 per foot as capital improvements and transitions continue.
- Pacific/Prospect House is revenue positive relative to prior quarters, but initial lease-up created excess expenses against limited income, a common early-stage drag on AFFO.
- Company declared a Q4 dividend of $0.095 per share, unchanged from the prior quarter, even as AFFO fell materially, which raises questions about payout sustainability if office issues persist.
- Management noted it may not fund future expenses for 250 Livingston at the conclusion of distribution discussions, a blunt signal that lenders, tenants, and the company are in active negotiations with unclear outcomes.
Full Transcript
Lawrence Sava, Corporate Controller, Clipper Realty Inc.: Greetings, and welcome to the Clipper Realty Q4 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, Lawrence Sava, Corporate Controller. Sir, the floor is yours.
Good afternoon, thank you for joining us for the fourth quarter 2025 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, JJ Bistricer, Chief Operating 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 and Form 8-K, just filed today, which is accessible at www.sec.gov and our website. As a reminder, the forward-looking statements speak only as of date of this call, February 26, 2026, 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, amortization, or adjusted EBITDA and net operating income or NOI. Please see our press release, supplemental financial information, and Form 10-K posted today for a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures. With that, I will turn the call over to our Co-Chairman and CEO, David Bistricer.
David Bistricer, Co-Chairman of the Board and Chief Executive Officer, Clipper Realty Inc.: Thank you, Lawrence. Good afternoon and welcome to the fourth quarter 2025 earnings call for Clipper Realty. I will provide an update of our business performance and some developments, after which JJ 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. Overall rents are generally at all-time highs and continuing to increase, and we are nearly fully leased. In the fourth quarter, new leases exceeded prior rents by nearly 13%, generally consistent with last quarter across the entire portfolio, as JJ will detail. We are also in the second quarter of initial lease up at our Prospect House development at 953 Dean Street.
We brought the property online in August, on time and on budget. We placed the bridge loan last quarter, and it will provide funds through stabilization. We are presently approximately 78% leased between market rents and about $85 a foot. This project was the ground-up development in Brooklyn, where we bought the land in 2021 and 2022 and built a nine-story, fully amenitized residential building with 360,000 residential rentable sq ft, 240 units, 70 are free market, and 30% are affordable, 57 parking spaces, and 19,000 commercial rental sq ft. As to the office properties, we have settled the lender claims at 141 Livingston Street and obtained lender approval for a 5-year lease extension with the principal tenant, New York City. All as previously announced.
At 250 Livingston Street, where New York City vacated mid-August, as previously disclosed, we notified the lender we do not intend to support the property’s ongoing operation, and subsequent to the New York City lease termination, ceased making payments of interest and real estate taxes and applied for reimbursements of expenses we incurred since then. Furthermore, we may not fund these expenses at the conclusion of the distribution discussions. We have begun to restructure the property debt, although we cannot assure that this will be the case. I will now turn over the call to JJ to provide an update on operations.
JJ Bistricer, Chief Operating Officer, Clipper Realty Inc.: 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 over previous levels. Overall, new rental rates at residential properties in the fourth quarter exceeded previous rents by over 13% and renewals by 7%. We expect demand for our residential leasing product to remain strong in the foreseeable future, and the overall rental housing supply in New York City remains constrained and new development discouraged. All our residential rents are now at record highs. In the fourth quarter, Tribeca House had lease occupancy of 99% overall, rent per foot of $89, and new rents at $95 per foot.
The Clover House property had occupancy of 96%, average overall rents of $90 a foot, and new leases at $95 a foot. Our fully stabilized Flatbush Gardens property had overall leased occupancy of 98%, average overall rents from all sources, including those under Article 11 agreement with New York City of $32 per foot, and new leases of $54 per foot, as we fulfill all our leasing commitments for assisted tenants and make required capital improvements. Our recently completed Pacific House property, consisting of a blend of free market and rent-stabilized tenants, had lease occupancy of 96% and free market rents of $76 per foot on new leases. Our Aspen property continues to perform at record levels, with average occupancy above a 98% and new rents and renewals 15% higher compared to previous leases.
We have begun leasing at the newly completed Pacific House ground up development at 953 Dean Street, which is now 78% leased, with 3 markets at $85 per foot. Rent collections across our portfolio remain strong. The overall collection rate in the fourth quarter for all residential properties was approximately 98%, including Flatbush Gardens at 98%, as we steadily work through the 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.
Larry Kreider, Chief Financial Officer, Clipper Realty Inc.: Thank you, JJ. Our results this quarter versus last year reflect three unusual items, namely, the termination of the New York City lease at the 250 Livingston Street office property on August 23, 2025. The initial lease-up results at Pacific House, placed in service in August, reflecting excess of expenses over limited but growing revenue, and the absence of results from the 10 West 65th Street property, which we sold in May 2025.
I refer to the remaining properties as the, quote, "ongoing properties." We had revenues of $37.1 billion versus $38.0 million last year, a decrease of $0.9 million, NOI of $20.7 million this quarter versus $22.6 million last year, a decrease of $1.9 million, and AFFO of $1.7 million this quarter versus $8.1 million last year, a decrease of $6.4 million. The following details these results: For revenue, revenues reflect a $2.7 million or 9% increase from residential properties due to the excellent residential leasing, JJ and David mentioned, noted above.
This consisted of $2.2 million increase on the ongoing rent-stabilized residential properties, a $1.5 million increase from the second full quarter of initial lease up at the Pacific House property, partially offset by a $1 million decrease from the absence of the 10 West 65th Street property sold in May. The residential property increase was more than offset by a $4.0 million decrease from the New York City lease termination at the 250 Livingston Street property, partially offset by a $0.3 million increase due to new retail leases at the Tribeca House and Aspen properties.
For NOI, the $1.7 million NOI decrease reflects a $1.4 million or 7% increase from ongoing stabilized residential properties, a $1.2 million increase from the inclusion of Pacific House this quarter, partially offset by a $0.1 million decrease from the absence of the 10 West 65th Street property sold in May. This overall residential increase was more than offset by a $3.8 million decrease from the New York City lease termination at 250 Livingston Street.
As for AFFO, the $6.4 million AFFO decrease reflects, for residential properties, a $0.6 million or 10% increase from ongoing residential properties, a $1.2 million decrease from the inclusion of Pacific House due to full expenses and partial leasing, and a $0.2 million increase from the absence of the 10 West 65th Street property sold in May. These residential properties results are more than offset by a $6.1 million decrease from the 250 Livingston Street property in New York City termination and with full expense accrual. With regard to our balance sheet, we have $30.8 million of unrestricted cash and $27.3 million of restricted cash at the end of the quarter.
As of the end of the quarter, our operating debt is 89% fixed, at an average rate of 3.87% and average duration of 3.7 years. Our debt instruments are non-recourse, subject to limited standard carve-outs and not cross-collateralized. We finance our portfolio on an asset-by-asset basis. Today, we are announcing a dividend of $0.095 per share for the fourth quarter, the same amount as last quarter. The dividend will be paid on March 19th, 2026, to shareholders of record on March 12th, 2096. Let me now turn the call back to David for concluding remarks.
JJ Bistricer, Chief Operating Officer, Clipper Realty Inc.: Thank you. We remain focused on efficiently operating our portfolio. We look forward to the full lease up of Prospect development, resolving the 250 Livingston Street, and capitalizing on other possibilities that may present themselves. I would now like to open the line for questions.
Lawrence Sava, Corporate Controller, Clipper Realty Inc.: Thank you. The floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your questions, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Once again, please press star one if you have a question or a comment. Okay, there are currently no questions in the queue. I would like to turn the floor back to management for closing remarks.
JJ Bistricer, Chief Operating Officer, Clipper Realty Inc.: Thank you for joining us today. We look forward to speaking with you again at the next quarterly earnings call.
Lawrence Sava, Corporate Controller, Clipper Realty Inc.: 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.
