Good afternoon, ladies and gentlemen, and welcome to the Clipper Realty First Quarter 2019 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.

Good afternoon and thank you for joining us for the First Quarter 2019 Clipper Realty Inc. Earnings Conference Call. Participating in today's call will be David Bistricer, Co-Chairman of the Board and Chief Executive Officer; J.J. 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 2018 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, May 9, 2019, 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 Clipper's press release, supplemental financial information and quarterly report on Form 10-Q 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 first 2019 earnings call for Clipper Realty. I am pleased to discuss with you the state of affairs at Clipper. I will provide a few highlights of our recent activity and then turn the call 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. We will then take your questions. Regarding our recent activity. At 250 Livingston Street, we have now entered through a fully signed lease with the City of New York for renewal of our commercial lease at 250 Livingston Street, which has been countersigned by the city. The new lease has a 10-year term. Expiration of the current lease is in August of 2020 and combines the 2 existing leases into 1 lease. The lease encompasses 342,000 and 496,000 remeasured square feet at initial rent of $43.62 rent is -- rent per square foot with rent escalating beginning in the third year and [ comfortable ] as the company making certain alterations and improvements to the property. The company expects the new lease to initially add approximately $5 million to the property's annual net operating income net of adjustments based on current expense levels. At 107 Columbia Heights in Brooklyn, we are steadily approaching completion of renovations to create a fully amenitized residential building with 159 market rate studio, 1- and 2-bedroom with indoor parking for 68 cars. We are funding the improvements in part with a 14,000 -- $14.7 million construction loan and proceeds from the new mortgages through our 250 Livingston Street. We expect to obtain a temporary certificate of occupancy, or TCO, and begin lease-up in June 2019. The property is located in the historic Brooklyn Heights…

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 investment and strong property management. First, as mentioned earlier, we are getting closer to completing the renovation of 107 Columbia Heights property and plan to begin leasing in June of 2019. This work comprised over 60% of overall capital spending during the quarter. We are very excited to get the building operational. At the Flatbush Gardens property in Brooklyn, we continue to experience high demand for our units and solid revenue growth. We have been reaping the benefits of our efforts to reposition the property and the overall living environment, including the previously discussed landscape terrace, enhanced security and lighting throughout the complex and revenue-additive centralized laundry and storage. We remain extremely pleased with leasing demand and cash collections at the property. The complex was 99.5% leased at the end of March. And during the first quarter, we signed new leases at an average of $32 per square foot. These rates were approximately 28% higher than previous rates for the same units. Combined with an approximate 6.2% increase on renewals, the property's rent per square foot continues to steadily increase, now above $24 per square foot. At Tribeca House in Downtown Manhattan, our leasing teams continue to make excellent progress. At the end of March, we were 99% leased and overall rents remained strong in the $69 per square foot range. During the quarter, we experienced renewals and new leases in the $69 per square foot range. We are increasing our focus on improving turnover downtime to better deal with our residents' mobile profile at this property and as you can see reflected on our 99% lease status. We continue to renovate and upgrade apartments, units and common areas, including a new leasing office and children's playroom, all to further drive rent growth and enhance overall attractiveness of the property. Our Aspen property located in the Upper East Side of Manhattan continues to be a strong performer. The building was 98% leased at the end of December with rent per square foot remaining in the $36 per square foot range during the quarter. The neighborhood continues to enjoy a [ renaissance ] driven by the Second Avenue Subway line, which is located a few blocks from the property. Lastly, as we -- as also previously discussed, we are making major changes at the 10 West 65th Street property, including the lease-up of 11 market rate units and repositioning and re-leasing the 40 units that came back to us from Touro College to whom we have previously leased the units in their original dormitory room configuration. I will now turn the call over to Larry, who will discuss our financial results. Thank you.

Thank you, J.J. Our first quarter results clearly demonstrate the operational improvements that David and J.J. described. For the first quarter, we achieved revenues of $27.7 million, an increase of approximately $1.5 million over the first quarter last year after adjusting for a $400,000 noncash and nonrecurring straight-line rent write-off from a lease restructuring at the Tribeca House property and a $300,000 decrease from the repositioning of units at 10 West 65th Street. We see strong NOI in the first quarter of $14.7 million and excellent AFFO in the first quarter of $5.3 million or $0.12 per share, an approximate 61% increase over AFFO for the first quarter last year. Our strong result this quarter versus last year reflects higher revenue, controlled operating expenses in real estate taxes and insurance and lower G&A. Some additional detail on the year-over-year revenue increase. At Flatbush Gardens, revenue has increased 8.2% year-on-year, reflecting the steadily increasing rents described by J.J. and nearly 100% leased occupancy. At Tribeca House, residential revenues increased 6.8% year-on-year primarily driven by gains in occupancy and, to a lesser extent, rent per square foot. Commercial revenues, excluding the nonrecurring and noncash straight-line rent adjustment, were slightly higher due to scheduled rent adjustments. At the Aspen property, residential revenues increased 3.3% year-on-year, reflecting increasing rents and continuously high occupancy in the 98% range. At the 250 Livingston Street and 141 Livingston Street, office properties leased to the departments of New York City, revenues were slightly higher, reflecting higher property tax and operating expense reimbursements. Additionally, at the 250 Livingston Street property, as David mentioned earlier, we just entered into a new lease, which we expect will increase our annual revenues by approximately $5 million beginning August 2020. At 141 Livingston Street, we have a contracted upcoming 25% rent increase to…

Thank you, Larry. We are pleased with our results this quarter. Our portfolio is performing well, and we have continued to grow our company with recent acquisition that adds to our platform and offer a meaningful upside through capital enhancement and focused management. As we look forward, 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 it looks like your first question is coming from Craig Kucera.

I wanted to ask about the -- kind of your expectations with developments throughout the year. As you think about -- and how would you think about capitalized interest? Is capitalized interest going to roll off as these properties are bought in phases? And just give us a little more clarity if possible and kind of what your thoughts are there.

Yes. The capitalized interest will roll off as we bring the properties online, particularly at 107 Columbia Heights, and you'll see the amount at the bottom of the cash flow statement, the amount that we capitalized during the quarter.

So I guess what I'm saying is will the entire amount of capitalized interest at 107 no longer be capitalized once you open up a phase? Or is it little kind of roll off in phases throughout the year, I guess?

Yes. Well, we don't know precisely right now because we don't have an understanding entirely of how the property will come online. It may be sort of a floor at a time, in which case we would do it rapidly, based on when a floor becomes available for its "intended use."

Okay. Got it. And I know you noted that rental revenue will -- the residential side was up in Aspen, but I think the overall building had total revenue that was modestly down. Was that on the retail side? Or I guess what's going on there?

Well, I think that's on the residential side.

Okay. Because there's a drop an occupancy. I got you.

Exactly.

I guess now that the lease has been signed by the city, and I think you mentioned in your prepared commentary that there was some expected tenant improvements at that building, do you have a sense of when that will be incurred and what that amount will be?

Most of that work is sprinkle work, which is ongoing as we speak. And we think it's going to be not more than $2 million. And then like I said, I think it will be -- next couple of months, it will be all completed.

Okay. Got it. The -- so just as I think about 10 West, you mentioned that 65% of the 40 units are leased. How should we think about occupancy there? I think you said you thought the asset will be completed in the third quarter. Does that basically imply that fourth quarter, maybe first quarter, that asset will be pretty much fully occupied?

Hopefully, yes.

Craig, we've actually had a pretty good experience so far. As you know, we took back the apartments at the end of January. And as Larry and David mentioned, we've started leasing them up already. Some of them have started. Some of them will start in next month or so. That's why you see a nice healthy lease occupancy number for us. But again, we're progressing significantly on the CapEx and whatever else is needed. So yes, by the end of the year, we should be in really good shape on this.

Got it. Mike, I noted in your comments you mentioned there was the straight-line write-off. There was another comment you made, I think, in regard to -- I was taking notes quickly, 10 West. Can you just give -- go over those comments again?

Sure. Well, I said there was a straight-line write-off. I think I said $400,000 related to accumulated straight-line rent. This is kind of -- technically, accounting. We could follow up on this. But as -- we restructured the lease and as such had to write-off the accumulated straight-line rents. And now we will continue to record the actual rent received, and that's all.

Your next question is coming from Buck Horne.

Just any extra color you can provide on your expectations for the G&A run rate for the rest of the year? It looks like you did -- came in a little bit better than expected in this quarter. So do you expect those savings to continue through the year? Any other items we should be aware of?

Yes. Well, I think the run rate should continue with the following additional couple of items. There are uncertainties. One of them is the LTIP amortization. We did issue more LTIPs in late March so there should be some additional noncash LTIP amortization. And I think we were estimating approximately $250,000 per quarter, something like that. And secondly, we had pretty low legal costs during the first quarter and those could tick up. I think we historically have seasonally adjusted higher legal costs from administrative matters like the shareholder meeting and so forth; and secondly, we have the tenant lawsuit outstanding for which we are in a bit of a hiatus at the moment, and that could resume in some point.

Generally speaking, Buck, it's going to be relatively [ normal ] run rate here, as Larry said.

Yes. I think we're...

I think we generally target roughly around, on a cash basis, somewhere in the neighborhood of $7 million -- $6 million to $7 million of cash G&A here. I think there were -- again, there may be some things here and there. But generally speaking, I think this is a pretty good run rate for modeling purposes.

Perfect. Very helpful. And I believe you mentioned also a couple of items at the property level, things like the collection expense at Flatbush and then higher taxes and insurance expense. So as you look at the rest of the year, do you think that those headwinds on the cost side -- how do you think about your property level operating margins for the rest of the year? Do you think those can continue to expand upward for the rest of the year?

I don't think they're going to expand upwards. I think what you see now in this particular quarter is a normal quarter. We had some things in Flatbush Gardens. We had certain maintenance, they had run off. And so the other maintenance at Tribeca had run off. And when those maintenance run off, their taxes did go up. But right now I think we're out of the case to that, and now we're just in a normal run rate, I think. So you'll see a typical run rate for this quarter going forward barring any unforeseen expenses.

And last one for me. Just -- I think you covered it in the opening remarks on the area rights discussion with the city. So I guess this goes to, I just will look at my notes here real quick, goes to knowing -- I guess you're going through an application process in the second quarter, and maybe just elaborate a little bit on how that process over the next year unfolds and then where does it go after that 9- to 12-month process.

We've had a lot of progress made. We had numerous meetings with city planning. We expect to file the first draft of the application within the next 2 or 3 weeks. The team is assembled, and so we're kicking off the official application process with the city. The city is well aware of what the plan is. They worked with us. They unified suggestions which we've incorporated. As I've said in the past, we've organized with all the stakeholders on this particular project such as the tenant association of very selected officials, and so far we received enormous amount of support. So we're marching forward. And like I said, the process of this magnitude usually takes about a year to get it accomplished because we're going through our master plan of rezoning the entire project. And so far, it looks good, but there's a lot of wood to chop here.

We have a follow-up question coming from Craig Kucera.

Yes. Now that you're a quarter or 2 away from completing 10 West and 107 Columbia, how much incremental capital do you think you need to spend to complete those projects over the next several quarters?

No. 107 Columbia, I think we're really far along here, as David said. It's less than $10 million, I think, roughly speaking. Again, we saw a [ growth ] on our construction loan, as you know. But that's -- again, we're pretty much at short strokes at this point. And then on 10 West, as I said, with the 40 apartments, we've already basically worked up a good portion already. So it's relatively minimal, maybe up to $1 million, $1.5 million roughly. But again, this is -- 10 West is a lot less of an effort than 107. But again, we're extremely far along on both, so I think we'll be wrapping the set pretty quickly and then we're ready to roll.

[Operator Instructions] And you currently have no questions in queue.

Thank you again for joining us today. We look forward to speaking with you again next quarter. Have a pleasant evening.

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.