Nov 13, 2019
Operator
Good afternoon, ladies and gentlemen, and welcome to the Clipper Realty 3Q '19 Earnings Conference Call. At this time all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host, Michael Frenz. Sir, the floor is yours.
Michael Frenz
Good afternoon and thank you for joining us for the third quarter 2019 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 2019 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, November 12, 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 our press release, supplemental financial information and quarterly report on 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, Michael. Good afternoon.
Welcome to the third quarter 2019 earnings call for Clipper Realty. I'm pleased to provide an update on our business, including recent highlights and milestones.
I will then turn the call over to J.J., who will discuss property level activity, including leasing performance and renovation projects. Finally, Michael will speak about our quarterly financial performance.
We will then take your questions. I would like to congratulate the entire team for a very strong quarter.
We are announcing record revenues today, a meaningful accomplishment and significant achievement considering some recent industry headwinds, our portfolio is 99% leased. Turning to some more recent developments.
We are extremely pleased that our Clover House property is stabilized currently 91% lease. As a reminder, we brought this fully amenitized 158 unit pre-market residential building online in August.
Attractiveness of the property, its amenities, its location, one of the most desirable neighborhoods in all of New York City, has proximity to Manhattan, has driven exceptional residential demand. This is a significant milestone for our company and we are very pleased to have the property fully operational.
We are announcing today that we have refinanced Clover House with an $82 million 10 year fixed rate secured first mortgage loan with MetLife Investment Management with best interest of 3.53% per annum and interest only for the entire term. We repaid the existing loans and the property totaling $64.7 million that was due in May 2020.
And bore interest of one month LIBOR plus 3.85%. Net remaining proceeds of $16 million increase our cash position.
The refinancing will save approximately $736,000 of annual cash interest expense based on current rates. The company's entire outstanding debt balance is now fixed at a blended 3.9% rate.
We're also excited to announce the acquisition of 1010 Pacific Street in Brooklyn with $31 million. Property is located in Prospect Heights, about one mile from Atlantic Terminal/Barclays Center hub.
We plan to redevelop the property as a nine story fully amenitized multifamily rental building including indoor parking, with the approximately 119,000 square feet of rentable space. We expect the building to have 175 residential units, 70% of which will be free market and 30% affordable.
The property will qualify for 35 year 421(a) tax abatement due to the affordable component. The project is estimated to cost approximately $85 million in total inclusive of land carrying cost.
Should take a duration of two years to construct and complete and develop to 6.5% stabilize cap rate. We will provide further updates as we proceed in this project.
The redevelopment project is an attractive opportunity for our company, that are very pleased to add into our portfolio. I'd like to provide an update on the office portfolio.
As we discuss on recent earnings calls, our new lease with City of New York at 250 Livingston Street, which had a 10 year lease commencing August of 2020 is expected to initially add approximately $5 million to the property’s annual NOI. At the neighboring 141 Livingston St property, the city has confirmed that it will continue to lease through the expiration of the end of 2025.
Further turning to the lease, the revenue will increase 25% at the end of 2020, which will add $2.1 million of property's annual NOI. Together these two upcoming office lease roles are expected to add an incremental $7.1 million of additional NOI to our portfolio, representing a 12% increase in our portfolio run rate.
We are proud of our multi decade working relationship with New York City and look forward to building on that partnership in the years ahead. At our Flatbush Gardens property, we are progressing on the uniform land use review procedure or ULURP approved -- filed with the city.
We currently anticipate the process lasting another six to nine months. Approval will add significant additional floor area ratio to the complex, meaningfully expanding the size of property adding significant value and allowing us to begin development.
There is no assurance however that the application will be fully or partially approved as submitted. I would like to provide an update on Tribeca House 421g litigation.
As previously disclosed, New York Court of Appeals ruled in June that apartments and buildings receiving 421g tax benefits are not subject to luxury deregulation, issuing in order to overturn the previous unanimous Appellate Division. On October 17, Appellate Division granted an interim stay of the special reference hearing regarding the calculation of the incremental overcharge.
On October 24, we filed a petition for a writ of certiorari with the United States Supreme Court, seeking permission to have the court hear our appeal on constitutional grounds from the Court of Appeals order. We do not believe the order will have a material impact on our business.
Lastly, I’d like to comment on our third quarter results. We are proud to report record revenues of $29.4 million, strong NOI of $15.4 million strong [indiscernible] of $5.4 million.
All of which reflect continued robust leasing performance and expense management. Michael will provide further detail and financial performance shortly.
I was out on the call of the JJ to provide an update on operations.
J.J. Bistricer
Thank you. We continue to perform well operationally, driving ongoing cash flow through efficiently sync focused expense management and targeted capital investment.
Club House is fully operational, reaching stabilization following a three month lease of period. The property is currently over 91% leased, significantly ahead of our prior projected year-end timing to hit their milestone.
This outperformance is a testament to our leasing team's efforts and the inherent appeal of the fully renovated property and neighborhood. In-place rents are averaging approximately $73 per square foot.
Tribeca House continues to perform very well. The property is over 98% leased continuing its exceptionally high occupancy trend that we have seen for the last several quarters.
Tribeca House remains a go to destination for young professionals and families who want to live in downtown Manhattan, with full amenities including an upgraded Equinox gym and a more attractive price point compared to the surrounding neighborhood. We achieved a record blended $71 per square foot at the end of the third quarter, while maintaining essentially full occupancy and continue to have significant upside potential relative to the neighborhood’s comparable $80 per square foot rents.
We are proud that our targeted capital program over the last several years, which brought the property up to market standards has been an effective catalyst as we continue to close the rent gap. Our success in reducing apartment turnover downtime from three months in 2018 to currently less than three weeks has helped us maintain exceptional occupancy and continues to provide additional leverage in rent discussions.
Lastly, I note that the 421-g litigation primarily pertains to certain prior timeframe specific rent charges for a subset of previous and existing tenants at the property. Most current tenants and all future move-ins are not impacted by the litigation going forward, as those units are free market.
Turning to Flatbush Gardens in Brooklyn, the complex continues to benefit from extremely high demand and is now over 99% leased. Continuing the full occupancy trend of the last several quarters with accompanying rent growth.
It has been incredibly satisfying that the company’s methodical multiyear efforts to upgrade the property and continue a sustainable community feel has positioned Flatbush Gardens as an attractive housing option to a wide spectrum of residents. As mentioned last quarter, the recent rent stabilization law tempered the rate of future overall rent growth at the property, primarily by curtailing rent increases on legacy unit turns and limiting increases on preferential unit renewals.
However, I once again reiterate four key points as it relates to the law. One, our current in place rents are not negatively impacted.
Two, the limitations on preferential rent increases applied to renewals only upon a preferential in vacancy, we still have the ability to increase the rent up to the maximum legal limit to help mitigate the slower preferential renewal growth rate. Three, our revenue growth on legacy units is not impacted by the law, as these renewals were already subject to rent guidance board increases.
And four, the lowest repeal of vacancy decontrol and high income deregulation does not really impact Flatbush Gardens. Given our tenant profile, neighborhood rent levels and our prior history of not decontrolling or deregulating at the property.
Overall, while the recent law tempers our future rent growth trajectory at the property, Flatbush Gardens is and will remain a very significant part of our portfolio and growth story, with the FAR expansion project and incremental value opportunity. I will now turn the call over to Michael who will discuss our financial results.
Michael Frenz
Thank you, J.J. Our third quarter results clearly reflect the exceptional leasing trends and operational efficiencies highlighted by David and J.J.
For the third quarter, we achieved record revenues of $29.4 million, an increase of $1.5 million or 5.3% compared to the same period in 2018. We achieved NOI of $15.4 million, a 1.2% increase compared to the same period in 2018 and AFFO of $5.4 million or $0.12 per share.
The year over year total revenue increase was primarily attributable to improvements in Flatbush Gardens in Tribeca House. Flatbush and Tribeca residential revenues grew 7% and 3.5% year on year respectively, reflecting increases in both rental rates and occupancy.
Flatbush was 99.5% leased at the end of the quarter and Tribeca was more than 98% leased. Clover House generated approximately $375,000 of revenue as we bought the property online during the quarter.
On the expense side, key year over year changes were as follows. Property operating expenses increased by $551,000 in the third quarter year over year, primarily driven by a larger amount of make-ready apartment improvements at Flatbush Gardens and Tribeca House and commissions associated with the Clover House lease up.
Real estate taxes and insurance increased by $916,000 in the third quarter, primarily due to property tax increases across the portfolio over the prior year, and general insurance industry cost increases. Cash general and administrative expenses increased by $130,000 in the third quarter, primarily due to bringing clover house online and an increase in legal expenses related to the 421g litigation at Tribeca House.
Interest expenses increased by $639,000 in the third quarter, primarily as a result of higher interest costs from the recent to 250 Livingston Street refinancings, including non-cash loan cost amortization. As mentioned, we expect a new clover house refinancing to reduce annual interest expense by $736,000 based on current rates.
Turning to CapEx, we incurred $13 million of CapEx in the third quarter, the majority of which was were related to the Clover House renovation. Other capital projects included unit upgrades at Tribeca House.
Lastly, today we are announcing a dividend of $0.095 per share for the third quarter. The dividend will be paid on December 3 to shareholders of record on November 25.
Let me now turn the call back over to David for concluding remarks.
David Bistricer
Thank you, Michael. We are very pleased with our results.
Our portfolio continues to perform very well. We are excited about our future growth with Clover House, the upcoming office lease rolls and 1010 Pacific Street acquisition and redevelopment.
We're very well positioned to continue to execute on our strategic initiatives and drive value for our shareholders. With that I would like to open up the line for questions.
David Bistricer
Thank you. Thank you for joining us today.
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.