Good day and welcome to the Clipper Realty Quarterly 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. Sir the floor is yours.

Thank you, John. Good afternoon and thank you for joining us for the third quarter 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 the 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 third 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 November 2, 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 in 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, Larry. Good afternoon and welcome to the third quarter 2023 earnings call for Clipper Realty. I will provide an update of our business performance and some exciting new developments after which J.J. will discuss property level activity including leasing performance and I will speak to our quarterly financial performance. We will then take your questions. I am pleased to report that we have record operating results on most key metrics and continuing the positive trends from previous quarters. Rental demand has been very strong at all our properties. In the third quarter new leases exceeding prior rent by 12% across the entire market-based portfolio and our properties are 98% leased. At Tribeca House, Manhattan and Clover House in Brooklyn new leases were $91 per square foot and overall rent levels reached a record $78 per foot on average, 40% better than the $63 per foot at the end of 2021. At Flatbush Gardens, we have begun operating as of July 1 under the previously announced 40-year agreement with the New York City's Housing Preservation Department so-called Article 11 of the Private Housing Finance Law. Under this agreement, the elimination of real estate taxes and enhanced rental recoveries for assisted tenants will allow us to profitably provide for our commitment for property improvements, tenant assistance and higher wages for everyone's benefits. Of course we are at the early stages and will report our progress as we move forward. Operationally, we are also very pleased with our new ground-up development project Pacific House, 1010 Pacific, which became online last quarter and budgeted and is 93% leased and on target to yield a 7% cap rate. Properties located in Prospect Heights, Brooklyn, 1 mile from the Atlantic Terminal Barclays Center. Property has a 175 units, 70% free market, 30% affordable. It…

Thank you. I am pleased to report that our residential leasing performance at all our properties continues to improve. At the end of the third quarter, all our residential properties had very high occupancy averaging 98% and rents are at record levels. Overall, new lease rental rates in the third quarter exceeded previous rents by over 12% and renewal rental rates by over 6% at our free market properties. We continue to see particularly strong rental demand at our Tribeca House and Clover House properties, both free market buildings. At Tribeca House, we have maintained lease occupancy between 97% to 99% and increased average rent per square foot to $78 per square foot from $71 over the last 12 months and $62 per square foot near the end of the pandemic. In the third quarter, rents on new leases were $91 per square foot, a 13% increase over previous rents and rents on renewals were $87 per square foot, an 8% increase over previous rents. The rental rates have continued to increase even after the COVID pandemic lower rates turned over. Leasing at Pacific House almost fully stabilized. The 70% free market and 30% affordable property came online at the beginning of the second quarter and was 93% leased at the end of this quarter. We expect the property to achieve a cap rate of over 7% in 2024 in line with original underwriting. At the Flatbush Gardens property, we are also very excited to begin operating under the new Article 11 agreement made with the Housing Preservation Department of New York City that we completed on June 29th. This agreement, as intended, will facilitate ongoing capital requirements and allow for much-needed affordable housing in New York City. We received the full abatement of real estate taxes beginning July 1…

Thank you, J.J. For the third quarter, revenues increased to a record $35.1 million from $32.8 million last year, third quarter, by $2.3 million, or excluding the impact of Pacific House that came online in the second quarter, an increase of $1.2 million. NOI this quarter was $20.0 million, an increase of $2.6 million from last year, or $1.9 million, excluding the impact of Pacific House. AFFO this year was $6.3 million, an increase of $1.2 million from last year, or $1.4 million, excluding the impact of Pacific House, which reflected full interest expense in the quarter, but only partial initial lease up. The $1.2 million, or 4% revenue increase, excluding the impact of Pacific House, was primarily due to higher residential rental rates from all properties, from continued strong leasing as previously discussed. Bad debt expense was substantially the same as last year, reflecting high and stabilized collections. On the expense side, key year-over-year changes were as follows: Property operating expenses were approximately $400,000 higher than last year, excluding the impact of Pacific House, primarily due to higher repairs and maintenance and supplies at the Flatbush Gardens property to make the necessary repairs, and higher payroll at Flatbush Gardens to comply with the new living wage requirements under the Article 11 agreement. Real estate taxes and insurance decreased by approximately $1 million in the third quarter, year-on-year, excluding the impact of Pacific House, $1.8 million due to elimination of real estate taxes at Flatbush Gardens, partially offset by a $200,000 increase due to routine increases in real estate taxes mid-year last year at the other properties, and $600,000 due to insurance cost increases. General and administrative costs increased by $100,000 in the third quarter, year-on-year, primarily due to regular payroll increases. Interest expense increased by $300,000 in the third…

Thank you, Larry. We remain focused on efficiently upgrading our portfolio. We look for our current operating improvements to continue to accelerate through the next quarter and into 2023. We look forward to capitalizing on a myriad of growth opportunities, including optimizing the Flatbush Gardens Article 11 transaction, the Pacific House, and 953 Dean Street developments, and other possibilities that may present themselves. I would like now to open the line to questions.

Okay, there are currently no questions in queue. I would now like to turn the floor back to management for any closing remarks.

Thank you for joining us today. We look forward to speaking with you again soon. 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.

Thank you, John. Bye.

You're very welcome. Take care.