Clipper Realty(CLPR) - 2021 Q4 - Annual Report

PART I Summary of Risk Factors The company faces principal risks from the COVID-19 pandemic, its New York City focus, rent regulations, tenant concentration, and REIT requirements - The company's business is subject to numerous risks, including the ongoing COVID-19 pandemic, which could materially impact financial condition and operations[8] - All properties are located in New York City, making the company highly susceptible to local economic and regulatory developments, such as rent stabilization laws[8] - A single government tenant, the City of New York, is a major source of revenue for the company's office buildings, creating concentration risk[8] - Significant risks are associated with maintaining REIT qualification, which imposes strict distribution and operational requirements that could affect liquidity and business strategy[9] Business The self-managed REIT owns and operates multifamily and commercial properties in Manhattan and Brooklyn, deriving revenue primarily from residential rents - The company's portfolio as of year-end 2021 consists of nine properties located in Manhattan and Brooklyn, including Tribeca House, Flatbush Gardens, and two properties under development[15] - Approximately 70% of revenues are from residential rents, with the remaining 30% from commercial and retail, and agencies of the City of New York represent 22% of total annualized rent[19] - Key business strategies include increasing existing below-market rents, opportunistic acquisitions, proactive property management, and selective redevelopment of assets[21][22][23] - The company is subject to significant government regulations, including New York City's rent stabilization laws, which were impacted by the Housing Stability and Tenant Protection Act of 2019[33][61] - As of December 31, 2021, the company had 144 employees, with certain employees covered by union contracts[44] Risk Factors Significant risks include the COVID-19 pandemic's impact, geographic concentration in NYC, tenant dependency, restrictive rent laws, and substantial indebtedness - The COVID-19 pandemic continues to pose a risk by potentially affecting tenants' ability to pay rent and reducing demand for housing in the New York metropolitan area[50][52] - All properties are located in New York City, exposing the company to adverse local economic conditions and regulatory changes like the Housing Stability and Tenant Protection Act of 2019[65][66] - Agencies of the City of New York lease approximately 17% of the total rentable square feet and represent 22% of the total portfolio's annualized rent, creating significant tenant concentration risk[68] - The company has substantial indebtedness of $1,144.1 million as of December 31, 2021, which may limit financial and operating activities[149] - Failure to maintain REIT qualification would result in significant adverse tax consequences, and complying with REIT rules may cause the company to forgo otherwise attractive opportunities[168][175] Cautionary Note Concerning Forward-Looking Statements Forward-looking statements are subject to significant risks and uncertainties, including the pandemic's effects, market conditions, and regulatory changes - The report includes forward-looking statements that are not guarantees of future performance and are subject to risks and uncertainties[202] - Key uncertainties include the ongoing effects of the COVID-19 pandemic, market conditions affecting occupancy and rental rates, and regulatory developments in New York City[202] Properties The portfolio comprises nine properties totaling 3.3 million rentable square feet in Manhattan and Brooklyn, with two currently under development Portfolio Summary as of December 31, 2021 | Category | Leasable Sq. Ft. | Units/Tenants | Percent Leased | Annualized Rental Revenue (millions) | | :--- | :--- | :--- | :--- | :--- | | Multifamily | 2,601,657 | 3,508 | 94.1% | $85.8 | | Commercial | 548,580 | 2 | 100.0% | $25.2 | | Retail | 114,286 | 17 | 91.2% | $4.8 | | Total | 3,264,523 | 3,527 | 95.0% | $115.8 | Commercial and Retail Lease Expiration Schedule | Year | % of Annualized Rental Revenue Expiring | | :--- | :--- | | 2022 | 1.2% | | 2023 | 6.5% | | 2024 | 0.3% | | 2025 | 84.9% | | Thereafter | 7.1% | - The Tribeca House properties are encumbered by a $360.0 million loan maturing in March 2028 with a fixed interest rate of 4.506%[217] - The Flatbush Gardens complex is encumbered by a $329.0 million mortgage note maturing in June 2032 with a fixed interest rate of 3.125% through May 2027[221] - The company is redeveloping two properties in Brooklyn: 1010 Pacific Street (175 units) and 953 Dean Street (240 residential units and retail space)[236][238] Legal Proceedings The company faces tenant lawsuits regarding rent stabilization at Tribeca House, resulting in a $2.7 million litigation charge - The company is a defendant in three lawsuits concerning rent stabilization status under RPTL 421-g at the Tribeca House property[508][510][511] - Following a court decision, the company has recorded a litigation settlement charge of $2.7 million to cover potential rent overcharges, interest, and legal costs[512][513] - The New York Attorney General's Office is investigating tenant screening conduct, with no material financial impact expected[514] Mine Safety Disclosure This disclosure is not applicable as the company has no mining operations - The company has no mining operations, therefore this disclosure is not applicable[241] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under 'CLPR', with a dividend policy guided by its REIT status - The company's common stock is traded on the NYSE under the symbol 'CLPR', with trading having commenced on February 10, 2017[243] - As a REIT, the company is required by U.S. federal income tax law to distribute at least 90% of its taxable income to shareholders annually[247] - Future distributions are at the discretion of the board of directors and depend on results of operations, liquidity, and other factors[249][250] Reserved This item is intentionally left blank Management's Discussion and Analysis of Financial Condition and Results of Operations Net loss increased to $20.0 million in 2021 on flat revenues, driven by a litigation charge, while business remained durable - Despite the COVID-19 pandemic, the business remained durable with a rent collection rate of 96.6% for the full-year 2021[265] - Residential rental rates, which had declined due to the pandemic, showed strong recovery in the second half of 2021[267] Results of Operations (Year Ended Dec 31, in thousands) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $122,729 | $122,850 | (0.1)% | | Income from Operations | $24,161 | $32,142 | (24.8)% | | Net Loss | $(20,018) | $(12,229) | 63.7% | - The increase in net loss for 2021 was primarily driven by a $2.7 million litigation settlement charge and higher operating expenses[296][305] Non-GAAP Financial Measures (Year Ended Dec 31, in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | FFO | $5,744 | $11,401 | $15,526 | | AFFO | $15,556 | $16,844 | $22,041 | | Adjusted EBITDA | $55,798 | $56,374 | $56,134 | | NOI | $63,458 | $63,573 | $62,825 | - As of December 31, 2021, the company had total debt of $1.14 billion, all of which was property-level debt, with a weighted average interest rate of approximately 3.8%[149][269][308] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $51.1 million of variable-rate debt - The company's main market risk is interest rate risk, with $51.1 million of its debt being variable rate as of December 31, 2021[359][360] - A 1% change in interest rates on the variable rate debt would affect annual net income by approximately $0.5 million[360] - The estimated fair value of the company's notes payable was $1,199.4 million as of December 31, 2021, compared to a carrying amount of $1,144.1 million[361][507] Financial Statements and Supplementary Data This section incorporates by reference the company's audited consolidated financial statements, which begin on page F-1 - The company's audited consolidated financial statements are included starting on page F-1 of the Form 10-K[362] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting or financial disclosure matters - There were no disagreements with accountants on accounting and financial disclosure during the reporting period[362] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[363] - Based on the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2021[365] - No material changes to internal control over financial reporting occurred during the fourth quarter of 2021[364] Other Information The company reported no other information required to be disclosed in this section - No other information was reported in this item[369] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This disclosure is not applicable to the company - This disclosure is not applicable to the company[370] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, officers, and governance is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the forthcoming Proxy Statement[372] Executive Compensation Details on executive compensation are incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the forthcoming Proxy Statement[373] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides information on equity compensation plans, with further ownership details in the Proxy Statement Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Securities to be Issued Upon Exercise | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | | | | 2015 Omnibus Plan | 1,243,448 | 756,552 | | 2015 Director Plan | 460,641 | 239,359 | | Total | 1,704,089 | 995,911 | - Additional information on security ownership will be incorporated by reference from the forthcoming Proxy Statement[378] Certain Relationships and Related Transactions, and Director Independence Information on related-party transactions and director independence is incorporated by reference from the Proxy Statement - Information for this item is incorporated by reference from the forthcoming Proxy Statement[379] Principal Accounting Fees and Services Details on accounting fees and services are incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the forthcoming Proxy Statement[380] PART IV Exhibits, Financial Statement Schedules This section lists all documents filed with the Form 10-K, including financial statements and exhibits - This item provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[382] - The Consolidated Financial Statements and Schedule III – Real Estate and Accumulated Depreciation are located starting on page F-1[382][396]