Clipper Realty(CLPR) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Condensed Financial Statements Clipper Realty Inc. reported increased Q1 2023 revenues but a higher net loss of $7.1 million, primarily due to a debt extinguishment loss, decreasing total equity Consolidated Balance Sheets As of March 31, 2023, total assets increased to $1.237 billion, but rising liabilities led to total equity declining to $26.4 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,237,398 | $1,229,631 | | Investment in real estate, net | $1,175,477 | $1,171,109 | | Cash and cash equivalents | $18,801 | $18,152 | | Total Liabilities | $1,211,008 | $1,192,452 | | Notes payable, net | $1,178,027 | $1,161,588 | | Total Equity | $26,390 | $37,179 | Consolidated Statements of Operations Q1 2023 revenues increased 5.0% to $33.7 million, but a $3.9 million debt extinguishment loss led to a $7.1 million net loss Q1 2023 vs Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenues | $33,667 | $32,050 | | Income from Operations | $6,914 | $6,509 | | Interest expense, net | ($10,135) | ($9,985) | | Loss on extinguishment of debt | ($3,868) | $0 | | Net loss | ($7,089) | ($3,476) | | Net loss attributable to common stockholders | ($2,687) | ($1,318) | | Basic and diluted net loss per share | ($0.19) | ($0.09) | Consolidated Statements of Changes in Equity Total equity decreased from $37.2 million to $26.4 million in Q1 2023, primarily due to a net loss and distributions - Total equity fell by $10.8 million during Q1 2023, from $37,179 thousand to $26,390 thousand[15] - Key drivers of the equity decrease were the net loss of $7,089 thousand and dividends/distributions of $4,348 thousand[15] Consolidated Statements of Cash Flows Q1 2023 net cash from operations increased to $7.4 million, and strong financing activities led to a $7.2 million net cash increase Q1 2023 vs Q1 2022 Cash Flows (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,421 | $6,587 | | Net cash used in investing activities | ($12,494) | ($17,851) | | Net cash provided by financing activities | $12,231 | $2,875 | | Net increase (decrease) in cash | $7,158 | ($8,389) | Notes to Consolidated Financial Statements The notes detail the company's property portfolio, $1.19 billion debt, ongoing tenant lawsuits, and residential properties generating 71% of revenue - The company's property portfolio is concentrated in Brooklyn and Manhattan, including notable assets like Flatbush Gardens and Tribeca House[22][40] Total Debt Summary (in thousands) | Description | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total debt | $1,187,267 | $1,171,238 | | Unamortized debt issuance costs | ($9,240) | ($9,650) | | Total debt, net | $1,178,027 | $1,161,588 | - The company is involved in multiple lawsuits (Kuzmich, Crowe, Horn cases) with tenants at the Tribeca House property over alleged rent overcharges related to tax abatements[101][129][130] - A charge of $2.7 million was recorded in 2021 to cover estimated rent overcharges, interest, and legal costs[101][129][130] - For Q1 2023, the Residential segment generated $23.9 million in revenue and $2.7 million in income from operations, while the Commercial segment generated $9.7 million in revenue and $4.3 million in income from operations[107] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2023 revenue growth to residential portfolio improvements, with net loss widening to $7.1 million from a debt extinguishment loss Q1 2023 vs Q1 2022 Results of Operations Highlights (in thousands) | Metric | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total revenues | $33,667 | $32,050 | 5.0% | | Income from operations | $6,914 | $6,509 | 6.2% | | Loss on extinguishment of debt | ($3,868) | $0 | (100.0)% | | Net loss | ($7,089) | ($3,476) | (103.9)% | - Residential rental income grew 11.5% to $23.9 million, driven by higher rental rates and occupancy[141] - For example, base rent per square foot at Tribeca House increased from $59.84 to $74.59 year-over-year[141] - The company incurred a $3.9 million loss on the extinguishment of debt from the early termination of the construction loan at 1010 Pacific Street[146][119] Non-GAAP Financial Measures Reconciliation (in thousands) | Measure | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net loss | ($7,089) | ($3,476) | | FFO | ($264) | $3,229 | | AFFO | $4,476 | $4,420 | | Adjusted EBITDA | $14,493 | $14,141 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation on its $69.1 million variable rate debt, impacting annual net loss by $0.7 million for a 1% change - The principal market risk is related to interest rate fluctuations on the company's variable rate debt[186] - As of March 31, 2023, a 1% change in interest rates on the $69.1 million of variable rate debt would affect the annual net loss by about $0.7 million[212] - The estimated fair value of the company's notes payable was $1,136.7 million as of March 31, 2023, which is below the carrying amount of $1,187.3 million (excluding unamortized costs)[188][127] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - Based on an evaluation as of March 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[214] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[191] PART II – OTHER INFORMATION Legal Proceedings Legal proceedings, primarily tenant lawsuits concerning rent stabilization, are detailed in Note 8 of the consolidated financial statements - For a discussion of legal proceedings, the report refers to Note 8 of the consolidated financial statements[215] Risk Factors Risk factors from the 2022 Form 10-K remain largely unchanged, with a new risk added regarding concentrated credit risk from cash balances exceeding FDIC insurance - No material changes were made to the risk factors from the 2022 Form 10-K, except for one update[221] - A new risk factor was added concerning the concentration of credit risk, as cash balances held at financial institutions may exceed the $250,000 FDIC insurance limit, posing a risk of loss if a financial institution fails[193][216] Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - Not applicable[222] Mine Safety Disclosure This item is not applicable for the reporting period - Not applicable[194] Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications and XBRL data files - The exhibits filed with this report include certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL documents[223]