Clipper Realty(CLPR) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Condensed Financial Statements The condensed financial statements show total assets of $1.24 billion, liabilities of $1.23 billion, and a net loss of $12.7 million for the nine months ended September 30, 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,239,759 | $1,229,631 | | Investment in real estate, net | $1,178,157 | $1,171,109 | | Cash and cash equivalents | $22,450 | $18,152 | | Total Liabilities | $1,226,119 | $1,192,452 | | Notes payable, net | $1,197,278 | $1,161,588 | | Total Equity | $13,640 | $37,179 | Consolidated Statements of Operations Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Revenues | $103,338 | $96,737 | | Income from Operations | $24,155 | $20,859 | | Net Loss | $(12,709) | $(9,217) | | Net Loss per Share (Basic & Diluted) | $(0.36) | $(0.26) | Notes to Consolidated Financial Statements (Unaudited) The notes detail the company's REIT structure, accounting policies, property portfolio, debt, segment performance, and legal matters, noting significant revenue concentration - The company operates as a REIT, with its operations primarily conducted through the Operating Partnership, which is a variable interest entity (VIE) controlled by the company[5][6] - On June 29, 2023, the Flatbush Gardens property entered a 40-year regulatory agreement, receiving a full property tax exemption in exchange for maintaining rent affordability, leasing units to formerly homeless families, and committing to a $27 million capital improvements plan[4][28] - The City of New York is a significant tenant, comprising approximately 23% of total revenues for the nine months ended September 30, 2023[9] - The company is involved in several legal proceedings (Kuzmich, Crowe, Horn cases) related to rent overcharge allegations at its Tribeca House property. A charge of $2.7 million was recorded in 2021 for litigation settlement, with payments made in 2022 and 2023[21][22][25] Segment Revenue Breakdown (unaudited) | Period | Commercial | Residential | Total | | :--- | :--- | :--- | :--- | | Nine months ended Sep 30, 2023 | 28% | 72% | 100% | | Nine months ended Sep 30, 2022 | 31% | 69% | 100% | Notes Payable Principal Payment Requirements (as of Sep 30, 2023, in thousands) | Year | Principal Payments | | :--- | :--- | | 2023 (Remainder) | $487 | | 2024 | $1,993 | | 2025 | $82,092 | | 2026 | $44,718 | | 2027 | $33,461 | | Thereafter | $1,049,105 | | Total | $1,211,856 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A discusses the company's financial performance, noting revenue growth and a widened net loss, with sufficient liquidity from financing activities Overview of Our Company Clipper Realty Inc. is a self-managed REIT focused on acquiring, owning, and operating multifamily residential and commercial properties in Manhattan and Brooklyn - The company is a REIT focused on multifamily and commercial properties in the New York metropolitan area, with a portfolio in Manhattan and Brooklyn[43] - As of September 30, 2023, the company's portfolio includes a 59-building residential complex in Brooklyn, residential/retail properties in Tribeca and Manhattan, and commercial properties in Downtown Brooklyn[44][46] Results of Operations Total revenues grew 6.8% for the nine months ended September 30, 2023, driven by residential rental income, but net loss widened due to increased interest expense and a $3.9 million loss on debt extinguishment Comparison of Operations for the Nine Months Ended September 30 (in thousands) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $103,338 | $96,737 | 6.8% | | Income from Operations | $24,155 | $20,859 | 15.8% | | Interest Expense, net | $(32,996) | $(30,076) | 9.7% | | Loss on extinguishment of debt | $(3,868) | $0 | N/A | | Net Loss | $(12,709) | $(9,217) | 37.9% | - Residential rental income for the nine-month period increased by 8.0% (to $72.5 million from $67.2 million) primarily due to higher rental rates at properties like Tribeca House and Clover House[80][85] - Real estate tax expenses for Q3 2023 decreased by 12.3% compared to Q3 2022, mainly due to the real estate tax exemption at Flatbush Gardens resulting from the Article 11 agreement[59][61] - A loss on extinguishment of debt of $3.9 million was recorded in the nine months ended September 30, 2023, related to the refinancing of the 1010 Pacific Street construction loan[117][191] Liquidity and Capital Resources As of September 30, 2023, the company had $1.2 billion in indebtedness and $22.5 million in cash, with net cash from operations increasing, indicating sufficient liquidity Liquidity Position as of September 30, 2023 (in millions) | Item | Amount | | :--- | :--- | | Indebtedness, net | $1,197.0 | | Cash and cash equivalents | $22.5 | | Restricted cash | $14.9 | Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,130 | $15,159 | | Net cash used in investing activities | $(27,783) | $(41,992) | | Net cash provided by financing activities | $17,341 | $10,101 | - Net cash from financing activities in the first nine months of 2023 was primarily driven by the refinancing of the 1010 Pacific Street and Dean Street property loans, providing $40.6 million net of amortization, offset by loan costs and dividends[144] Non-GAAP Financial Measures The company uses non-GAAP measures like FFO, AFFO, Adjusted EBITDA, and NOI to supplement operating performance, with AFFO increasing to $16.2 million for the nine months ended September 30, 2023 Reconciliation of Net Loss to FFO and AFFO (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Loss | $(12,709) | $(9,217) | | Real estate depreciation and amortization | 21,376 | 20,221 | | FFO | $8,667 | $11,004 | | Adjustments (e.g., amortization, straight-line rent, etc.) | 7,561 | 3,536 | | AFFO | $16,228 | $14,540 | Adjusted EBITDA and NOI (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Adjusted EBITDA | $48,501 | $43,953 | | NOI | $56,326 | $51,049 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $74.4 million variable-rate debt, where a 1% increase would impact annual net loss by approximately $0.7 million - The principal market risk is from interest rate fluctuations on variable rate debt[202] - A 1% change in interest rates on the $74.4 million of variable rate debt would impact annual net loss by approximately $0.7 million[203] - The estimated fair value of the Company's notes payable was approximately $1.117 billion as of September 30, 2023[224] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023[204] - No material changes to internal control over financial reporting occurred during the quarter[227] PART II – OTHER INFORMATION Legal Proceedings This section refers to Note 8, "Commitments and Contingencies," in the consolidated financial statements for details on legal proceedings - For information on legal proceedings, the report refers to Note 8 of the consolidated financial statements[207] Risk Factors The company states no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K[228] Exhibits This section lists exhibits filed with the Form 10-Q, including loan agreements for the Dean Street property, a line of credit note, and officer certifications - Exhibits filed include new loan agreements for the Dean Street property, a line of credit note with Valley National Bank, and required officer certifications[210]