Clipper Realty: Much Safer Than It Appears

Investment Thesis - Clipper Realty (NYSE: CLPR) is a REIT focused on NYC real estate, owning seven residential and two commercial properties, which allows for specialized expertise in the market [2] - The company has over 99% occupancy and rents are reaching new highs, indicating strong demand despite a decline in stock price since its IPO [2] - Concerns include high debt levels and the departure of a major office tenant, but the company’s quality assets are considered undervalued, with a unique capital structure that protects individual properties from cross-collateralization [2] Valuation - The estimated total value of CLPR's properties is approximately $1.51 billion, with current debts around $1.24 billion, implying a share value of $5.82, significantly above current trading levels [3] - Under different cap rate scenarios, the share value could rise to $12.50 or $23.50, indicating potential for substantial appreciation [3] - The valuation may underestimate the worth of certain properties, particularly 1010 Pacific, due to lower NOI figures from recent quarters [3] Property Performance - Detailed property valuations show that several properties have significant net asset values (NAV), with Flatbush Gardens valued at $418.44 million and 250 Livingston at $155.51 million [4] - The overall NAV for all properties totals approximately $269.47 million, highlighting the potential for value realization [4] Financial Metrics - CLPR is trading at an all-time low in terms of NTM Price/FFO per share, suggesting it is an opportune time for investment [5] - Consistent quarter-over-quarter growth in FFO indicates strong operational performance [5] Debt Management - CLPR's debt is primarily fixed at low rates, with 91% of operating debt fixed at an average rate of 3.87% and an average duration of 4.9 years [7] - The majority of the debt is not due until 2028 or later, alleviating immediate refinancing concerns [7] - The company can manage underperforming properties effectively, as defaults on one property do not affect others [7] Dividend Policy - CLPR offers a sizable annual dividend of 10.05%, which has been maintained since its IPO in 2017, including through the COVID pandemic [8] - The dividend is viewed as a bonus rather than a primary investment driver due to the company's high debt levels [8] Office Space Exposure - CLPR's exposure to office space is limited, with only two office buildings contributing about 25% of total NOI [9] - Potential strategies for office properties include converting them to residential units or lowering rents to attract new tenants [9] Conclusion - The main investment thesis centers on the undervaluation of CLPR's assets, with market concerns about debt being somewhat unfounded due to the company's capital structure [10] - The intrinsic value of CLPR shares could vary significantly based on cap rates, with estimates ranging from $5.82 to $23.50 [10] - Overall, the stock is categorized as a buy based on the current valuation and asset quality [10]