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Clipper Realty Inc. Announces Second Quarter 2020 Results

Clipper Realty Inc. (NYSE: CLPR) (the “Company”), a leading owner and operator of multifamily residential and commercial properties in the New York metropolitan area, today announced financial and operating results for the three months ended June 30, 2020.

Highlights for the Three Months Ended June 30, 2020

  • Achieved quarterly revenues of $30.7 million for the second quarter of 2020, representing an increase of 8.0% compared to the same period in 2019
  • Achieved quarterly income from operations of $8.6 million for the second quarter of 2020
  • Achieved record quarterly net operating income (“NOI”)1 of $17.3 million for the second quarter of 2020, representing an increase of 8.7% compared to the same period in 2019
  • Recorded quarterly net loss of $5.5 million for the second quarter of 2020, or $1.4 million excluding a non-recurring $4.2 million loss on modification of debt and a non-recurring $0.1 million gain on involuntary conversion
  • Achieved quarterly adjusted funds from operations (“AFFO”)1 of $5.5 million for the second quarter of 2020
  • Declared a dividend of $0.095 per share for the second quarter of 2020

The Company also announced today a new stock repurchase program, whereby it may repurchase up to $10 million of its common stock.

David Bistricer, Co-Chairman and Chief Executive Officer, commented,

“We are very pleased with our second quarter 2020 results, especially in light of the challenges posed by the ongoing COVID-19 pandemic. The safety of our tenants and employees remains our highest priority. Our properties remain operational and are currently 96% leased, with essential staff and key procedures in place to manage through the pandemic. Our second quarter rent collection rate was equal to 94% of our first quarter rent collection rate, and our July rent collection rate improved to 98%. We have $116.3 million of cash on our balance sheet, consisting of $88.3 million of unrestricted cash and $28.0 million of restricted cash, and have no debt maturities on any operating properties until 2027, providing further support in the current environment. In addition, our new lease with the City of New York at the 250 Livingston Street property will commence later this month. We remain focused on executing our strategic initiatives to create long-term value.”

Financial Results

For the second quarter of 2020, revenues increased by $2.3 million, or 8.0%, to $30.7 million, compared to $28.4 million for the second quarter of 2019. The growth was primarily attributable to bringing the Clover House property online during the third quarter of 2019, and completing renovation and re-leasing of approximately 50% of the units at the 10 West 65th Street property during the second quarter of 2019.

For the second quarter of 2020, net loss was $5.5 million, or $0.13 per share ($1.4 million, or $0.04 per share, excluding a non-recurring $4.2 million loss on modification of debt and a non-recurring $0.1 million gain on involuntary conversion), compared to net loss of $1.2 million, or $0.03 per share (net income of $0.6 million, or $0.01 per share, excluding a non-recurring $1.8 million loss on extinguishment of debt), for the second quarter of 2019. The change was primarily attributable to the revenue increases discussed above, offset by higher property operating expenses, property taxes, insurance expense, and depreciation and amortization expense (each such expense inclusive of the impact of bringing the Clover House property online), and higher interest expense primarily resulting from the refinancing of the Flatbush Gardens property in May 2020 and the recognition of interest expense in connection with bringing the Clover House property online.

For the second quarter of 2020, AFFO was $5.5 million, or $0.12 per share, compared to $6.1 million, or $0.14 per share, for the second quarter of 2019. The change was primarily attributable to the revenue increases discussed above, offset by higher property operating expenses, property taxes, insurance expense and interest expense.

Balance Sheet

At June 30, 2020, notes payable (excluding unamortized loan costs) was $1,091.1 million, compared to $1,009.4 million at December 31, 2019; the increase primarily reflected the refinancing of the Flatbush Gardens property in May 2020, partially offset by scheduled principal amortization.

Dividend

The Company today declared a second quarter dividend of $0.095 per share, the same amount as last quarter, to shareholders of record on August 21, 2020, payable August 28, 2020.

Stock Repurchase Program

The Company today announced that its Board of Directors has adopted a stock repurchase program. Under the repurchase program, the Company may repurchase its common stock at any time, or from time to time, for an aggregate total purchase price not to exceed $10 million. The Company anticipates funding for the program to come from available sources of liquidity, including cash on hand and future cash flow.

The repurchase program permits shares to be repurchased in open market or private transactions, through block trades or otherwise. The number of shares repurchased and the timing, manner, price and amount of any repurchases will be determined at the Company’s discretion, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses of capital and the Company’s financial performance.

The repurchase program may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity and other factors deemed appropriate by the Company. These factors may also affect the timing and amount of share repurchases. The repurchase program does not obligate the Company to repurchase any particular number of shares.

Conference Call and Supplemental Material

The Company will host a conference call on August 10, 2020, at 5:00 PM Eastern Time to discuss the second quarter 2020 results and provide a business update pertaining to the COVID-19 pandemic. The conference call can be accessed by dialing (800) 346-7359 or (973) 528-0008, conference entry code 452581. A replay of the call will be available from August 10, 2020, following the call, through August 24, 2020, by dialing (800) 332-6854 or (973) 528-0005, replay conference ID 452581. Supplemental data to this press release can be found under the “Quarterly Earnings” navigation tab on the “Investors” page of our website at www.clipperrealty.com. The Company’s filings with the Securities and Exchange Commission (the “SEC”) are filed at www.sec.gov under Clipper Realty Inc.

About Clipper Realty Inc.

Clipper Realty Inc. (NYSE: CLPR) is a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multifamily residential and commercial properties in the New York metropolitan area, with a portfolio in Manhattan and Brooklyn. For more information on the Company, please visit www.clipperrealty.com.

Forward-Looking Statements

Various statements contained in this press release, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include estimates concerning capital projects and the success of specific properties. Our forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "intend," "anticipate," "potential," "plan" or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this press release speak only as of the date of this press release.

We disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties (including uncertainties regarding the impact of the COVID-19 pandemic, and measures intended to curb its spread, on our business, our tenants and the economy generally), most of which are difficult to predict and many of which are beyond our control and which may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. For a discussion of these and other important factors that could affect our actual results, please refer to our filings with the SEC, including the "Risk Factors" section of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, our Annual Report on Form 10-K for the year ended December 31, 2019, and other reports filed from time to time with the SEC.

1 NOI and AFFO are non-GAAP financial measures. For a definition of these financial measures and a reconciliation of such measures to the most comparable GAAP measures, see “Reconciliation of Non-GAAP Measures” at the end of this release.

Clipper Realty Inc.
Consolidated Balance Sheets
(In thousands, except for share and per share data)
  
 June 30, 2020December 31,
2019
 (unaudited)
ASSETS  
Investment in real estate 
Land and improvements 

$

540,859

$

540,859

Building and improvements 

613,983

602,547

Tenant improvements 

3,051

3,051

Furniture, fixtures and equipment 

12,001

11,707

Real estate under development 

34,331

31,787

Total investment in real estate 

1,204,225

1,189,951

Accumulated depreciation 

(120,474

)

(109,418

)

Investment in real estate, net 

1,083,751

1,080,533

  
Cash and cash equivalents 

88,253

42,500

Restricted cash 

28,047

14,432

Tenant and other receivables, net of allowance for doubtful accounts 

7,847

4,187

of $4,309 and $3,361, respectively 
Deferred rent 

881

1,274

Deferred costs and intangible assets, net 

8,199

8,782

Prepaid expenses and other assets 

13,471

14,499

TOTAL ASSETS  

$

1,230,449

$

1,166,207

  
LIABILITIES AND EQUITY  
Liabilities: 
Notes payable, net of unamortized loan costs 

$

1,079,677

$

997,903

of $11,380 and $11,528, respectively 
Accounts payable and accrued liabilities 

10,699

13,029

Security deposits 

7,576

7,570

Below-market leases, net 

1,367

1,625

Other liabilities 

3,560

4,297

TOTAL LIABILITIES  

1,102,879

1,024,424

  
Equity: 
Preferred stock, $0.01 par value; 100,000 shares authorized (including 140 shares 

-

-

of 12.5% Series A cumulative non-voting preferred stock), 
zero shares issued and outstanding 
Common stock, $0.01 par value; 500,000,000 shares authorized, 

178

178

17,814,672 shares issued and outstanding 
Additional paid-in-capital 

93,626

93,431

Accumulated deficit 

(42,307

)

(36,375

)

Total stockholders' equity 

51,497

57,234

  
Non-controlling interests 

76,073

84,549

TOTAL EQUITY  

127,570

141,783

  
TOTAL LIABILITIES AND EQUITY  

$

1,230,449

$

1,166,207

Clipper Realty Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

 
REVENUES
Residential rental income

$

23,679

$

21,146

$

47,397

$

41,918

Commercial rental income

7,050

7,300

14,218

14,180

TOTAL REVENUES

30,729

28,446

61,615

56,098

 
OPERATING EXPENSES
Property operating expenses

6,868

6,747

14,027

14,310

Real estate taxes and insurance

6,778

5,707

13,642

11,438

General and administrative

2,594

2,579

4,917

4,247

Depreciation and amortization

5,872

4,590

11,430

9,139

TOTAL OPERATING EXPENSES

22,112

19,623

44,016

39,134

 
INCOME FROM OPERATIONS

8,617

8,823

17,599

16,964

 
Interest expense, net

(9,979

)

(8,210

)

(19,767

)

(16,484

)

Loss on modification/extinguishment of debt

(4,228

)

(1,771

)

(4,228

)

(1,771

)

Gain on involuntary conversion

85

-

85

-

 
Net loss

(5,505

)

(1,158

)

(6,311

)

(1,291

)

 
Net loss attributable to non-controlling interests

3,283

691

3,763

770

Net loss attributable to common stockholders

$

(2,222

)

$

(467

)

$

(2,548

)

$

(521

)

 
Basic and diluted net loss per share

$

(0.13

)

$

(0.03

)

$

(0.15

)

$

(0.04

)

 
Weighted average common shares / OP units
Common shares outstanding

17,815

17,815

17,815

17,814

OP units outstanding

26,317

26,317

26,317

26,317

Diluted shares outstanding

44,132

44,132

44,132

44,131

Clipper Realty Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 

Six Months Ended June 30,

.

2020

2019

 
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss

$

(6,311

)

$

(1,291

)

 
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation

11,078

8,755

Amortization of deferred financing costs

608

928

Amortization of deferred costs and intangible assets

592

623

Amortization of above- and below-market leases

(228

)

(830

)

Loss on modification/extinguishment of debt

4,228

1,771

Gain on involuntary conversion

(85

)

-

Deferred rent

393

816

Stock-based compensation

693

860

Bad debt expense

899

-

Changes in operating assets and liabilities:
Tenant and other receivables

(4,559

)

222

Prepaid expenses, other assets and deferred costs

989

70

Accounts payable and accrued liabilities

(2,484

)

(1,781

)

Security deposits

6

398

Other liabilities

(737

)

(98

)

Net cash provided by operating activities

5,082

10,443

 
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and improvements

(13,622

)

(21,383

)

Insurance proceeds from involuntary conversion

111

-

Sale and purchase of interest rate caps, net

(14

)

-

Net cash used in investing activities

(13,525

)

(21,383

)

 
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of mortgage notes

(247,798

)

(76,416

)

Proceeds from mortgage notes

329,424

125,000

Dividends and distributions

(8,595

)

(8,538

)

Loan issuance and extinguishment costs

(5,220

)

(2,166

)

Net cash provided by financing activities

67,811

37,880

 
Net increase in cash and cash equivalents and restricted cash

59,368

26,940

Cash and cash equivalents and restricted cash - beginning of period

56,932

45,864

Cash and cash equivalents and restricted cash - end of period

$

116,300

$

72,804

 
Cash and cash equivalents and restricted cash - beginning of period:
Cash and cash equivalents

$

42,500

$

37,028

Restricted cash

14,432

8,836

Total cash and cash equivalents and restricted cash - beginning of period

$

56,932

$

45,864

 
Cash and cash equivalents and restricted cash - end of period:
Cash and cash equivalents

$

88,253

$

56,349

Restricted cash

28,047

16,455

Total cash and cash equivalents and restricted cash - end of period

$

116,300

$

72,804

 
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest of $679 and $3,761 in 2020 and 2019, respectively

$

19,482

$

17,193

Non-cash interest capitalized to real estate under development

546

678

Additions to investment in real estate included in accounts payable and accrued liabilities

4,045

7,940

Clipper Realty Inc.
Reconciliation of Non-GAAP Measures
(In thousands, except per share data)
(Unaudited)

Non-GAAP Financial Measures

We disclose and discuss funds from operations (“FFO”), adjusted funds from operations (“AFFO”), adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and net operating income (“NOI”) all of which meet the definition of “non-GAAP financial measure” set forth in Item 10(e) of Regulation S-K promulgated by the SEC.

While management and the investment community in general believe that presentation of these measures provides useful information to investors, neither FFO, AFFO, Adjusted EBITDA, nor NOI should be considered as an alternative to net income (loss) or income from operations as an indication of our performance. We believe that to understand our performance further, FFO, AFFO, Adjusted EBITDA, and NOI should be compared with our reported net income or income from operations and considered in addition to cash flows computed in accordance with GAAP, as presented in our consolidated financial statements.

Funds From Operations and Adjusted Funds From Operations

FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and impairment adjustments, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO is consistent with FFO as defined by NAREIT.

AFFO is defined by us as FFO excluding amortization of identifiable intangibles incurred in property acquisitions, straight-line rent adjustments to revenue from long-term leases, amortization costs incurred in originating debt, interest rate cap mark-to-market adjustments, amortization of non-cash equity compensation, acquisition and other costs, loss on modification/extinguishment of debt, gain on involuntary conversion and non-recurring litigation-related expenses, less recurring capital spending.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO useful in evaluating potential property acquisitions and measuring operating performance. We further consider AFFO useful in determining funds available for payment of distributions. Neither FFO nor AFFO represent net income or cash flows from operations computed in accordance with GAAP. You should not consider FFO and AFFO to be alternatives to net income (loss) as reliable measures of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (computed in accordance with GAAP) as measures of liquidity.

Neither FFO nor AFFO measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities computed in accordance with GAAP. Further, FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO and AFFO.

The following table sets forth a reconciliation of FFO and AFFO for the periods presented to net loss, computed in accordance with GAAP (amounts in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

FFO
Net loss

$

(5,505

)

$

(1,158

)

$

(6,311

)

$

(1,291

)

Real estate depreciation and amortization

5,872

4,590

11,430

9,139

FFO

$

367

$

3,432

$

5,119

$

7,848

 
 
AFFO
FFO

$

367

$

3,432

$

5,119

$

7,848

Amortization of real estate tax intangible

121

120

240

239

Amortization of above- and below-market leases

(129

)

(406

)

(228

)

(830

)

Straight-line rent adjustments

192

182

393

816

Amortization of debt origination costs

304

424

608

928

Amortization of LTIP awards

536

704

693

860

Loss on modification/extinguishment of debt

4,228

1,771

4,228

1,771

Gain on involuntary conversion

(85

)

-

(85

)

-

Non-recurring litigation-related expenses

160

-

424

-

Recurring capital spending

(238

)

(127

)

(383

)

(280

)

AFFO

$

5,456

$

6,100

$

11,009

$

11,352

AFFO Per Share/Unit

$

0.12

$

0.14

$

0.25

$

0.26

Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization

We believe that Adjusted EBITDA is a useful measure of our operating performance. We define Adjusted EBITDA as net income (loss) before allocation to non-controlling interests, plus real estate depreciation and amortization, amortization of identifiable intangibles, straight-line rent adjustments to revenue from long-term leases, amortization of non-cash equity compensation, interest expense (net), acquisition and other costs, loss on modification/extinguishment of debt and non-recurring litigation-related expenses, less gain on involuntary conversion.

We believe that this measure provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We consider Adjusted EBITDA to be a meaningful financial measure of our core operating performance.

However, Adjusted EBITDA should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating Adjusted EBITDA, and accordingly, our Adjusted EBITDA may not be comparable to that of other REITs.

The following table sets forth a reconciliation of Adjusted EBITDA for the periods presented to net loss, computed in accordance with GAAP (amounts in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Adjusted EBITDA
Net loss

$

(5,505

)

$

(1,158

)

$

(6,311

)

$

(1,291

)

Real estate depreciation and amortization

5,872

4,590

11,430

9,139

Amortization of real estate tax intangible

121

120

240

239

Amortization of above- and below-market leases

(129

)

(406

)

(228

)

(830

)

Straight-line rent adjustments

192

182

393

816

Amortization of LTIP awards

536

704

693

860

Interest expense, net

9,979

8,210

19,767

16,484

Loss on modification/extinguishment of debt

4,228

1,771

4,228

1,771

Gain on involuntary conversion

(85

)

-

(85

)

-

Non-recurring litigation-related expenses

160

-

424

-

Adjusted EBITDA

$

15,369

$

14,013

$

30,551

$

27,188

Net Operating Income

We believe that NOI is a useful measure of our operating performance. We define NOI as income from operations plus real estate depreciation and amortization, general and administrative expenses, acquisition and other costs, amortization of identifiable intangibles and straight-line rent adjustments to revenue from long-term leases. We believe that this measure is widely recognized and provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We use NOI to evaluate our performance because NOI allows us to evaluate the operating performance of our company by measuring the core operations of property performance and capturing trends in rental housing and property operating expenses. NOI is also a widely used metric in valuation of properties.

However, NOI should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to that of other REITs.

The following table sets forth a reconciliation of NOI for the periods presented to income from operations, computed in accordance with GAAP (amounts in thousands):

Three Months Ended June 30,

Six Months Ended June 30

2020

2019

2020

2019

NOI
Income from operations

$

8,617

$

8,823

$

17,599

$

16,964

Real estate depreciation and amortization

5,872

4,590

11,430

9,139

General and administrative expenses

2,594

2,579

4,917

4,247

Amortization of real estate tax intangible

121

120

240

239

Amortization of above- and below-market leases

(129

)

(406

)

(228

)

(830

)

Straight-line rent adjustments

192

182

393

816

NOI

$

17,267

$

15,888

$

34,351

$

30,575

Contacts:

Michael Frenz
Chief Financial Officer
(718) 438-2804 x2274
M: (917) 576-7750
mfrenz@clipperrealty.com

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