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Clipper Realty Inc. Announces Third Quarter 2019 Results

November 12, 2019

NEW YORK--(BUSINESS WIRE)--Nov 12, 2019--

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 September 30, 2019.

Highlights for the Three Months Ended September 30, 2019

The Company also announced today (i) the refinancing of its Clover House property, and (ii) the acquisition of property located at 1010 Pacific Street in Brooklyn, to be redeveloped as a multifamily rental building.

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

“We are very pleased with our third quarter 2019 results, with ongoing solid revenue growth reflecting the quality of our portfolio and the operational excellence of our team, and proud that our portfolio is 99% leased. With strong management and prudent capital improvements, we believe our properties will deliver meaningful cash flow growth over time. As we approach year-end and beyond, we remain focused on executing our strategic initiatives, including expertly operating our high-quality portfolio, driving cash flow, enhancing efficiencies through asset repositioning and increasing scale, to create long-term value for our shareholders. As previously disclosed, our Clover House property reached stabilization following a three-month lease-up period; we are pleased to announce that we have refinanced the property with an $82 million, ten-year, fixed rate, interest-only loan. The Company’s entire outstanding debt balance is now fixed at a blended 3.9% interest rate. We are also excited to acquire 1010 Pacific Street, adjacent to downtown Brooklyn, which we plan to redevelop as a fully amenitized, 119,000 rentable square foot residential building, further expanding our high-quality portfolio.”

Financial Results

For the third quarter of 2019, revenues grew by $1.5 million, or 5.3%, to $29.4 million, compared to $27.9 million for the third quarter of 2018. The growth was primarily attributable to improvements in rental rates and occupancy at the Flatbush Gardens and Tribeca House properties, which had residential rental income increases of 7.0% and 3.5%, respectively, compared to the same period in 2018, and bringing the Clover House property online during the quarter. Commercial rental income grew 0.7% to $7.3 million for the third quarter of 2019.

For the third quarter of 2019, net loss was $0.2 million, or $0.01 per share, compared to net income of $1.3 million, or $0.02 per share ($1.1 million, or $0.02 per share, excluding a non-recurring $0.2 million gain on involuntary conversion), for the third quarter of 2018. 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 (inclusive of the impact of bringing the Clover House property online during the quarter), and higher interest expense from the refinancings of the 250 Livingston Street property in May 2019 and December 2018.

For the third quarter of 2019, AFFO was $5.4 million, or $0.12 per share, compared to $5.8 million, or $0.13 per share, for the third quarter of 2018. 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 September 30, 2019, notes payable (excluding unamortized loan costs) was $973.5 million, compared to $925.6 million at December 31, 2018; the increase reflected the refinancing of the 250 Livingston Street property in May 2019, partially offset by scheduled principal amortization.

Clover House Refinancing

On November 8, 2019, the Company refinanced the debt on its Clover House property with an $82 million, ten-year, fixed rate, interest-only secured first mortgage loan. With the proceeds, the Company repaid the existing loans on the property totaling $64.7 million due May 2020, which bore interest at a one-month LIBOR plus 3.85% annual rate. Net remaining proceeds of $16 million increased the Company’s cash position. The refinancing is expected to reduce annual interest expense by approximately $0.7 million, based on current rates.

1010 Pacific Street Acquisition and Redevelopment

On November 8, 2019, the Company acquired property located at 1010 Pacific Street in Brooklyn, New York, for $31 million. The property is located adjacent to downtown Brooklyn, approximately one mile from the Atlantic Terminal/Barclays Center hub. The Company plans to redevelop the property as a nine-story, fully amenitized multifamily rental building, including indoor parking, with approximately 119,000 rentable square feet. The building is expected to have 175 total residential units, 70% of which will be free-market and 30% affordable; the property is eligible for a thirty-five year 421(a) tax abatement due to the affordable component. The construction process is estimated to take approximately two years.

Capital Expenditures

The Company continued to strategically develop its properties, selectively repositioning assets and driving ongoing rent growth. For the third quarter of 2019, the Company incurred $13.0 million of capital expenditures, compared to $10.1 million for the same period in 2018. The majority of these expenditures were related to renovation projects at the Clover House property; since acquisition, the Company funded $5.7 million of the expenditures under a $14.7 million construction loan. Other capital projects included unit upgrades at the Tribeca House property.

Dividend

The Company today declared a third quarter dividend of $0.095 per share to shareholders of record on November 25, 2019, payable December 3, 2019.

Conference Call and Supplemental Material

The Company will host a conference call on November 12, 2019, at 5:30 PM Eastern Time to discuss the third quarter 2019 results. The conference call can be accessed by dialing (800) 346-7359 or (973) 528-0008, conference entry code 371156. A replay of the call will be available from November 12, 2019, following the call, through November 26, 2019, by dialing (800) 332-6854 or (973) 528-0005, replay conference ID 371156. Supplemental data to this 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 (“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 the amount of 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, 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 Annual Report on Form 10-K for the year ended December 31, 2018, 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)
 
September 30,
2019
December 31,
2018

(unaudited)

ASSETS
Investment in real estate
Land and improvements

$

540,859

 

$

497,343

 

Building and improvements

 

597,600

 

 

479,360

 

Tenant improvements

 

3,051

 

 

3,051

 

Furniture, fixtures and equipment

 

11,659

 

 

10,978

 

Real estate under development

 

-

 

 

125,467

 

Total investment in real estate

 

1,153,169

 

 

1,116,199

 

Accumulated depreciation

 

(103,958

)

 

(90,462

)

Investment in real estate, net

 

1,049,211

 

 

1,025,737

 

 
Cash and cash equivalents

 

43,552

 

 

37,028

 

Restricted cash

 

17,084

 

 

8,836

 

Tenant and other receivables, net of allowance for doubtful accounts

 

4,979

 

 

3,580

 

of $3,162 and $2,624, respectively
Deferred rent

 

1,485

 

 

2,485

 

Deferred costs and intangible assets, net

 

9,053

 

 

9,964

 

Prepaid expenses and other assets

 

12,954

 

 

13,378

 

TOTAL ASSETS

$

1,138,318

 

$

1,101,008

 

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

$

963,218

 

$

913,564

 

of $10,268 and $12,049, respectively
Accounts payable and accrued liabilities

 

12,252

 

 

12,550

 

Security deposits

 

7,569

 

 

6,637

 

Below-market leases, net

 

1,754

 

 

2,923

 

Other liabilities

 

5,141

 

 

3,849

 

TOTAL LIABILITIES

 

989,934

 

 

939,523

 

 
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 and 17,812,755 shares issued and outstanding, respectively
Additional paid-in-capital

 

93,332

 

 

92,945

 

Accumulated deficit

 

(33,612

)

 

(27,941

)

Total stockholders' equity

 

59,898

 

 

65,182

 

 
Non-controlling interests

 

88,486

 

 

96,303

 

TOTAL EQUITY

 

148,384

 

 

161,485

 

 
TOTAL LIABILITIES AND EQUITY

$

1,138,318

 

$

1,101,008

 

 
Clipper Realty Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30,Nine Months Ended September 30,

2019

2018

2019

2018

 
REVENUES
Residential rental income

$

22,117

 

$

20,675

 

$

64,035

 

$

60,449

 

Commercial rental income

 

7,323

 

 

7,273

 

 

21,503

 

 

21,667

 

TOTAL REVENUES

 

29,440

 

 

27,948

 

 

85,538

 

 

82,116

 

 
OPERATING EXPENSES
Property operating expenses

 

7,357

 

 

6,806

 

 

21,667

 

 

20,643

 

Real estate taxes and insurance

 

6,740

 

 

5,824

 

 

18,178

 

 

16,534

 

General and administrative

 

1,904

 

 

1,858

 

 

6,151

 

 

7,602

 

Depreciation and amortization

 

4,929

 

 

4,351

 

 

14,068

 

 

13,382

 

TOTAL OPERATING EXPENSES

 

20,930

 

 

18,839

 

 

60,064

 

 

58,161

 

 
INCOME FROM OPERATIONS

 

8,510

 

 

9,109

 

 

25,474

 

 

23,955

 

 
Interest expense, net

 

(8,692

)

 

(8,052

)

 

(25,176

)

 

(24,603

)

Loss on extinguishment of debt

 

-

 

 

-

 

 

(1,771

)

 

(6,981

)

Gain on involuntary conversion

 

-

 

 

194

 

 

-

 

 

194

 

 
Net (loss) income

 

(182

)

 

1,251

 

 

(1,473

)

 

(7,435

)

 
Net loss (income) attributable to non-controlling interests

 

109

 

 

(746

)

 

879

 

 

4,434

 

Net (loss) income attributable to common stockholders

$

(73

)

$

505

 

$

(594

)

$

(3,001

)

 
Basic and diluted net (loss) income per share

$

(0.01

)

$

0.02

 

$

(0.05

)

$

(0.18

)

 
Weighted average common shares / OP units
Common shares outstanding

 

17,815

 

 

17,813

 

 

17,814

 

 

17,813

 

OP units outstanding

 

26,317

 

 

26,317

 

 

26,317

 

 

26,317

 

Diluted shares outstanding

 

44,132

 

 

44,130

 

 

44,131

 

 

44,130

 

 
Clipper Realty Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
.

2019

2018

 
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss

$

(1,473

)

$

(7,435

)

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

 

13,496

 

 

12,330

 

Amortization of deferred financing costs

 

1,263

 

 

984

 

Amortization of deferred costs and intangible assets

 

933

 

 

1,407

 

Amortization of above- and below-market leases

 

(1,080

)

 

(1,438

)

Loss on extinguishment of debt

 

1,771

 

 

6,981

 

Gain on involuntary conversion

 

-

 

 

(194

)

Deferred rent

 

1,000

 

 

771

 

Stock-based compensation

 

1,185

 

 

1,670

 

Change in fair value of interest rate caps

 

-

 

 

(237

)

Changes in operating assets and liabilities:
Tenant and other receivables

 

(1,399

)

 

3,310

 

Prepaid expenses, other assets and deferred costs

 

1,839

 

 

2,295

 

Accounts payable and accrued liabilities

 

(1,369

)

 

1,898

 

Security deposits

 

932

 

 

783

 

Other liabilities

 

1,292

 

 

682

 

Net cash provided by operating activities

 

18,390

 

 

23,807

 

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

 

(34,962

)

 

(28,455

)

Insurance proceeds from involuntary conversion

 

-

 

 

226

 

Sale and purchase of interest rate caps

 

-

 

 

385

 

Acquisition deposit

 

(1,550

)

 

-

 

Net cash used in investing activities

 

(36,512

)

 

(27,844

)

 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds and costs from sale of common stock

 

-

 

 

(7

)

Payments of mortgage notes

 

(77,127

)

 

(580,866

)

Proceeds from mortgage notes

 

125,000

 

 

609,439

 

Dividends and distributions

 

(12,813

)

 

(12,776

)

Loan issuance and extinguishment costs

 

(2,166

)

 

(8,338

)

Net cash provided by financing activities

 

32,894

 

 

7,452

 

 
Net increase in cash and cash equivalents and restricted cash

 

14,772

 

 

3,415

 

Cash and cash equivalents and restricted cash - beginning of period

 

45,864

 

 

21,670

 

Cash and cash equivalents and restricted cash - end of period

$

60,636

 

$

25,085

 

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

$

37,028

 

$

7,940

 

Restricted cash

 

8,836

 

 

13,730

 

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

$

45,864

 

$

21,670

 

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

$

43,552

 

$

12,372

 

Restricted cash

 

17,084

 

 

12,713

 

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

$

60,636

 

$

25,085

 

 
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest of $5,261 and $4,054 in 2019 and 2018, respectively

$

26,214

 

$

23,582

 

Non-cash interest capitalized to real estate under development

 

937

 

 

888

 

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

 

7,069

 

 

6,920

 

 
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 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, loss on extinguishment of debt, gain on involuntary conversion and non-recurring litigation-related expenses, less recurring capital expenditures.

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 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) income before allocation to non-controlling interests, computed in accordance with GAAP (amounts in thousands):

 
Three Months Ended September 30,Nine Months Ended September 30,

2019

2018

2019

2018

FFO
Net (loss) income

$

(182

)

$

1,251

 

$

(1,473

)

$

(7,435

)

Real estate depreciation and amortization

 

4,929

 

 

4,351

 

 

14,068

 

 

13,382

 

FFO

$

4,747

 

$

5,602

 

$

12,595

 

$

5,947

 

 
 
AFFO
FFO

$

4,747

 

$

5,602

 

$

12,595

 

$

5,947

 

Amortization of real estate tax intangible

 

122

 

 

119

 

 

361

 

 

355

 

Amortization of above- and below-market leases

 

(250

)

 

(479

)

 

(1,080

)

 

(1,438

)

Straight-line rent adjustments

 

184

 

 

258

 

 

1,000

 

 

771

 

Amortization of debt origination costs

 

334

 

 

232

 

 

1,263

 

 

984

 

Interest rate cap mark-to-market adjustments

 

0

 

 

-

 

 

0

 

 

(237

)

Amortization of LTIP awards

 

325

 

 

411

 

 

1,185

 

 

1,670

 

Loss on extinguishment of debt

 

-

 

 

-

 

 

1,771

 

 

6,981

 

Gain on involuntary conversion

 

-

 

 

(194

)

 

-

 

 

(194

)

Non-recurring litigation-related expenses

 

87

 

 

-

 

 

87

 

 

-

 

Recurring capital spending

 

(126

)

 

(184

)

 

(405

)

 

(426

)

AFFO

$

5,423

 

$

5,765

 

$

16,777

 

$

14,413

 

AFFO Per Share/Unit

$

0.12

 

$

0.13

 

$

0.38

 

$

0.33

 

 

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), loss on 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) income before allocation to non-controlling interests, computed in accordance with GAAP (amounts in thousands):

Three Months Ended September 30,Nine Months Ended September 30,

2019

2018

2019

2018

Adjusted EBITDA
Net (loss) income

$

(182

)

$

1,251

 

$

(1,473

)

$

(7,435

)

Real estate depreciation and amortization

 

4,929

 

 

4,351

 

 

14,068

 

 

13,382

 

Amortization of real estate tax intangible

 

122

 

 

119

 

 

361

 

 

355

 

Amortization of above- and below-market leases

 

(250

)

 

(479

)

 

(1,080

)

 

(1,438

)

Straight-line rent adjustments

 

184

 

 

258

 

 

1,000

 

 

771

 

Amortization of LTIP awards

 

325

 

 

411

 

 

1,185

 

 

1,670

 

Interest expense, net

 

8,692

 

 

8,052

 

 

25,176

 

 

24,603

 

Loss on extinguishment of debt

 

-

 

 

-

 

 

1,771

 

 

6,981

 

Gain on involuntary conversion

 

-

 

 

(194

)

 

-

 

 

(194

)

Non-recurring litigation-related expenses

 

87

 

 

-

 

 

87

 

 

-

 

Adjusted EBITDA

$

13,907

 

$

13,769

 

$

41,095

 

$

38,695

 

 

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, 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 September 30,Nine Months Ended September 30,

2019

2018

2019

2018

NOI
Income from operations

$

8,510

 

$

9,109

 

$

25,474

 

$

23,955

 

Real estate depreciation and amortization

 

4,929

 

 

4,351

 

 

14,068

 

 

13,382

 

General and administrative expenses

 

1,904

 

 

1,858

 

 

6,151

 

 

7,602

 

Amortization of real estate tax intangible

 

122

 

 

119

 

 

361

 

 

355

 

Amortization of above- and below-market leases

 

(250

)

 

(479

)

 

(1,080

)

 

(1,438

)

Straight-line rent adjustments

 

184

 

 

258

 

 

1,000

 

 

771

 

NOI

$

15,399

 

$

15,216

 

$

45,974

 

$

44,627

 

 

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20191112006007/en/

CONTACT: Michael Frenz

Chief Financial Officer

(718) 438-2804 x2274

M: (917) 576-7750

mfrenz@clipperrealty.com

KEYWORD: UNITED STATES NORTH AMERICA NEW YORK

INDUSTRY KEYWORD: PROFESSIONAL SERVICES RESIDENTIAL BUILDING & REAL ESTATE COMMERCIAL BUILDING & REAL ESTATE FINANCE CONSTRUCTION & PROPERTY REIT BANKING

SOURCE: Clipper Realty Inc.

Copyright Business Wire 2019.

PUB: 11/12/2019 04:05 PM/DISC: 11/12/2019 04:06 PM

http://www.businesswire.com/news/home/20191112006007/en