Clipper Realty Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. Clipper Realty owns and operates residential and commercial properties in Manhattan and Brooklyn and is organized as a REIT.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $30.651 million | $31.315 million | Down 2.1% |
| Operating income | $6.117 million | $9.411 million | Down 35.0% |
| Net loss | $7.134 million | $0.377 million | Loss widened |
| Net loss attributable to common stockholders | $2.704 million | $0.152 million | Loss widened |
| Basic and diluted loss per share | $0.18 | $0.01 | Loss per share increased |
| Cash from operating activities | $7.437 million | $9.050 million | Down $1.613 million |
| Capital additions to real estate | $7.745 million | $7.101 million | Cash used in investing |
Operating margin was approximately 20.0%, versus 30.1% in Q1 2020. The company reported non-GAAP FFO of negative $0.907 million (prior-year positive $5.181 million), AFFO of $3.078 million (down from $5.554 million), Adjusted EBITDA of $13.037 million (down from $15.183 million), and NOI of $14.785 million (down from $17.084 million).
At March 31, 2021, cash and cash equivalents were $87.952 million and restricted cash was $18.244 million. Debt was $1.115 billion before unamortized issuance costs and $1.104 billion net of those costs. Total liabilities were $1.130 billion and total equity was $93.275 million. Financing activities generated $17.472 million, primarily from the 141 Livingston Street refinancing; cash and restricted cash together increased to $106.196 million.
Material changes versus Q1 2020
- Residential rental income declined 8.9% to $21.604 million, primarily reflecting lower rents and occupancy at Tribeca House. Its base rent per square foot fell from $70.75 to $62.43; leased occupancy was 96.5% at quarter-end versus 99.6% a year earlier.
- Commercial rental income rose 19.1% to $9.047 million, mainly due to a new lease at 250 Livingston Street, partly offset by lease terminations at Tribeca House.
- Property operating expenses increased 20.7% to $8.642 million, primarily from higher bad debt provisions and utility costs. Real estate taxes and insurance rose 6.5%, and depreciation and amortization increased 12.0%.
- Interest expense rose 4.4% to $10.217 million. The company also recorded a $3.034 million loss on extinguishment of debt related to refinancing 141 Livingston Street.
- Commercial segment operating income increased to $4.430 million from $3.613 million; residential segment operating income fell to $1.687 million from $5.798 million.
Outlook, risks, contingencies and unusual items
- Management reported a Q1 rent collection rate of 96.2% and portfolio occupancy of 95% leased at March 31. It said properties remained operational and expects the portfolio and New York City market to remain desirable, with operations returning toward normal over time. No quantified earnings or revenue guidance was provided.
- Management believes cash on hand and operating cash flow, together with additional mortgage debt, should support operations, contractual obligations and distributions for at least 12 months; it cautioned that future refinancing may not be available on favorable terms or at all.
- COVID-19 continued to affect residential demand, occupancy and rents, particularly at Tribeca House. Commercial tenants had $0.9 million of rent deferrals outstanding at quarter-end. Further rent restructurings, lower occupancy and difficulty finding replacement tenants remain risks.
- A $20.6 million variable-rate loan at 1010 Pacific Street matured June 24, 2021. The company was negotiating a construction-loan refinancing, but gave no assurance it could complete one before maturity. The property was under redevelopment.
- Rent-stabilization litigation concerning Tribeca House could result in rent overcharges and attorneys’ fees. An appellate ruling was expected to limit potential exposure, but the amount remained undetermined; the company recorded no liability. Related claims by additional tenants were also pending.
- Disclosure controls were deemed ineffective because of an unremediated material weakness involving accounting for straight-line rent after reassessment of a commercial lease term. The company was implementing remediation procedures.
- After quarter-end, CFO Michael Frenz announced his resignation effective May 11, 2021, with former CFO Lawrence Kreider scheduled to return to the role.
- In Q1, the company paid $404,000 in legal and advisory fees to firms in which two directors were principals or partners, versus $5,000 in Q1 2020.
Most important facts for investors to verify
- Progress and terms of the 1010 Pacific Street refinancing, given its June 2021 maturity and redevelopment needs.
- Rent trends, occupancy, collections and bad debt—especially at Tribeca House—as pandemic effects evolve.
- Potential liability and timing in the rent-stabilization cases, including any additional tenant claims.
- Remediation of the material weakness and whether disclosure controls become effective.
- Debt-service capacity and access to refinancing or new capital in light of the company’s debt and limited equity relative to total assets.
- The recurring cash-flow effect of distributions, capital spending and related-party legal and advisory fees.