Clipper Realty Inc. — Q2 2022 Form 10-Q
Business context and reporting period
Clipper Realty is a New York City-focused REIT with residential and commercial properties in Manhattan and Brooklyn, including two properties under redevelopment. This unaudited filing covers the three and six months ended June 30, 2022; amounts below are in millions unless noted.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $31.9 | $30.7 | $63.9 | $61.3 |
| Income from operations | $7.1 | $7.0 | $13.6 | $13.1 |
| Net loss | $(3.0) | $(3.2) | $(6.4) | $(10.4) |
| Net loss attributable to common stockholders | $(1.1) | $(1.2) | $(2.4) | $(3.9) |
| Basic and diluted loss per share | $(0.08) | $(0.09) | $(0.18) | $(0.27) |
- Six-month operating cash flow was $11.7, versus $9.0 a year earlier. Investing used $30.9, mainly for development and land acquisition; financing provided $10.9. Cash and restricted cash together declined $8.3 to $44.0.
- At June 30, cash and cash equivalents were $29.4 and restricted cash was $14.5. Debt principal was $1,163.8 gross ($1,152.3 net of unamortized issuance costs); total assets were $1,233.1 and total equity was $50.2.
- Scheduled principal payments include $38.1 in the remainder of 2022, $2.3 in 2023 and $37.3 in 2024. The Dean Street loan, with a $37.0 balance, matures in December 2022 and has two six-month extension options.
- Management reported 98% leased occupancy at June 30 and a 97.3% rent collection rate for Q2. The City of New York represented 24% of revenue in both Q2 and the first half of 2022.
Changes versus prior comparable periods
- Q2 revenue increased 4.0%; residential rental income rose 4.7% and commercial rental income 2.1%. For the first half, revenue rose 4.3%, including a 9.6% increase in commercial rental income.
- Q2 operating income was nearly unchanged, while first-half operating income increased 3.4%. Net loss improved in both periods; the first-half comparison also reflects a $3.0 debt-extinguishment loss recorded in 2021.
- First-half property operating expenses fell 8.8%, partly because bad-debt costs were presented differently after the company adopted ASC 842. Real estate taxes and insurance rose 7.8%, general and administrative expenses rose 20.5%, and depreciation and amortization rose 7.4%.
- First-half FFO was $7.0 versus $2.2; AFFO was $9.5 versus $7.1; and Adjusted EBITDA was $29.0 versus $27.2. These are company-presented non-GAAP measures and are not substitutes for GAAP results or cash flow.
Outlook, risks and unusual items
- Management said cash from operations and cash on hand, together with additional mortgage debt, should be sufficient to support operations, contractual obligations and distributions for at least the next 12 months. It cautioned that future refinancing may not be available on favorable terms or at all. No numerical earnings or revenue guidance was provided.
- The company is developing 1010 Pacific Street and Dean Street; first-half capital expenditures, including acquisitions, were $32.6, versus $11.9 in 2021. The company purchased additional Dean Street parcels in February and April 2022.
- Variable-rate debt was $71.9; management estimated a 1 percentage-point rate change would affect annual net loss by about $0.7. The company reported no interest-rate caps on outstanding debt.
- COVID-19-related tenant and market uncertainty remains a risk. Commercial tenants had $1.5 of rent deferrals outstanding at June 30. Management also cited New York market concentration, rent regulation, occupancy and refinancing risks.
- The company adopted ASC 842 in Q1 2022 and recorded a $6.0 cumulative-effect adjustment to equity. It wrote off receivables not considered probable of collection and recorded revenue reductions of $1.5 in the first half under the new collectability approach.
- In the Kuzmich rent-overcharge case, the court set tenant overcharges at $1.2 and attorneys’ fees at $0.4. These amounts were included in a $2.7 charge recorded in Q4 2021 and accrued at June 30, 2022. Related claims by other tenant groups remain disclosed.
- Management stated disclosure controls were effective at a reasonable assurance level as of June 30, 2022, with no material changes in internal control identified during the quarter. The filing’s forward-looking risk discussion references a previously identified material weakness and financial-statement restatement.
Key facts for investors to verify
- Progress, remaining costs and financing needs for the 1010 Pacific Street and Dean Street developments.
- Repayment or extension of the Dean Street loan and refinancing requirements for upcoming maturities; sensitivity to rising rates on variable-rate debt.
- Occupancy, collections, rent deferrals and the financial exposure from rent-stabilization litigation or related claims.
- How the ASC 842 collectability policy and its cumulative adjustment affect reported rental income, receivables and comparability.
- Liquidity after capital spending, debt service and distributions, and the basis for management’s 12-month liquidity assessment.