Business context and reporting period
Clipper Realty Inc. is a New York City-focused REIT owning residential and commercial properties in Manhattan and Brooklyn. This unaudited Form 10-Q covers the three months ended March 31, 2020; amounts below are in millions unless stated otherwise.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $30.9 | $27.7 |
| Income from operations | $9.0 | $8.1 |
| Operating margin | 29.1% | 29.4% |
| Net loss | ($0.8) | ($0.1) |
| Net loss attributable to common stockholders | ($0.3); ($0.02) per share | ($0.1); ($0.01) per share |
| Net cash from operating activities | $9.1 | $12.0 |
| FFO / AFFO | $4.8 / $5.6 | $4.4 / $5.3 |
| Adjusted EBITDA / NOI | $15.2 / $17.1 | $13.2 / $14.7 |
Residential rental income was $23.7 million and commercial rental income was $7.2 million. At March 31, cash and cash equivalents were $36.3 million, restricted cash $17.6 million, and notes payable net of issuance costs $997.8 million (gross principal $1,008.7 million). Total assets were $1,158.0 million and total equity $136.9 million.
Material changes versus the prior comparable period
- Revenue rose 11.7%, with residential rental income up 14.2% and commercial rental income up 4.2%. Excluding Clover House, management reported revenue growth of 5.4%, mainly from higher rents at Flatbush Gardens and Tribeca House.
- Operating expenses rose 12.3%, including increases in real estate taxes and insurance, general and administrative expense, and depreciation. Property operating expense declined.
- Interest expense increased to $9.8 million from $8.3 million, exceeding operating income in both periods. Net loss widened to $0.8 million.
- Operating cash flow declined by $2.9 million, while investing cash outflow fell to $7.1 million from $10.2 million. Distributions were approximately $4.3 million in each quarter.
Liquidity, outlook, risks and unusual items
- Management said cash flows from operations, together with additional mortgage financing, were expected to support operations, contractual obligations and distributions for at least the next 12 months, but gave no quantitative earnings or revenue guidance. It noted long-term needs are not expected to be met solely from operating cash flow and depend partly on access to debt and equity markets.
- COVID-19 created uncertainty over rent collection, occupancy, rental pricing, leasing activity, and access to capital. The company reported April 2020 rent collections equal to 94% of March collections, while saying properties remained open and operational; it could not estimate the pandemic’s ultimate effects.
- On May 8, 2020, after quarter-end, the company refinanced Flatbush Gardens’ existing loan with a $329 million, 12-year mortgage. The new loan carries 3.125% interest through May 2027 and interest-only payments through that date. The debt schedule reported at March 31 included $24.0 million of principal due during the remainder of 2020, including a $1010 Pacific Street loan maturing in December 2020, subject to a one-year extension option.
- Rent-stabilization litigation involving 50 Murray Street and 53 Park Place could result in tenant overcharge and legal-fee payments, and other tenants may bring similar claims. The company had recorded no liability; the amount and timing were undetermined. A separate claim involving 26 tenants was also pending.
- The portfolio is concentrated in Manhattan and Brooklyn. New York rent regulation, tenant payment capacity, refinancing and interest-rate exposure are material risks. Management reported no property impairment as of March 31 and no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Post-quarter rent collections, arrears, concessions and occupancy as the pandemic affects tenants and the New York market.
- Completion and terms of the $329 million Flatbush Gardens refinancing, including use of proceeds and resulting liquidity and debt-service obligations.
- Refinancing or extension plans for the 1010 Pacific Street loan and other near-term funding needs.
- Developments and potential exposure in the rent-stabilization cases, including whether a liability is later recorded.
- Ability to sustain distributions alongside capital spending and debt obligations; FFO and AFFO are non-GAAP measures and are not substitutes for cash flow.