Clipper Realty Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 14, 2024. Clipper Realty is a REIT operating residential and commercial properties in Manhattan and Brooklyn. Its nine-property portfolio totaled approximately 3.37 million rentable square feet and was 97.7% leased at year-end; eight properties generated revenue during 2023.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $138.2 million | $129.7 million |
| Operating income | $33.2 million | $27.6 million |
| Net loss | $15.6 million | $12.6 million |
| Net loss attributable to common stockholders | $5.9 million; $0.45 per share | $4.8 million; $0.36 per share |
| Net cash from operating activities | $26.2 million | $20.1 million |
| Net cash used in investing activities | $41.4 million | $51.5 million |
| Net cash from financing activities | $20.7 million | $9.8 million |
| FFO / AFFO | $13.4 million / $22.6 million | $14.4 million / $19.2 million |
| Adjusted EBITDA / NOI | $66.1 million / $76.3 million | $58.5 million / $68.2 million |
Residential rental income rose 10.5% to $99.7 million; commercial rental income declined 2.5% to $38.5 million. Management attributed residential growth mainly to higher rents. Operating margin, calculated as operating income divided by revenue, was approximately 24.0%, up from 21.3%; NOI margin was approximately 55.2%, up from 52.5%. These are calculated measures, not company-reported GAAP margins.
Interest expense rose to $44.9 million from $40.2 million. Results also included a $3.9 million loss on modification/extinguishment of debt related to refinancing the 1010 Pacific construction loan. The reported net loss widened; excluding 1010 Pacific for comparability, management reported a $13.1 million net loss versus $12.6 million in 2022.
At December 31, 2023, cash and cash equivalents were $22.2 million and restricted cash was $14.1 million. Property-level debt totaled $1.219 billion ($1.206 billion net of issuance costs); the company reported no corporate debt. Total assets were $1.249 billion and total equity was $7.2 million. The company reported a 4.2% weighted-average debt rate, while certain variable-rate borrowings carry materially higher rates. A 1 percentage-point change in rates on the reported $82 million of variable-rate debt would affect annual net income by approximately $0.8 million. No interest-rate caps were in place at year-end.
Debt principal due was $82.1 million in 2025, $45.1 million in 2026, $40.7 million in 2027 and $416.6 million in 2028. The largest disclosed maturity is the $360 million Tribeca House loan in 2028. The company stated it believes cash flows and available resources can meet near-term needs for at least 12 months, but gave no assurance that future refinancing will be available on favorable terms or at all.
Material changes and significant developments
- Revenue increased 6.5% year over year, while operating income rose 20.0%. Cash from operations increased by $6.0 million, which management attributed to improved revenue and collections and lower property-tax payments after the Flatbush Gardens agreement.
- Debt increased from $1.171 billion to $1.219 billion. Refinancings at 1010 Pacific and Dean Street contributed to 2023 financing cash inflows; refinancing costs and the 1010 Pacific debt-extinguishment loss affected results.
- On June 29, 2023, Flatbush Gardens entered a 40-year Article 11 regulatory agreement. It provides a property-tax exemption and eligibility for certain rental-assistance payments, while requiring rent and affordability commitments, prevailing wages, services for formerly homeless families, and a three-year capital-improvement plan. Improvements are estimated to cost up to $27 million; $2.1 million had been spent by year-end.
- Management reported residential occupancy remained elevated and cited rent growth at Tribeca House, Aspen and Clover House. The 1010 Pacific redevelopment was completed during 2023; Dean Street remains under development.
Outlook, risks and contingencies
- Major office-tenant risk: After year-end, the City of New York notified the company of its intention to terminate its 250 Livingston Street lease effective August 23, 2025. The lease represents approximately $15.4 million of annual rent and 342,496 square feet. The loan agreement is expected to require building revenue to be deposited into a lender-benefit cash-management account; release of excess cash depends on satisfying loan conditions. The city also leases space at 141 Livingston Street, whose lease is approaching expiration in 2025.
- Residential leases are generally short term; rent stabilization limits increases at portions of the portfolio. The company said approximately 74% of residential operating-property square footage was subject to lease expiration during 2024, including month-to-month leases. At year-end it also reported approximately 111,000 square feet of vacant residential space and 14,000 square feet of vacant retail space.
- Company-wide exposure is concentrated in New York City. Other principal risks include interest rates and refinancing, inflation and operating costs, rent regulation, development costs and execution, property damage, and dependence on a small number of properties and government tenants.
- The Article 11 capital plan’s expected costs may exceed estimates or not be fully offset by tax savings and assistance payments. The company also faces tenant rent-stabilization litigation and a New York City audit of certain operating-expense escalations; management said it believes existing reserves are adequate for the audit and that other routine claims will not have a material adverse effect.
- Management gave no specific earnings or revenue guidance. It expects to fund longer-term needs through debt and equity financing, among other sources, but cannot assure access or favorable terms. The board declared a fourth-quarter dividend of $0.095 per share, payable April 4, 2024. 2023 distributions totaled $17.4 million; 90% of distributions were characterized as return of capital for federal tax purposes.
Most important facts for investors to verify
- Progress toward replacing the City of New York tenant at 250 Livingston Street, the lease termination and cash-management provisions, and the outlook for the 141 Livingston Street lease.
- Funding, draw conditions, interest costs and refinancing plans for the 2025 and 2028 debt maturities, especially the $360 million Tribeca House loan and the 1010 Pacific loan due in 2025.
- Actual Flatbush Gardens capital-plan costs and whether tax exemptions and government assistance offset them as expected.
- Whether residential rent growth and collections continue, and how vacancies, rent regulation and tenant claims affect revenue and cash available for distributions.
- Reconciliation of GAAP losses with FFO and AFFO, including the effects of debt costs, noncash adjustments and recurring capital spending; these non-GAAP measures are not substitutes for GAAP earnings or cash flow.