Clipper Realty Inc. Announces Third Quarter 2019 Results

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

• Achieved record quarterly revenues of $29.4 million for the third quarter of 2019, representing an increase of 5.3% compared to the same period in 2018. Residential rental income increased 7.0% and 3.5% at the Flatbush Gardens and Tribeca House properties, respectively
• Recorded quarterly income from operations of $8.5 million for the third quarter of 2019
• Achieved quarterly net operating income ("NOI")¹ of $15.4 million for the third quarter of 2019, representing an increase of 1.2% compared to the same period in 2018
• Recorded quarterly net loss of $0.2 million for the third quarter of 2019
• Achieved quarterly adjusted funds from operations ("AFFO")¹ of $5.4 million for the third quarter of 2019
• Declared a dividend of $0.095 per share for the third quarter of 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

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):

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):

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):