Clipper Realty Inc. Announces Second Quarter 2019 Results

Reports Record Revenues, Net Operating Income and Adjusted Funds From Operations

Clipper Realty Inc. 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 June 30, 2019.

Highlights for the Three Months Ended June 30, 2019

• Achieved record quarterly revenues of $28.4 million for the second quarter of 2019, representing an increase of 4.2% compared to the same period in 2018. Residential rental income increased 8.6% and 6.7% at the Flatbush Gardens and Tribeca House properties, respectively
• Recorded quarterly income from operations of $8.8 million for the second quarter of 2019, representing an increase of 6.1% compared to the same period in 2018
• Achieved record quarterly net operating income ("NOI")¹ of $15.9 million for the second quarter of 2019, representing an increase of 4.2% compared to the same period in 2018
• Recorded quarterly net loss of $1.2 million for the second quarter of 2019 or $0.6 million of net income excluding a non-recurring $1.8 million loss on extinguishment of debt, representing an increase of 99.0% compared to the same period in 2018
• Achieved record quarterly adjusted funds from operations ("AFFO")¹ of $6.1 million for the second quarter of 2019, representing an increase of 11.9% compared to the same period in 2018
• Declared a dividend of $0.095 per share for the second quarter of 2019

David Bistricer, Co-Chairman and Chief Executive Officer, commented,

"We are very pleased with our second quarter 2019 results, with solid revenue growth reflecting the quality of our portfolio and the operational excellence of our team. With strong management and prudent capital improvements, we believe our properties will deliver meaningful cash flow growth over time. As we progress through 2019 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. We are currently bringing the 107 Columbia Heights property on-line, and have also completed the renovation and leasing of all forty units at the 10 West 65^th Street property vacated by Touro College at the end of January. In addition, as previously disclosed, we now have a fully executed lease with the City of New York for renewal of its commercial leases at the 250 Livingston Street property, which will commence upon expiration of the current leases in August 2020 and is expected to initially add approximately $5.0 million to the property's annual net operating income; in connection with the new lease, we refinanced the property, drawing down an additional $50 million on a ten-year loan at a very attractive 3.63% fixed rate. Lastly, we are pleased to announce that we have filed a Uniform Land Use Review Procedure application with the City regarding the previously disclosed proposed expansion project at the Flatbush Gardens property."

Financial Results

For the second quarter of 2019, revenues grew by $1.1 million, or 4.2%, to $28.4 million, compared to $27.3 million for the second 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 8.6% and 6.7%, respectively, compared to the same period in 2018. These increases were partially offset by a $0.4 million decrease in residential rental income at the 10 West 65^th Street property compared to the second quarter of 2018, resulting from the repositioning of forty units previously leased to the building's prior owner. Commercial rental income grew by $0.1 million, or 1.3%, to $7.3 million, compared to $7.2 million for the second quarter of 2018.

For the second quarter of 2019, net loss was $1.2 million, or $0.03 per share; excluding a non-recurring $1.8 million loss on extinguishment of debt, net income was $0.6 million, or $0.01 per share, compared to net income of $0.3 million, or $0.00 per share, for the second quarter of 2018. The improvement was primarily attributable to the revenue increases discussed above and lower general and administrative expenses, partially offset by higher property taxes, higher depreciation and amortization expense, and higher interest expense (including non-cash loan cost amortization) from the refinancing of the 250 Livingston Street property in May 2019 and December 2018.

For the second quarter of 2019, AFFO was $6.1 million, or $0.14 per share, compared to $5.4 million, or $0.12 per share, for the second quarter of 2018. The increase was primarily attributable to the revenue increases discussed above and lower general and administrative expenses, partially offset by higher property taxes.

Balance Sheet

At June 30, 2019, notes payable (excluding unamortized loan costs) was $974.2 million, compared to $925.6 million at December 31, 2018; the increase reflected the refinancing of the 250 Livingston Street property in May, partially offset by scheduled principal amortization.

Capital Expenditures

The Company continued to strategically develop its properties during the first half of the year, selectively repositioning assets and driving ongoing rent growth. For the second quarter of 2019, the Company incurred $12.8 million of capital expenditures, compared to $9.9 million for the same period in 2018. The majority of these expenditures were related to renovation projects at the 107 Columbia Heights property; since acquisition, the Company has funded $5.7 million of the expenditures under a $14.7 million construction loan. Other capital projects included elevator upgrades at the Tribeca House property, unit upgrades at the Tribeca House and 10 West 65^th Street properties, and expenditures to comply with various New York City local laws.

Dividend

The Company today declared a second quarter dividend of $0.095 per share to shareholders of record on August 13, 2019, payable August 21, 2019.

Conference Call and Supplemental Material

The Company will host a conference call on August 1, 2019, at 5:00 PM Eastern Time to discuss the second quarter 2019 results. The conference call can be accessed by dialing (800) 346-7359 or (973) 528-0008, conference entry code 336251. A replay of the call will be available from August 1, 2019, following the call, through August 15, 2019, by dialing (800) 332-6854 or (973) 528-0005, replay conference ID 336251. 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. 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 and loss on extinguishment of debt, 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) and loss on extinguishment of debt.

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):

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