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Clipper Realty Inc. Announces Second Quarter 2018 Results

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

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 June 30, 2018.

Highlights for the Three Months Ended June 30, 2018

  • Achieved quarterly revenues of $27.3 million for the second quarter
    2018, representing an increase of 7.7% compared to the same period in
    2017
  • Achieved record quarterly income from operations of $8.3 million and
    record quarterly net operating income ("NOI")1 of $15.3
    million for the second quarter 2018, representing increases of 13.6%
    and 8.8%, respectively, compared to the same period in 2017
  • Achieved record quarterly net income of $0.3 million for the second
    quarter 2018, compared to a loss of $1.6 million for the same period
    in 2017
  • Achieved record quarterly adjusted funds from operations ("AFFO")1
    of $5.4 million for the second quarter 2018, representing an increase
    of 32.9% compared to the same period in 2017
  • Declared a dividend of $0.095 per share for the second quarter 2018

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

"We are extremely pleased with our second quarter 2018 results, which
demonstrate solid revenue growth reflecting the quality of our property
portfolio and the operational excellence of our team. With strong
management and prudent capital improvements, we believe our properties
will contribute meaningfully to our cash flow growth over time. As we
progress through 2018 and beyond, we remain focused on executing our
strategic initiatives, which include driving cash flow, increasing
scale, enhancing efficiencies through asset repositioning and expertly
operating our high-quality portfolio, to create long-term value for our
shareholders. We are excited to continue to grow our portfolio through
the development of the 107 Columbia Heights and 10 West 65th
Street properties, which we acquired last year. In addition, we are in
active discussions with the City of New York regarding renewal of its
commercial leases at the 250 Livingston Street property, which terminate
in August 2020, in the low-to-mid $40 rent per square foot range, which
is similar to the terms currently in place for the approximate 30% of
the commercial space in the building that was leased on January 1, 2017,
and for the 141 Livingston Street property."

Financial Results

Revenues grew by $1.9 million, or 7.7%, to $27.3 million for the second
quarter 2018, compared to $25.4 million for the second quarter 2017. The
growth was primarily attributable to improvements in occupancy and
rental rates at the Flatbush Gardens and Tribeca House properties, and
the acquisition of the 10 West 65th Street property.

Net income for the second quarter 2018 was $0.3 million, or $0.00 per
share, compared to a net loss of $1.6 million, or $0.04 per share, for
the second quarter 2017. AFFO for the second quarter 2018 was $5.4
million, or $0.12 per share, compared to $4.1 million, or $0.09 per
share, for the second quarter 2017. Exclusive of the effects of the 10
West 65th Street acquisition, the increases in net income and
AFFO reflect the increase in revenues discussed above, lower interest
expense as a result of the refinancings discussed below, flat property
operating expenses, higher real estate taxes, flat general and
administrative costs and higher depreciation and amortization expense.

Balance Sheet

At June 30, 2018, notes payable (excluding unamortized loan costs) was
$883.7 million, compared to $855.1 million at December 31, 2017. The
balance increased primarily as a result of the refinancing of existing
debt on the Flatbush Gardens and Tribeca House properties in February
2018.

Capital Expenditures

The Company continues to strategically develop its properties,
selectively repositioning assets and driving ongoing rent growth. In the
second quarter of 2018, the Company incurred $9.9 million of capital
expenditures, compared to $6.0 million in the same period in 2017. These
capital expenditures were largely related to renovation projects at 107
Columbia Heights to develop the property; since acquisition, the Company
has funded $3.7 million of these expenditures under a $14.7 million
construction loan. Other capital expenditures occurred at the Tribeca
House and Flatbush Gardens properties, principally to upgrade units and
complete projects previously undertaken. These include the lobbies at
Tribeca House and, at Flatbush Gardens, the terrace, security cameras,
lighting, mailbox and laundry room installations, and basement area
refurbishment.

Dividend

The Company today declared its second quarter dividend of $0.095 per
share to shareholders of record on August 20, 2018, payable August 27,
2018.

Conference Call and Supplemental Material

The Company will host a conference call on August 9, 2018, at 10:00 AM
Eastern Time to discuss the second quarter results. The conference call
can be accessed by dialing 800-346-7359 or 973-528-0008, conference
entry code 707103. A replay of the call will be available from August 9,
2018, following the call, through August 23, 2018, by dialing
800-332-6854 or 973-528-0005, replay conference ID 707103. 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") will be filed at www.sec.gov
under Clipper Realty Inc.

About Clipper Realty

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 timing
of certain acquisitions, 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, 2017, as
amended, and other reports filed from time to time with the SEC.

____________________________
1 Net operating income
("NOI") and adjusted funds from operations ("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

Clipper Realty Inc.
Consolidated Balance Sheets
(In thousands, except for share and per share data)
   
June 30, December 31,
2018 2017
(unaudited)
ASSETS
Investment in real estate
Land and improvements $ 497,343 $ 497,343
Building and improvements 471,155 463,727
Tenant improvements 3,030 3,023
Furniture, fixtures and equipment 10,535 10,245
Real estate under development   111,054     96,268  
Total investment in real estate 1,093,117 1,070,606
Accumulated depreciation   (81,881 )   (73,714 )
Investment in real estate, net 1,011,236 996,892
 
Cash and cash equivalents 15,794 7,940
Restricted cash 12,456 13,730
Tenant and other receivables, net of allowance for doubtful accounts 2,683 6,569
of $2,356 and $2,524, respectively
Deferred rent 3,001 3,514
Deferred costs and intangible assets, net 10,677 11,894
Prepaid expenses and other assets   12,347     11,546  
TOTAL ASSETS $ 1,068,194   $ 1,052,085  
 
LIABILITIES AND EQUITY
Liabilities:
Notes payable, net of unamortized loan costs $ 872,579 $ 843,946
of $11,132 and $11,170, respectively
Accounts payable and accrued liabilities 12,000 8,595
Security deposits 6,680 6,048
Below-market leases, net 3,999 5,075
Other liabilities   3,294     2,830  
TOTAL LIABILITIES 898,552 866,494
 
Equity:
Preferred stock, $0.01 par value; 100,000 shares authorized
(including 140 shares
- -
of 12.5% Series A cumulative non-voting preferred stock),
zero shares issued and outstanding
Common stock, $0.01 par value; 500,000,000 shares authorized, 178 178
17,812,755 shares issued and outstanding
Additional paid-in-capital 92,726 92,273
Accumulated deficit   (24,429 )   (17,539 )
Total stockholders' equity 68,475 74,912
 
Non-controlling interests   101,167     110,679  
TOTAL EQUITY   169,642     185,591  
 
TOTAL LIABILITIES AND EQUITY $ 1,068,194   $ 1,052,085  
 
Clipper Realty Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
       
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
 
REVENUES
Residential rental income $ 19,670 $ 18,079 $ 38,968 $ 36,116
Commercial income 5,375 5,471 10,752 10,942
Tenant recoveries 1,200 1,017 2,374 2,061
Garage and other income   1,055     791     2,074     1,502  
TOTAL REVENUES   27,300     25,358     54,168     50,621  
 
OPERATING EXPENSES
Property operating expenses 6,581 6,564 13,837 13,669
Real estate taxes and insurance 5,362 4,817 10,710 9,469
General and administrative 2,606 2,588 5,744 4,784
Acquisition costs - 6 - 27
Depreciation and amortization   4,435     4,063     9,031     7,998  
TOTAL OPERATING EXPENSES   18,984     18,038     39,322     35,947  
 
INCOME FROM OPERATIONS 8,316 7,320 14,846 14,674
 
Interest expense, net (8,008 ) (8,931 ) (16,551 ) (17,583 )
Loss on extinguishment of debt   -     -     (6,981 )   -  
 
Net income (loss) 308 (1,611 ) (8,686 ) (2,909 )
 
Net (income) loss attributable to non-controlling interests (184 ) 965 5,180 1,798
Dividends attributable to preferred shares   -     (4 )   -     (8 )
Net income (loss) attributable to common stockholders $ 124   $ (650 ) $ (3,506 ) $ (1,119 )
 
Basic and diluted net income (loss) per share $ 0.00 $ (0.04 ) $ (0.20 ) $ (0.08 )
 
Weighted average common shares / OP units
Common shares outstanding 17,813 17,813 17,813 16,228
OP units outstanding   26,317     26,317     26,317     26,317  
Diluted shares outstanding   44,130     44,130     44,130     42,545  
 
Clipper Realty Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
Six Months Ended June 30,

 

2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (8,686 ) $ (2,909 )
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 8,167 7,538
Amortization of deferred financing costs 752 1,442
Amortization of deferred costs and intangible assets 1,100 1,243
Amortization of above- and below-market leases (959 ) (866 )
Loss on extinguishment of debt 6,981 -
Deferred rent 513 156
Stock-based compensation 1,259 1,429
Change in fair value of interest rate caps (237 ) 329
Changes in operating assets and liabilities:
Restricted cash 1,274 (2,290 )
Tenant and other receivables 3,886 (86 )
Prepaid expenses, other assets and deferred costs (886 ) (293 )
Accounts payable and accrued liabilities 719 (2,220 )
Security deposits 632 314
Other liabilities   464     541  
Net cash provided by operating activities   14,979     4,328  
 
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and improvements (19,246 ) (8,578 )
Proceeds from sale of interest rate caps 385 -
Acquisition deposit - (2,144 )
Cash paid in connection with acquisition of real estate   -     (87,586 )
Net cash used in investing activities   (18,861 )   (98,308 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds and costs from sale of common stock (7 ) 78,811
Redemption of preferred stock - (145 )
Payments of mortgage notes (579,989 ) (681 )
Proceeds from mortgage notes 608,585 59,000
Dividends and distributions (8,515 ) (8,056 )
Loan issuance and extinguishment costs   (8,338 )   (4,012 )
Net cash provided by financing activities   11,736     124,917  
 
Net increase in cash and cash equivalents 7,854 30,937
Cash and cash equivalents - beginning of period   7,940     37,547  
Cash and cash equivalents - end of period $ 15,794   $ 68,484  
 
 
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest of $2,541 and
$180 in 2018 and 2017, respectively
$ 15,744 $ 15,771
Other non-cash items capitalized to real estate under development 3,265 561
 

Clipper Realty Inc.
Reconciliation of Non-GAAP Measures
(In
thousands, except per share data)

(Unaudited)

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,
amortization of non-cash equity compensation, acquisition costs 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 income (loss) before allocation to
non-controlling interests, computed in accordance with GAAP (amounts in
thousands):

  Three Months Ended June 30,         Six Months Ended June 30,
2018   2017 2018   2017

FFO

Net income (loss) $ 308 $ (1,611 ) $ (8,686 ) $ (2,909 )
Real estate depreciation and amortization   4,435     4,063     9,031     7,998  
FFO $ 4,743   $ 2,452   $ 345   $ 5,089  
 
 
AFFO
FFO $ 4,743 $ 2,452 $ 345 $ 5,089
Amortization of real estate tax intangible 118 391 236 783
Amortization of above- and below-market leases (480 ) (432 ) (959 ) (866 )
Straight-line rent adjustments 257 78 513 156
Amortization of debt origination costs 231 721 752 1,442
Interest rate cap mark-to-market (10 ) 192 (237 ) 329
Amortization of LTIP awards 691 834 1,259 1,429
Acquisition costs - 6 - 27
Loss on extinguishment of debt - - 6,981 -
Recurring capital spending   (101 )   (141 )   (242 )   (277 )
AFFO $ 5,449   $ 4,101   $ 8,648   $ 8,112  
AFFO Per Share/Unit $ 0.12   $ 0.09   $ 0.20   $ 0.19  
 

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),
acquisition costs 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. 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 income (loss) before allocation to
non-controlling interests, computed in accordance with GAAP (amounts in
thousands):

  Three Months Ended June 30,         Six Months Ended June 30,
2018   2017 2018   2017
Adjusted EBITDA
Net income (loss) $ 308 $ (1,611 ) $ (8,686 ) $ (2,909 )
Real estate depreciation and amortization 4,435 4,063 9,031 7,998
Amortization of real estate tax intangible 118 391 236 783
Amortization of above- and below-market leases (480 ) (432 ) (959 ) (866 )
Straight-line rent adjustments 257 78 513 156
Amortization of LTIP awards 691 834 1,259 1,429
Interest expense, net 8,008 8,931 16,551 17,582
Acquisition costs - 6 - 27
Loss on extinguishment of debt   -     -     6,981     -  
Adjusted EBITDA $ 13,337   $ 12,260   $ 24,926   $ 24,200  
 

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, acquisition costs,
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 operating income or net income. 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):

  Three Months Ended June 30,         Six Months Ended June 30,
2018   2017 2018   2017
NOI
Income from operations $ 8,316 $ 7,320 $ 14,846 $ 14,674
Real estate depreciation and amortization 4,435 4,063 9,031 7,998
General and administrative 2,606 2,588 5,744 4,784
Acquisition costs - 6 - 27
Amortization of real estate tax intangible 118 391 236 783
Amortization of above- and below-market leases (480 ) (432 ) (959 ) (866 )
Straight-line rent adjustments   257     78     513     156  
NOI $ 15,252   $ 14,014   $ 29,411   $ 27,556  

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