Business Overview and History
Clipper Realty Inc. (CLPR) is a leading owner and operator of multifamily residential and commercial properties in the vibrant New York metropolitan area. With a strategic focus on acquiring, repositioning, and managing high-quality assets, the company has established itself as a prominent player in the region's booming real estate landscape.
Clipper Realty was incorporated in the state of Maryland on July 7, 2015. On August 3, 2015, the company completed certain formation transactions and the sale of shares of common stock in a private offering. The company contributed the net proceeds of the private offering to its operating partnership subsidiary, Clipper Realty L.P., in exchange for units in the operating partnership. The operating partnership in turn contributed such net proceeds to the limited liability companies (LLCs) that comprised the predecessor of the company in exchange for Class A LLC units in such LLCs and became the managing member of such LLCs. The owners of the LLCs exchanged their interests for Class B LLC units and an equal number of special, non-economic, voting stock in the company. The Class B LLC units, together with the special voting shares, are convertible into common shares of the company on a one-for-one basis and are entitled to distributions.
On June 27, 2016, the operating partnership acquired the Aspen property located in Manhattan, New York. On February 9, 2017, the company priced an initial public offering of 6.39 million primary shares of its common stock, which closed on March 10, 2017. The company contributed the proceeds of the IPO to the operating partnership, in exchange for units in the operating partnership.
Clipper Realty has continued to expand its portfolio through strategic acquisitions. On May 9, 2017, the company completed the purchase of 107 Columbia Heights, subsequently renovated and rebranded as Clover House, a 158-unit apartment building located in the Brooklyn Heights neighborhood of Brooklyn, New York. On October 27, 2017, the company acquired an 82-unit residential property at 10 West 65th Street in the Upper West Side neighborhood of Manhattan, New York. Further expanding its presence in Brooklyn, on November 8, 2019, the company completed the acquisition of 1010 Pacific Street located in the Prospect Heights neighborhood, which was redeveloped into a 175-unit residential building.
Throughout its history, Clipper Realty has faced various challenges, including legal proceedings related to rent stabilization claims by certain tenants at its Tribeca House properties. In 2022, the company entered into an Assurance of Discontinuance with the Office of the Attorney General of the State of New York to resolve an investigation regarding the company's tenant screening practices. Despite these challenges, the company has continued to grow its portfolio of multifamily residential and commercial properties in the New York metropolitan area.
Financial Performance and Ratios
Clipper Realty's financial performance has been remarkable, with the company consistently delivering strong results. In the fiscal year 2024, the company reported record revenue of $366.05 million, a significant increase from the previous year. However, the company reported a net loss of $6.58 million for the year. Despite this, Clipper Realty's operational performance remained strong, with net operating income (NOI) reaching new highs, showcasing the company's ability to effectively manage its portfolio and generate robust cash flows.
The company's financial ratios further underscore its solid position. As of December 31, 2024, Clipper Realty had a debt-to-equity ratio of -234.12, indicating a highly leveraged capital structure. The current ratio stood at 2.70, suggesting ample liquidity to meet short-term obligations. The quick ratio, also at 2.70, further reinforces the company's strong liquidity position.
In the most recent quarter (Q4 2024), Clipper Realty reported revenue of $38.05 million, representing a 9.1% year-over-year growth. However, the company recorded a net loss of $418,000 for the quarter.
Operational Highlights and Leasing Performance
Clipper Realty's operational excellence is evident in its impressive leasing performance across its residential and commercial properties. As of December 31, 2024, the company's residential properties were 98.9% leased, with new leases exceeding prior rents by over 7% on average. This strong demand is a testament to the company's ability to attract and retain tenants, particularly in the desirable New York metropolitan area.
The company's commercial properties have also performed admirably, with an overall occupancy rate of 90.5% as of the end of 2024. However, the company faces a potential challenge as the City of New York has notified it of the intention to terminate the lease for 342,500 square feet of office space at the 250 Livingston Street property, effective August 2025. Clipper Realty is actively seeking solutions and pursuing opportunities to mitigate the impact of this impending vacancy.
Disciplined Growth and Development
Clipper Realty's growth strategy is characterized by a disciplined approach to acquisitions and development. The company has successfully executed on several ground-up development projects, such as the fully stabilized 1010 Pacific Street property in Brooklyn, which is now contributing to the company's cash flow with a 7% capitalization rate.
Furthermore, the company is making progress on its latest development, the 953 Dean Street property in Brooklyn. This nine-story, fully amenitized residential building with 160,000 square feet of rentable space and 240 units is expected to begin leasing in the coming months, aligning with the 2025 leasing season.
Prudent Capital Management and Financing
Clipper Realty's balance sheet and financing strategy demonstrate a prudent and conservative approach. As of December 31, 2024, the company had $1.28 billion in total debt, with an average interest rate of 3.87% and an average debt maturity of 4.3 years. Importantly, 91% of the company's debt is fixed-rate, shielding it from the impact of rising interest rates.
The company's cash position remains strong, with $19.9 million in unrestricted cash and $18.2 million in restricted cash as of the end of 2024. This solid liquidity, combined with the company's access to various financing sources, positions Clipper Realty well to pursue future growth opportunities and navigate potential market challenges.
Financials
Clipper Realty's financial performance has been impressive, with consistent revenue growth and improved operational profitability. The company's revenue increased to $366.05 million in fiscal year 2024, while net operating income (NOI) continued to grow. These results demonstrate the company's ability to effectively manage its properties and capitalize on the strong demand in the New York metropolitan area real estate market.
In the fourth quarter of 2024, Clipper Realty reported record operating results, including record revenue of $38 million, up 9.1% from $34.9 million in Q4 2023. Net operating income (NOI) for Q4 2024 reached $22.5 million, a 12.5% increase from $20 million in Q4 2023. Additionally, adjusted funds from operations (AFFO) grew to $8.1 million, up 29% from $6.3 million in Q4 2023. These results exceeded the company's previous guidance on key financial metrics.
Liquidity
The company maintains a strong liquidity position, which is crucial for navigating market uncertainties and pursuing growth opportunities. As of December 31, 2024, Clipper Realty had $19.9 million in unrestricted cash and $18.2 million in restricted cash. The company's current ratio and quick ratio both stood at 2.70, indicating its ability to meet short-term obligations comfortably. Additionally, Clipper Realty's access to various financing sources further enhances its liquidity position, providing flexibility for future investments and development projects.
Business Segments
Clipper Realty operates in two primary business segments: Residential Rental Properties and Commercial Rental Properties.
The Residential Rental Properties segment comprises the majority of Clipper Realty's portfolio, accounting for approximately 74% of total revenues in 2024. This segment includes properties such as Tribeca House in Manhattan, Flatbush Gardens in Brooklyn, Clover House in Brooklyn, 10 West 65th Street in Manhattan, and 1010 Pacific Street in Brooklyn. These properties offer a combined 3,680 residential rental units, which were 98.9% leased as of December 31, 2024. Residential rental income grew 10.1% year-over-year to $109.87 million in 2024, driven by higher occupancy levels and increased rental rates across the portfolio. For example, the average rental rate per square foot at the Tribeca House property increased from $77.70 at the end of 2023 to $82.52 at the end of 2024. Similarly, the average rental rate per square foot at the Clover House property grew from $80.93 to $85.91 over the same period.
The Commercial Rental Properties segment accounted for 26% of Clipper Realty's total revenues in 2024. This segment includes the 141 Livingston Street and 250 Livingston Street properties in Brooklyn, which are primarily leased to commercial tenants. As of December 31, 2024, the commercial properties were 90.5% leased. Commercial rental income remained relatively stable at $38.90 million in 2024, compared to $38.49 million in 2023.
Risks and Challenges
While Clipper Realty has demonstrated resilience and impressive performance, the company is not without its risks and challenges. The company's heavy concentration in the New York metropolitan area exposes it to the economic and regulatory conditions of this specific market. Any adverse developments in the local economy, changes in rent stabilization laws, or shifts in demand for residential and commercial real estate could significantly impact Clipper Realty's operations and financial results.
Additionally, the company's reliance on the City of New York as a major tenant, accounting for approximately 22% of its total revenues in 2024, presents a potential risk. The impending lease termination at the 250 Livingston Street property and the ongoing negotiations for the 141 Livingston Street lease extension will require Clipper Realty to navigate these challenges effectively to maintain its financial strength.
The City of New York leases 548,580 square feet of commercial space across the 141 Livingston Street and 250 Livingston Street properties. However, the City has notified Clipper Realty of its intention to terminate the 342,500 square foot lease at 250 Livingston Street effective August 23, 2025. Clipper Realty is currently negotiating a potential five-year extension of the 206,080 square foot lease at 141 Livingston Street, which expires in December 2025, but there is no assurance that an agreement will be reached.
Outlook and Conclusion
Despite the risks, Clipper Realty's outlook remains positive, as the company continues to capitalize on the robust demand for multifamily and commercial properties in the New York region. The company's strong operational track record, disciplined growth strategy, and prudent capital management position it well to navigate the evolving real estate landscape.
Clipper Realty expressed optimism about continued strong leasing demand and rent growth across their residential portfolio. They highlighted the successful stabilization of their new Pacific House development, which is now 100% leased and yielding a 7% cap rate. The company also expects benefits from the Article 11 agreement at their Flatbush Gardens property to steadily increase over the next couple of years.
As Clipper Realty further optimizes the Flatbush Gardens transaction, opens its 953 Dean Street development, and resolves the 250 Livingston Street vacancy, the company is well-poised to deliver sustained growth and value for its shareholders. With its diversified portfolio, experienced management team, and strategic focus, Clipper Realty is a compelling investment opportunity in the dynamic New York real estate market.