Business Wire | Aug 9, 2021 04:05PM EDT

Clipper Realty Inc. Announces Second Quarter 2021 Results

Aug. 09, 2021

NEW YORK--(BUSINESS WIRE)--Aug. 09, 2021--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, 2021.

Highlights for the Three Months Ended June 30, 2021

* Achieved quarterly revenues of $30.7 million for the second quarter of 2021 * Achieved quarterly income from operations of $7.0 million for the second quarter of 2021 * Achieved quarterly net operating income ("NOI")1 of $16.1 million for the second quarter of 2021 * Recorded quarterly net loss of $3.2 million for the second quarter of 2021 * Achieved quarterly adjusted funds from operations ("AFFO")1 of $4.1 million for the second quarter of 2021 as compared to $3.1 million for the first quarter of 2021 * Declared a dividend of $0.095 per share for the second quarter of 2021

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

"We continue to see meaningful signs of improvement as New York City further strengthens from the depths of the COVID-19 pandemic. We anticipate recently strong rental demand to remain elevated, and pricing to improve, as New York City continues to reopen and vaccinations proliferate. We remain focused on efficiently operating our portfolio, with the safety of our tenants and employees our highest priority. Despite the pandemic-related headwinds, our properties are 94% leased and our second quarter rent collection rate was 96%. We have a strong liquidity position with $98.3 million of cash on the balance sheet, consisting of $85.0 million of unrestricted cash and $13.3 million of restricted cash, and have no debt maturities on any operating properties until 2027, providing further support in the current environment. We remain committed to executing our strategic initiatives to create long-term value."

Financial Results

For the second quarter of 2021, revenues decreased by $0.5 million, or 1.6%, to $30.7 million, compared to $31.2 million for the second quarter of 2020; the change was primarily attributable to declines in residential rental rate at the Tribeca House property and the termination of certain commercial leases at the Tribeca House property, partially offset by the commencement of a new office lease at the 250 Livingston Street property during the third quarter of 2020.

For the second quarter of 2021, net loss was $3.2 million, or $0.09 per share, compared to net loss of $5.2 million, or $0.12 per share, for the second quarter of 2020 ($1.0 million, or $0.03 per share, excluding a non-recurring $4.2 million loss on extinguishment of debt); the change, excluding the non-recurring item, was primarily attributable to the revenue change discussed above and higher property operating expenses (including an increase in the provision for bad debt), property taxes, insurance expense, depreciation and amortization expense and interest expense (primarily resulting from the refinancing of the Flatbush Gardens property in May 2020 and the 141 Livingston Street property in February 2021).

For the second quarter of 2021, AFFO was $4.1 million, or $0.10 per share, compared to $5.5 million, or $0.12 per share, for the second quarter of 2020 and $3.1 million, or $0.07 per share, for the first quarter of 2021. The change from last year was primarily attributable to the revenue change discussed above and higher property operating expenses (including an increase in the provision for bad debt), property taxes, insurance expense and interest expense, partially offset by lower recurring cash general and administrative expenses.

Balance Sheet

At June 30, 2021, notes payable (excluding unamortized loan costs) was $1,114.9 million, compared to $1,089.7 million at December 31, 2020; the increase primarily reflected the refinancing of the 141 Livingston Street property in February 2021, partially offset by scheduled principal amortization.

Dividend

The Company today declared a second quarter dividend of $0.095 per share, the same amount as last quarter, to shareholders of record on August 19, 2021, payable August 26, 2021.

Conference Call and Supplemental Material

The Company will host a conference call on August 9, 2021, at 5:00 PM Eastern Time to discuss the second quarter 2021 results and provide a business update. The conference call can be accessed by dialing (800) 346-7359 or (973) 528-0008, conference entry code 884595. A replay of the call will be available from August 9, 2021, following the call, through August 23, 2021, by dialing (800) 332-6854 or (973) 528-0005, replay conference ID 884595. Supplemental data to this press 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 (the "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 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 (including uncertainties regarding the ongoing impact of the COVID-19 pandemic, and measures intended to curb its spread, on our business, our tenants and the economy generally), 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, 2020, 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.

Clipper Realty Inc.Consolidated Balance Sheets(In thousands, except for share and per share data) June 30, 2021 December 31, 2020 (unaudited)ASSETSInvestment in real estateLand and improvements $ 540,859 $ 540,859

Building and improvements 637,772 630,662

Tenant improvements 3,406 3,121

Furniture, fixtures and equipment 12,356 12,217

Real estate under development 40,411 36,118

Total investment in real estate 1,234,804 1,222,977

Accumulated depreciation (144,870 ) (132,479 )

Investment in real estate, net 1,089,934 1,090,498

Cash and cash equivalents 85,035 72,058

Restricted cash 13,258 16,974

Tenant and other receivables, net of allowance for 6,653 7,002 doubtful accounts of $8,116 and $5,993,respectivelyDeferred rent 2,507 2,454

Deferred costs and intangible assets, net 7,391 7,720

Prepaid expenses and other assets 9,087 11,160

TOTAL ASSETS $ 1,213,865 $ 1,207,866

LIABILITIES AND EQUITYLiabilities:Notes payable, net of unamortized loan costs of $ 1,104,535 $ 1,079,458 $10,387 and $10,262, respectivelyAccounts payable and accrued liabilities 11,169 11,725

Security deposits 6,970 6,983

Below-market leases, net 94 157

Other liabilities 4,449 5,429

TOTAL LIABILITIES 1,127,217 1,103,752

Equity:Preferred stock, $0.01 par value; 100,000 sharesauthorized (including 140 shares of 12.5% Series A - - cumulative non-voting preferred stock), zeroshares issued and outstandingCommon stock, $0.01 par value; 500,000,000 shares 160 160 authorized, 16,063,228 shares issued andoutstandingAdditional paid-in-capital 87,707 87,347

Accumulated deficit (55,026 ) (48,045 )

Total stockholders' equity 32,841 39,462

Non-controlling interests 53,807 64,652

TOTAL EQUITY 86,648 104,114

TOTAL LIABILITIES AND EQUITY $ 1,213,865 $ 1,207,866

Clipper Realty Inc.Consolidated Statements of Operations(In thousands, except per share data)(Unaudited)Three Months Ended June 30,Six Months Ended June 30,2021

2020

2021

2020

REVENUESResidential rental income$

21,573

$

23,679

$

43,177

$

47,397

Commercial rental income9,098

7,479

18,145

15,076

TOTAL REVENUES30,671

31,158

61,322

62,473

OPERATING EXPENSESProperty operating expenses7,221

6,868

15,863

14,027

Real estate taxes and insurance7,363

6,778

14,675

13,642

General and administrative2,802

2,704

5,095

5,027

Transaction pursuit costs-

-

60

-

Depreciation and amortization6,289

5,872

12,516

11,430

TOTAL OPERATING EXPENSES23,675

22,222

48,209

44,126

INCOME FROM OPERATIONS6,996

8,936

13,113

18,347

Interest expense, net(10,366

)

(9,979

)

(20,583

)

(19,767

)

Loss on modification/extinguishment of debt-

(4,228

)

(3,034

)

(4,228

)

Gain on involuntary conversion139

85

139

85

Net loss(3,231

)

(5,186

)

(10,365

)

(5,563

)

Net loss attributable to non-controlling interests2,006

3,092

6,436

3,317

Net loss attributable to common stockholders$

(1,225

)

$

(2,094

)

$

(3,929

)

$

(2,246

)

Basic and diluted net loss per share$

(0.09

)

$

(0.12

)

$

(0.27

)

$

(0.13

)

Weighted average common shares / OP unitsCommon shares outstanding16,063

17,815

16,063

17,815

OP units outstanding26,317

26,317

26,317

26,317

Diluted shares outstanding42,380

44,132

42,380

44,132

Clipper Realty Inc.Consolidated Statements of Operations(In thousands, except per share data)(Unaudited) Three Months Ended June Six Months Ended June 30, 30, 2021 2020 2021 2020

REVENUESResidential rental income $ 21,573 $ 23,679 $ 43,177 $ 47,397

Commercial rental income 9,098 7,479 18,145 15,076

TOTAL REVENUES 30,671 31,158 61,322 62,473

OPERATING EXPENSESProperty operating 7,221 6,868 15,863 14,027 expensesReal estate taxes and 7,363 6,778 14,675 13,642 insuranceGeneral and 2,802 2,704 5,095 5,027 administrativeTransaction pursuit costs - - 60 -

Depreciation and 6,289 5,872 12,516 11,430 amortizationTOTAL OPERATING EXPENSES 23,675 22,222 48,209 44,126

INCOME FROM OPERATIONS 6,996 8,936 13,113 18,347

Interest expense, net (10,366 ) (9,979 ) (20,583 ) (19,767 )

Loss on modification/ - (4,228 ) (3,034 ) (4,228 )extinguishment of debtGain on involuntary 139 85 139 85 conversion Net loss (3,231 ) (5,186 ) (10,365 ) (5,563 )

Net loss attributable to 2,006 3,092 6,436 3,317 non-controlling interestsNet loss attributable to $ (1,225 ) $ (2,094 ) $ (3,929 ) $ (2,246 )common stockholders Basic and diluted net $ (0.09 ) $ (0.12 ) $ (0.27 ) $ (0.13 )loss per share Weighted average commonshares / OP unitsCommon shares outstanding 16,063 17,815 16,063 17,815

OP units outstanding 26,317 26,317 26,317 26,317

Diluted shares 42,380 44,132 42,380 44,132 outstandingClipper Realty Inc.Consolidated Statements of Cash Flows(In thousands)(Unaudited)Six Months Ended June 30,.2021

2020

CASH FLOWS FROM OPERATING ACTIVITIESNet loss$

(10,365

)

$

(5,563

)

Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation12,404

11,078

Amortization of deferred financing costs621

608

Amortization of deferred costs and intangible assets353

592

Amortization of above- and below-market leases(63

)

(228

)

Loss on modification/extinguishment of debt3,034

4,228

Gain on involuntary conversion(139

)

(85

)

Deferred rent(53

)

(465

)

Stock-based compensation1,281

693

Bad debt expense2,078

899

Transaction pursuit costs60

-

Changes in operating assets and liabilities:Tenant and other receivables(1,579

)

(4,559

)

Prepaid expenses, other assets and deferred costs1,989

989

Accounts payable and accrued liabilities378

(2,374

)

Security deposits(13

)

6

Other liabilities(980

)

(737

)

Net cash provided by operating activities9,006

5,082

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to land, buildings and improvements(12,756

)

(13,622

)

Insurance proceeds from involuntary conversion-

111

Purchase of interest rate caps, net-

(14

)

Net cash used in investing activities(12,756

)

(13,525

)

CASH FLOWS FROM FINANCING ACTIVITIESPayments of mortgage notes(75,303

)

(247,798

)

Proceeds from mortgage notes100,505

329,424

Dividends and distributions(8,382

)

(8,595

)

Loan issuance and extinguishment costs(3,809

)

(5,220

)

Net cash provided by financing activities13,011

67,811

Net increase in cash and cash equivalents and restricted cash9,261

59,368

Cash and cash equivalents and restricted cash - beginning of period89,032

56,932

Cash and cash equivalents and restricted cash - end of period$

98,293

$

116,300

Cash and cash equivalents and restricted cash - beginning of period:Cash and cash equivalents$

72,058

$

42,500

Restricted cash16,974

14,432

Total cash and cash equivalents and restricted cash - beginning of period$

89,032

$

56,932

Cash and cash equivalents and restricted cash - end of period:Cash and cash equivalents$

85,035

$

88,253

Restricted cash13,258

28,047

Total cash and cash equivalents and restricted cash - end of period$

98,293

$

116,300

Supplemental cash flow information:Cash paid for interest, net of capitalized interest of $794 and $679 in 2021 and 2020, respectively$

20,165

$

19,482

Non-cash interest capitalized to real estate under development29

546

Additions to investment in real estate included in accounts payable and accrued liabilities3,255

4,045

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 measures" 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 (loss) 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 (loss) 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, acquisition and other costs, transaction pursuit costs, loss on modification/extinguishment of debt, gain on involuntary conversion, gain on termination of lease and non-recurring litigation-related expenses, less recurring capital spending.

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 (loss) 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, computed in accordance with GAAP (amounts in thousands):

Clipper Realty Inc.Consolidated Statements of Cash Flows(In thousands)(Unaudited) Six Months Ended June 30, . 2021 2020

CASH FLOWS FROM OPERATING ACTIVITIESNet loss $ (10,365 ) $ (5,563 )

Adjustments to reconcile net loss to net cashprovided by operating activities:Depreciation 12,404 11,078

Amortization of deferred financing costs 621 608

Amortization of deferred costs and intangible 353 592 assetsAmortization of above- and below-market leases (63 ) (228 )

Loss on modification/extinguishment of debt 3,034 4,228

Gain on involuntary conversion (139 ) (85 )

Deferred rent (53 ) (465 )

Stock-based compensation 1,281 693

Bad debt expense 2,078 899

Transaction pursuit costs 60 -

Changes in operating assets and liabilities:Tenant and other receivables (1,579 ) (4,559 )

Prepaid expenses, other assets and deferred costs 1,989 989

Accounts payable and accrued liabilities 378 (2,374 )

Security deposits (13 ) 6

Other liabilities (980 ) (737 )

Net cash provided by operating activities 9,006 5,082

CASH FLOWS FROM INVESTING ACTIVITIESAdditions to land, buildings and improvements (12,756 ) (13,622 )

Insurance proceeds from involuntary conversion - 111

Purchase of interest rate caps, net - (14 )

Net cash used in investing activities (12,756 ) (13,525 )

CASH FLOWS FROM FINANCING ACTIVITIESPayments of mortgage notes (75,303 ) (247,798 )

Proceeds from mortgage notes 100,505 329,424

Dividends and distributions (8,382 ) (8,595 )

Loan issuance and extinguishment costs (3,809 ) (5,220 )

Net cash provided by financing activities 13,011 67,811

Net increase in cash and cash equivalents and 9,261 59,368 restricted cashCash and cash equivalents and restricted cash - 89,032 56,932 beginning of periodCash and cash equivalents and restricted cash - end $ 98,293 $ 116,300 of period Cash and cash equivalents and restricted cash -beginning of period:Cash and cash equivalents $ 72,058 $ 42,500

Restricted cash 16,974 14,432

Total cash and cash equivalents and restricted cash $ 89,032 $ 56,932 - beginning of period Cash and cash equivalents and restricted cash - endof period:Cash and cash equivalents $ 85,035 $ 88,253

Restricted cash 13,258 28,047

Total cash and cash equivalents and restricted cash $ 98,293 $ 116,300 - end of period Supplemental cash flow information:Cash paid for interest, net of capitalized interest $ 20,165 $ 19,482 of $794 and $679 in 2021 and 2020, respectivelyNon-cash interest capitalized to real estate under 29 546 developmentAdditions to investment in real estate included in 3,255 4,045 accounts payable and accrued liabilities 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 measures" 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 (loss) 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 (loss) 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, acquisition and other costs, transaction pursuit costs, loss on modification/extinguishment of debt, gain on involuntary conversion, gain on termination of lease and non-recurring litigation-related expenses, less recurring capital spending.

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 (loss) 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, computed in accordance with GAAP (amounts in thousands):

Three Months Ended June Six Months Ended June 30, 30, 2021 2020 2021 2020

FFONet loss $ (3,231 ) $ (5,186 ) $ (10,365 ) $ (5,563 )

Real estate depreciation 6,289 5,872 12,516 11,430 and amortizationFFO $ 3,058 $ 686 $ 2,151 $ 5,867

AFFOFFO $ 3,058 $ 686 $ 2,151 $ 5,867

Amortization of real estate 121 121 241 240 tax intangibleAmortization of above- and (32 ) (129 ) (63 ) (228 )below-market leasesStraight-line rent (52 ) (237 ) (53 ) (465 )adjustmentsAmortization of debt 313 304 621 608 origination costsAmortization of LTIP awards 795 536 1,281 693

Transaction pursuit costs - - 60 -

Loss on modification/ - 4,228 3,034 4,228 extinguishment of debtGain on involuntary (139 ) (85 ) (139 ) (85 )conversionCertain litigation-related 65 270 124 534 expensesRecurring capital spending (58 ) (238 ) (108 ) (383 )

AFFO $ 4,071 $ 5,456 $ 7,149 $ 11,009

AFFO Per Share/Unit $ 0.10 $ 0.12 $ 0.17 $ 0.25

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 and other costs, transaction pursuit costs, loss on modification/extinguishment of debt and non-recurring litigation-related expenses, less gain on involuntary conversion and gain on termination of lease.

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, computed in accordance with GAAP (amounts in thousands):

Three Months Ended June Six Months Ended June 30, 30, 2021 2020 2021 2020

Adjusted EBITDANet loss $ (3,231 ) $ (5,186 ) $ (10,365 ) $ (5,563 )

Real estate depreciation 6,289 5,872 12,516 11,430 and amortizationAmortization of real estate 121 121 241 240 tax intangibleAmortization of above- and (32 ) (129 ) (63 ) (228 )below-market leasesStraight-line rent (52 ) (237 ) (53 ) (465 )adjustmentsAmortization of LTIP awards 795 536 1,281 693

Interest expense, net 10,366 9,979 20,583 19,767

Transaction pursuit costs - - 60 -

Loss on modification/ - 4,228 3,034 4,228 extinguishment of debtGain on involuntary (139 ) (85 ) (139 ) (85 )conversionCertain litigation-related 65 270 124 534 expensesAdjusted EBITDA $ 14,182 $ 15,369 $ 27,219 $ 30,551

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 and other costs, transaction pursuit costs, amortization of identifiable intangibles and straight-line rent adjustments to revenue from long-term leases, less gain on termination of lease. 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):

Three Months Ended June Six Months Ended June 30, 30, 2021 2020 2021 2020

NOIIncome from operations $ 6,996 $ 8,936 $ 13,113 $ 18,347

Real estate depreciation and 6,289 5,872 12,516 11,430 amortizationGeneral and administrative 2,802 2,704 5,095 5,027 expensesTransaction pursuit costs - - 60 -

Amortization of real estate 121 121 241 240 tax intangibleAmortization of above- and (32 ) (129 ) (63 ) (228 )below-market leasesStraight-line rent (52 ) (237 ) (53 ) (465 )adjustmentsNOI $ 16,124 $ 17,267 $ 30,909 $ 34,351

View source version on businesswire.com: https://www.businesswire.com/news/home/20210809005699/en/

CONTACT: Lawrence Kreider Chief Financial Officer (718) 438-2804 x2231 larry@clipperrealty.com