UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☒

For the quarterly period ended ~~June~~September 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38010

CLIPPER REALTY INC.

(Exact name of Registrant as specified in its charter)

Maryland		47-4579660
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4611 12^th Avenue, Suite 1L1L

Brooklyn, New York 11219

(Address of principal executive offices) (Zip Code)

(718) 438-2804

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☒
Non-accelerated filer ☐		Smaller reporting company ☒
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CLPR	New York Stock Exchange

As of ~~August~~November 9, 2022, there were 16,063,228 shares of the Registrant’s Common Stock outstanding.

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

ITEM 1.	CONDENSED FINANCIAL STATEMENTS
	CONSOLIDATED BALANCE SHEETS AS OF ~~JUNE~~SEPTEMBER 30, 2022 (UNAUDITED) AND DECEMBER 31, 2021	3
	CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)	4
	CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE THREE, SIX AND ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)	5
	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2022 AND 2021 (UNAUDITED)	6
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4.	CONTROLS AND PROCEDURES	30
~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~	30

PART II – OTHER INFORMATION		30

ITEM 1.	LEGAL PROCEEDINGS	30
ITEM 1A.	RISK FACTORS	~~RISK FACTORS~~	3130
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3130
ITEM 4.	MINE SAFETY DISCLOSURE	3130
ITEM 6.	EXHIBITS	31
SIGNATURES		32

PART I – FINANCIAL INFORMATION

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q for Clipper Realty Inc. (the “Company”), including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding the Company’s financial position, business strategy and the plans, objectives, expectations, or assumptions of management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “continue,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes are intended to identify forward-looking statements, which are generally not historical in nature. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks, contingencies and uncertainties include, but are not limited to, the following:

●

the ~~effect~~continuing effects of the ~~ongoing~~ novel strain of coronavirus (“COVID-19”) pandemic, and measures intended to curb its spread, including its effect on our tenants’ ability or willingness to pay rents and on demand for housing in the New York metropolitan area;

●

the ~~severe economic, market~~impact of the recent increase in inflation in the United States which could increase the cost of acquiring, replacing and ~~other disruptions worldwide caused, and likely to continue to be caused, by the COVID-19 pandemic;~~

operating our porperties

●

market and economic conditions affecting occupancy levels (including continued declines at one of our properties), rental rates, the overall market value of our properties, our access to capital and the cost of capital and our ability to refinance indebtedness;

●

economic or regulatory developments in New York City;

●

the single government tenant in our commercial buildings may suffer financial difficulty;

●

changes in rent stabilization regulations or claims by tenants in rent-stabilized units that their rents exceed specified maximum amounts under current regulations;

●

our ability to control operating costs to the degree anticipated;

●

the risk of damage to our properties, including from severe weather, natural disasters, climate change, and terrorist attacks;

●

risks related to financing, cost overruns, and fluctuations in occupancy rates and rents resulting from development or redevelopment activities and the risk that we may not be able to pursue or complete development or redevelopment activities or that such development or redevelopment activities may not be profitable;

●

concessions or significant capital expenditures that may be required to attract and retain tenants;

●

the relative illiquidity of real estate investments;

●

competition affecting our ability to engage in investment and development opportunities or attract or retain tenants;

●

unknown or contingent liabilities in properties acquired in formative and future transactions;

●

the possible effects of departure of key personnel in our management team on our investment opportunities and relationships with lenders and prospective business partners;

●

conflicts of interest faced by members of management relating to the acquisition of assets and the development of properties, which may not be resolved in our favor;

●

a transfer of a controlling interest in any of our properties that may obligate us to pay transfer tax based on the fair market value of the real property transferred;

●

the impact of the restatement of our financial statements and management’s recently identified material weakness in our internal control over financial reporting;

●

the need to establish litigation reserves, costs to defend litigation and unfavorable litigation settlements or judgments; and

●

other risks and risk factors or uncertainties identified from time to time in our filings with the SEC.

	Six Months Ended June 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(6,429	)	$	(10,365	)	$	(9,217	)	$	(13,782	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		13,318			12,404			20,041			18,798
Amortization of deferred financing costs		626			621			939			934
Amortization of deferred costs and intangible assets		360			353			540			531
Amortization of above- and below-market leases		(17	)		(63	)		(26	)		(96	)
Loss on extinguishment of debt		0			3,034			—			3,034
Gain on involuntary conversion		0			(139	)		—			(139	)
Deferred rent		(190	)		(53	)		(220	)		(125	)
Stock-based compensation		1,209			1,281
Amortization of LTIP Grants								2,064			1,946
Bad debt (recovery) expense		(379	)		2,078			(387	)		2,278
Transaction pursuit costs		0			60			—			60
Changes in operating assets and liabilities:
Tenant and other receivables		150			(1,579	)		(304	)		(3,169	)
Prepaid expenses, other assets and deferred costs		3,615			1,989			2,606			1,286
Accounts payable and accrued liabilities		(510	)		378			(2,558	)		1,601
Security deposits		476			(13	)		896			(128	)
Other liabilities		(547	)		(980	)		785			460
Net cash provided by operating activities		11,682			9,006			15,159			13,489

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, and improvements		(24,851	)		(12,756	)		(35,966	)		(20,803	)
Insurance proceeds from involuntary conversion								—			150
Return of acquisition deposits		2,015			0			2,015			—
Cash paid in connection with acquisition of real estate		(8,043	)		0			(8,041	)		—
Net cash used in investing activities		(30,879	)		(12,756	)		(41,992	)		(20,653	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments of mortgage notes		(1,101	)		(75,303	)		(1,652	)		(96,889	)
Proceeds from mortgage notes		20,839			100,505			24,855			121,764
Dividends and distributions		(8,461	)		(8,382	)		(12,767	)		(12,570	)
Loan issuance and extinguishment costs		(335	)		(3,809	)		(335	)		(5,939	)
Net cash provided by financing activities		10,942			13,011			10,101			6,366

Net increase (decrease) in cash and cash equivalents and restricted cash		(8,255	)		9,261
Net (decrease) in cash and cash equivalents and restricted cash								(16,732	)		(798	)
Cash and cash equivalents and restricted cash - beginning of period		52,224			89,032			52,224			89,032
Cash and cash equivalents and restricted cash - end of period	$	43,969		$	98,293		$	35,492		$	88,234

Cash and cash equivalents and restricted cash – beginning of period:
Cash and cash equivalents	$	34,524		$	72,058		$	34,524		$	72,058
Restricted cash		17,700			16,974			17,700			16,974
Total cash and cash equivalents and restricted cash – beginning of period	$	52,224		$	89,032		$	52,224		$	89,032

Cash and cash equivalents and restricted cash – end of period:
Cash and cash equivalents	$	29,432		$	85,035		$	19,987		$	59,130
Restricted cash		14,537			13,258			15,505			29,104
Total cash and cash equivalents and restricted cash – end of period	$	43,969		$	98,293		$	35,492		$	88,234

Supplemental cash flow information:
Cash paid for interest, net of capitalized interest of $2,309 and $794 in 2022 and 2021, respectively	$	19,423		$	20,165
Cash paid for interest, net of capitalized interest of $3,775 and $1,257 in 2022 and 2021, respectively							$	29,244		$	30,262
Non-cash interest capitalized to real estate under development		1,118			29			1,749			130
Additions to investment in real estate included in accounts payable and accrued liabilities		7,158			3,255			5,214			7,474

The unaudited condensed consolidated financial statements of Clipper Realty Inc. (the “Company” or “we”) and subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 15, 2022. Note that any references to square footage and unit count are outside the scope of our Independent registered public accounting firm’s review.

The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. These results are not necessarily indicative of a full year’s results of operations.

As of ~~June~~September 30, 2022, the properties owned by the Company consist of the following (collectively, the “Properties”):

During 2019, we entered into a joint venture in which we own a 50% interest through which we are paying certain legal and advisory expenses in connection with various rent laws and ordinances which govern certain of our properties. During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company incurred ~~$0.09~~$0.0 million and $0.11 million, respectively, and during the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company incurred $0.04 million and ~~$0.06~~$0.1 million, respectively of such expenses, which are recorded as part of general and administrative in the Condensed Consolidated Statements of Operations, and the Company has fulfilled its commitment in the joint venture.

The operations of Clipper Realty Inc. and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code (the “Code”). The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprise the Operating Properties of the Company.

At ~~June~~September 30, 2022, the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitles it to 37.9% of the aggregate cash distributions from, and the profits and losses of, the LLCs.

The Company determined that the Operating Partnership and the LLCs are variable interest entities (“VIEs”) and that the Company had control over these entities and was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities.

At ~~June~~September 30, 2022, the Company had 2two reportable operating segments, Residential Rental Properties and Commercial Rental Properties. The ~~Company’s~~Company’s chief operating decision maker may review operational and financial data on a property basis.

The accompanying consolidated financial statements of the Company are prepared in accordance with GAAP. The effect of all intercompany balances has been eliminated. The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interests.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.

Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

In accordance with ASU 2017-01, "Business Combinations – Clarifying the Definition of a Business,” the Company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. Generally, the Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above-market and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. In the event that the Company obtains proceeds through an insurance policy due to impairment, the proceeds are offset against the write-down in calculating gain/loss on disposal of assets. Management of the Company does not believe that any of its properties within the portfolio are impaired as of ~~June~~September 30, 2022.

For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held-for-sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next twelve months. Real estate held-for-sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held-for-sale properties are charged to expense as incurred. Expenditures for improvements, renovations and replacements related to held-for-sale properties are capitalized at cost. Depreciation is not recorded on real estate held-for-sale.

If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.

Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of three months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times, may exceed the federally insured limit. No losses have been experienced related to such accounts.

Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs, capital improvements, loan reserves and security deposits.

Tenant and other receivables are comprised of amounts due for monthly rents and other charges less allowance for doubtful accounts. As described more fully under Revenue Recognition below, in the first quarter of 2022 the Company adopted Accounting Standards Codification (“ASC”) 842 “Leases” which replaced guidance under ASC 840 and provided for transition from balances at December 31, 2021. In accordance with ASC 842, the Company performed a detailed review of amounts due from tenants to determine if accounts receivable balances and future lease payments were probable of collection, wrote off receivables not probable of collection and recorded a general reserve against revenues for receivables probable of collection for which a loss can be reasonably estimated. If management determines that the tenant receivable is not probable of collection it is written off against revenues. In addition, the Company records a general reserve under ASC 450. In connection with the adoption of ASC 842, the Company recorded a cumulative effect adjustment in the amount of $6 million as of January 1, 2022 based on the modified retrospective method in accordance with the provisions of ASC 842.

Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases.

Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated statements of operations. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do not close are expensed in the period the financing transaction is terminated.

Comprehensive income (loss) is comprised of net income (loss) adjusted for changes in unrealized gains and losses, reported in equity, for certain financial instruments required to be reported at fair value under GAAP. For the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the Company did not own any financial instruments for which the change in value was not reported in net income (loss);; accordingly, its comprehensive income (loss) was its net income (loss) as presented in the consolidated statements of operations.

As mentioned above under Tenant and Other Receivables and Allowance for Doubtful Accounts, effective the first quarter of 2022, the Company has adopted ASC 842, “Leases” which replaces the guidance under ASC 840. ASC 842 applies to the Company principally as lessor; as a lessee, the Company’s leases are immaterial. The Company has determined that all its leases as lessor are operating leases. The Company has elected to not bifurcate lease and non-lease components under a practical expedient provision. With respect to collectability, beginning the first quarter of 2022, the Company has written off all receivables not probable of collection and related deferred rent, and has recorded income for those tenants on a cash basis. When the probability assessment has changed for these receivables, the Company has recognized lease income to the extent of the difference between the lease income that would have been recognized if collectability had always been assessed as probable and the lease income recognized to date. For remaining receivables probable of collection, the Company has recorded a general reserve under ASC 450. In the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company has charged revenue in the amount of ~~$0.7~~$0.8 million and ~~$1.5~~$2.3 million, respectively, for receivables not deemed probable of collection and in the three and ~~six~~nine months ended ~~June~~September 30, 2022 recorded an increase in revenues of $0.0 and $1.1 million, respectively, for a reassessment of collectability of one customer at Tribeca House that was determined to be probable of collection. By comparison, in the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company has charged ~~$0.9~~$0.2 million and ~~$2.1~~$2.3 million, respectively, to operating expenses for bad debt expense computed under the guidance of ASC 450. In transitioning to ASC 842 in the first quarter of 2022, the Company has elected the modified retrospective approach to existing leases at the beginning of the quarter and has recorded a cumulative-effect adjustment in retained earnings using the above methods applied to balances as of December 31, 2021, of $6.0 million.

In accordance with the provisions of ASC 842, rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Rental income attributable to residential leases and parking is recognized as earned, which is not materially different from the straight-line basis. Leases entered by residents for apartment units are generally for one-year terms, renewable upon consent of both parties on an annual or monthly basis.

Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs and are recorded as part of commercial rental income in the condensed consolidated statements of operations.

The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation.” As such, all equity-based awards are reflected as compensation expense in the Company’s consolidated statements of operations over their vesting period based on the fair value at the date of grant. In the event of a forfeiture, the previously recognized expense would be reversed.

As of ~~June~~September 30, 2022, and December 31, 2021, there were ~~2,949,823~~2,947,906 and 1,704,089 long-term incentive plan (“LTIP”) units outstanding, respectively, with a weighted average grant date fair value of $9.26 and $9.66 per unit, respectively. As of ~~June~~September 30, 2022, and December 31, 2021, there was ~~$11.9~~$11.1 million and $2.3 million, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. As of ~~June~~September 30, 2022, the weighted-average period over which the unrecognized compensation expense will be recorded is approximately five years.

In April 2022, the Company granted employees and non-employee directors 900,000 and 275,000 LTIP units, respectively, with a weighted-average grant date value of $8.70 per unit, substantially all which vest in 10 years. Of these grants, 270,000 and 82,500 were subject to approval of a proposal approved by shareholders at the 2022 Annual Stockholders’ Meeting on June 15, 2022 to increase the number of shares issuable under the Company’s 2015 Omnibus Incentive Plan and the 2015 Non-Employee Director Plan by 1.3 million and 0.5 million shares, respectively.

Transaction pursuit costs primarily reflect costs incurred for abandoned acquisition, disposition or other transaction pursuits.

The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the Code. To qualify as a REIT, the Company is required to distribute dividends equal to at least 90% of the REIT taxable income (computed without regard to the dividends paid deduction and net capital gains) to its stockholders, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, it is generally not subject to U.S. federal corporate-level income tax on the earnings distributed currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax. In addition, the Company may not be able to re-elect as a REIT for the four subsequent taxable years. The entities comprising the Predecessor are limited liability companies and are treated as pass-through entities for income tax purposes. Accordingly, no provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated financial statements.

In accordance with FASB ASC Topic 740, the Company believes that it has appropriate support for the income tax positions taken and, as such, does not have any uncertain tax positions that, if successfully challenged, could result in a material impact on its financial position or results of operations. The prior three years’ income tax returns are subject to review by the Internal Revenue Service.

FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB guidance, the Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.

As of ~~June~~September 30, 2022, the Company has no derivatives for which it applies hedge accounting.

Basic and diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding. As of ~~June~~September 30, 2022 and 2021, the Company had unvested LTIP units which provide for non-forfeitable rights to dividend-equivalent payments. Accordingly, these unvested LTIP units are considered participating securities and are included in the computation of basic and diluted net loss per share pursuant to the two-class method. The Company did not have dilutive securities as of ~~June~~September 30, 2022 or 2021.

The effect of the conversion of the 26,317 Class B LLC units outstanding is not reflected in the computation of basic and diluted net loss per share, as the effect would be anti-dilutive. The net loss allocable to such units is reflected as non-controlling interests in the accompanying consolidated financial statements.

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (unaudited):

In ~~April 2020,~~June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This ASU requires entities to estimate a ~~Staff Q & A~~lifetime expected credit loss for most financial assets, including trade and other receivables and other long term financings including available for sale and held-to-maturity debt securities, and loans. Subsequently, the FASB issued ASU 2018-19, Codification Improvements to ~~provide interpretive guidance for lease concessions related to~~Topic 326, Financial Instruments-Credit Losses, which amends the ~~effects~~scope of ASU 2016-13 and clarified that receivables arising from operating leases are not within the scope of the ~~COVID-~~standard and should continue to be accounted for in accordance with the leases standard (Topic 19842 ~~pandemic.~~). The new standard will be effective for the Company ~~did~~beginning on ~~not~~January 1, 2023. ~~provide any material concessions to its tenants as a result of COVID-~~19 ~~during the~~ ~~three~~ ~~months ended~~ ~~June 30, 2022~~ ~~and~~ ~~2021;~~ ~~therefore, this guidance did~~ ~~not~~ ~~have a material impact on its consolidated financial statements.~~ The Company continues to evaluate the effect that this guidance may have on its consolidated financial statements.

In March 2020, FASB issued ASU 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic 848). ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective beginning on March 12, 2020, and may be applied prospectively to such transactions through December 31, 2022. We will apply ASU 2020-04 prospectively as and when we enter transactions to which this guidance applies.

In January 2021, FASB issued ASU 2021-01, “Reference Rate Reform” (Topic 848). ASU 2021-01 modifies ASC 848 (ASU 2020-04), which was intended to provide relief related to “contracts and transactions that reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform.” ASU 2021-01 expands the scope of ASC 848 to include all affected derivatives and give reporting entities the ability to apply certain aspects of the contract modification and hedge accounting expedients to derivative contracts affected by the discounting transition. ASU 2021-01 also adds implementation guidance to clarify which optional expedients in ASC 848 may be applied to derivative instruments that do not reference LIBOR or a reference rate that is expected to be discontinued, but that are being modified as a result of the discounting transition. The Company does not expect the adoption of ASU 2021-01 to have a material impact on its consolidated financial statements.

Amortization of deferred costs, lease origination costs and in-place lease intangible assets was $60 and ~~$56~~$58 for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$119~~$178 and ~~$112~~$170 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively; $10 of deferred costs were written off during the ~~three~~ ~~and~~ ~~six~~nine months ended ~~June~~September 30, 2021, and are included in transaction pursuit costs in the consolidated statements of operations. Amortization of real estate tax abatements of ~~$121~~$120 and ~~$121~~$120 for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$241~~$361 and ~~$241~~$361 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively is included in real estate taxes and insurance in the consolidated statements of operations.

Deferred costs and intangible assets as of ~~June~~September 30, 2022, amortize in future years as follows:

Rental income included amortization of below-market leases of $8$9 and ~~$32~~$33 for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$17~~$26 and ~~$63~~$96 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, ~~respectively.~~

~~Below-market leases as~~respectively; $488 of fully amortized below-market lease was written off during the ~~June~~nine months ended September 30, ~~2022,~~2021. ~~amortize in future years as follows:~~

Below-market leases as of September 30, 2022, amortize in future years as follows:

The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows:

(a) The $329,000 mortgage note agreement with New York Community Bank (“NYCB”), entered into on May 8, 2020, matures on June 1, 2032, and bears interest at 3.125% through May 2027 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through May 2027, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

(b) The $125,000 mortgage note agreement with Citi Real Estate Funding Inc., entered into on May 31, 2019, matures on June 6, 2029, bears interest at 3.63% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium.

(c) On February 18, 2021, the Company refinanced the $79,500 mortgage note agreement with NYCB, with a $100,000, ten-year secured first mortgage note with Citi Real Estate Funding Inc. The note matures on March 6, 2031, bears interest at 3.21% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium.

(d) The $360,000 loan with Deutsche Bank, entered into on February 21, 2018, matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the loan prior to the maturity date, subject to a prepayment premium if it occurs prior to December 6, 2027.

(e) The $70,000 mortgage note agreement with Capital One Multifamily Finance LLC matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of $321 thereafter based on a 30-year amortization schedule. The Company has the option to prepay the note prior to the maturity date, subject to a prepayment premium.

(f) The $82,000 mortgage note agreement with MetLife Investment Management, entered into on November 8, 2019, matures on December 1, 2029, bears interest at 3.53% and requires interest-only payments for the entire term. The Company has the option, commencing on January 1, 2024, to prepay the note prior to the maturity date, subject to a prepayment premium if it occurs prior to September 2, 2029.

(g) On October 27, 2017, the Company entered into a $34,350 mortgage note agreement with NYCB, related to the 10 West 65^th Street acquisition. The note matures on November 1, 2027, and bears interest at 3.375% through October 2022 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note required interest-only payments through November 2019, and monthly principal and interest payments of $152 thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

(h) On December 24, 2019, the Company entered into a $18,600 mortgage note agreement with CIT Bank, N.A., related to the 1010 Pacific Street acquisition. The Company also entered into a pre-development bridge loan secured by the property with the same lender to provide up to $2,987 for eligible pre-development and carrying costs. The notes were scheduled to mature on June 24, 2021, required interest-only payments and bore interest at one-month LIBOR (with a floor of 1.25%) plus 3.60% (4.85% as of June 30, 2021). The notes were extended in June 2021 with a new maturity date of August 30, 2021. The Company guaranteed this mortgage note and complied with the financial covenants therein.

On August 10, 2021, the Company refinanced the above 1010 Pacific Street loan with a group of loans with AIG Asset Management (U.S.), LLC providing for maximum borrowings of $52,500 to develop the property. The notes have a 36-month term, bear interest at 30 day LIBOR plus 3.60% (with a floor of 4.1%) ~~(4.7%~~(6.2% at ~~June~~September 30, 2022). The notes mature on September 1, 2024 and may be extended until September 1, 2026. The Company may prepay the unpaid balance of the note within five months of maturity. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company borrowed ~~$13,854~~$17,870 to fund development costs of the property.

(i) On December 22, 2021, the Company entered into a $30,000 mortgage note agreement with Bank Leumi, N.A related to the Dean Street acquisition. The note matures on December 22, 2022, is subject to two six month extension options, requires interest-only payments and bears interest at the prime rate (with a floor of 3.25%) plus 1.60% ~~(5.10%~~(7.10% as of ~~June~~September 30, 2022). In April 2022, the Company borrowed an additional $6,985 under the mortgage note in connection with the acquisition of additional parcels of land in February and April 2022.

The Company has provided a limited guaranty for the mortgage notes at several of its properties. The Company’s loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and debt yield ratios. In the event that they are not compliant, certain lenders may require cash sweeps of rent until the conditions are cured. The Company believes it is not in default on any of its loan agreements.

The following table summarizes principal payment requirements under the terms of the mortgage notes as of ~~June~~September 30, 2022:

The Company recognized a loss on extinguishment of debt of $3,034 during the ~~six~~nine months ended ~~June~~September 30, 2021, in connection with the refinancing of debt on the 141 Livingston Street property in February 2021; the loss consisted of the write-off of unamortized debt costs and other fees.

The Company’s commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of ~~June~~September 30, 2022, the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next five years and thereafter are as follows:

The Company has commercial leases with the City of New York that comprised approximately 24% and 25% of total revenues for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and 24% and 25% of total revenues for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying ‐‐‐value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, prepaid expenses, accounts payable and accrued liabilities, security deposits and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, prepaid expenses, accounts payable and accrued liabilities, and security deposits reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level 2, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.

The carrying amount and estimated fair value of the notes payable are as follows:

On July 3, 2017, the Supreme Court of the State of New York (the “Court”) ruled in favor of 41 present or former tenants of apartment units at the Company’s buildings located at 50 Murray Street and 53 Park Place in Manhattan, New York (the Tribeca House property), who brought an action (the “Kuzmich” case) against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law (“RPTL”) 421-g. The Court also awarded the ~~plaintiffs-tenants~~plaintiffs- tenants their attorney’s fees and costs. ~~The Court declared that the plaintiffs-tenants were subject to rent stabilization requirements~~After various court proceedings and ~~referred the matter to a special referee to determine the amount of rent over-charges, if any. On~~discussions from ~~July 18, 2017,~~ 2018~~the Court, pursuant to the parties’ agreement, stayed the Court’s ruling; the Company subsequently appealed the decision to the Appellate Division, First Department. On~~ -~~January 18, 2018,~~ the Appellate Division unanimously reversed the Court’s ruling and ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The plaintiffs-tenants thereafter moved for leave to appeal to the Court of Appeals, which motion was granted on ~~April 24, 2018.~~ On ~~June 25, 2019,~~ ~~the New York Court of Appeals reversed the Appellate Division’s order and ruled in favor of the plaintiffs-tenants, holding that apartments in buildings receiving RPTL~~ ~~421~~~~-g tax benefits are~~ ~~not~~2022, subject to luxury deregulation. The Court of Appeals also remitted the matter for further proceedings consistent with its opinion. As a result of the Court of Appeals’ order, Company management believes that payments ~~may~~ ~~be required to be made to the~~ 41 ~~present or former tenants comprising the plaintiff group, that other tenants~~ ~~may~~ ~~attempt to make similar claims, and that the special referee process referred to above will be used to determine the timing and the amount of any claims that must be paid. On~~ ~~July 25, 2019,~~ ~~the Company filed a motion for reargument with the New York Court of Appeals, which was denied~~ on~~September 12, 2019.~~ On ~~October 24, 2019,~~ the Company filed a Petition for a Writ of Certiorari with the United States Supreme Court, seeking permission to have that Court hear the Company’s appeal on Constitutional grounds from the Court of Appeals’ order. On ~~January 13, 2020,~~ ~~the United States Supreme Court denied the Company’s Petition for a Writ of Certiorari, meaning that the Court of Appeals’ order is final. On~~ ~~August 13, 2019,~~ the Court, in effect, reinstated its prior order and referred the calculation of rent overcharges and attorneys’ fees for a hearing before a special referee. The special referee’s hearing was scheduled for ~~October 23, 2019.~~ On ~~October 17, 2019,~~ ~~the Company made a motion in the Appellate Division for a stay of the special referee’s hearing pending the Company’s appeal from the~~ ~~August 13~~ ~~order. On such date, the Appellate Division granted an interim stay of the special referee’s hearing, pending the determination of the underlying motion. On~~ ~~January 7, 2020,~~ ~~the Appellate Division granted the Company’s motion for a full stay of the special referee’s hearing pending appeal. The appeal had been scheduled to be argued during the~~ ~~May 2020~~ ~~term, but on~~ ~~March 16, 2020,~~ ~~the parties filed a stipulation adjourning the appeal to the~~ ~~September 2020~~ ~~term. On or about~~ ~~July 13, 2020,~~ ~~the parties filed another stipulation adjourning the appeal to the~~ ~~October 2020~~ ~~term. The appeal was orally argued on~~ ~~October 8, 2020.~~ On ~~October 29, 2020,~~ the Appellate Division reversed the lower court’s ruling to the extent that it directed any rent overcharges to be calculated pursuant to the so-called “default formula.” Instead, the Appellate Division held that (1~~) the “base date” for the determination of rent overcharges is~~ ~~four~~ ~~years prior to the~~ ~~2016~~ ~~filing of the complaint, and (~~2~~) overcharges, if any, are to be determined by comparing the rents actually charged during the~~ ~~four~~~~-year period to the rent increases permitted by the New York City Rent Guidelines Board. Although~~ ~~not~~ eliminating rent overcharge liability altogether, this ruling is expected to limit the Company’s financial exposure in this regard. The Appellate Division, however, affirmed the lower court’s award of attorneys’ fees to the plaintiffs-tenants. The case was thereafter remanded to the lower courts, and on ~~May 20, 2021,~~ an appearance was held concerning the determination of any overcharges to which the plaintiffs-tenants are entitled as well as the amount of plaintiffs-tenants’ attorneys’ fees. Hearings in connection with determining the amount of rent overcharges if any, due to the plaintiffs, took place on ~~October 27, 2021,~~ ~~December 14, 2021,~~ ~~and~~ ~~January 19, 2022.~~ ~~In connection therewith, the parties submitted supplemental briefings on~~ ~~November 17, 2021~~ ~~and at various other times thereafter. Additionally, the Company has reason to believe that the plaintiffs’ purported engagement letter did~~ ~~not~~ ~~authorize the plaintiffs’ attorneys to proceed on their behalf in this action, insofar as the plaintiffs did~~ ~~not~~ ~~individually execute such engagement letter. On this basis, on~~ ~~December 3, 2021~~ ~~the Company submitted a written motion to the court to dismiss the action. On~~ ~~March 4, 2022~~ ~~the motion was denied. On~~ May 9, 2022, the court issued a final ruling on the rent overcharges to which the plaintiffs are entitled. While the court ruled that the overcharges to which the plaintiffs are entitled total $1.2 million, the court agreed with the Company’s legal arguments that rendered the overcharge liability lower than it could have been, and therefore the Company ~~will~~did not appeal the ruling. On June 23, 2022, the court ruled that the plaintiffs are entitled to attorneys’ fees incurred through February 28, 2022 in the amount of $0.4 million. ~~All such costs were included in the $2.7 million charge recorded in the~~ ~~fourth~~ ~~quarter of~~ ~~2021~~ ~~and accrued as of~~ ~~June 30, 2022.~~

On November 18, 2019, the same law firm which filed the Kuzmichcase filed a second action involving a separate group of 26 tenants (captioned Crowe et al v 50 Murray Street Acquisition LLC, Supreme Court, New York County, Index No. 161227/19), which action advances essentially the same claims as in Kuzmich. The Company’s deadline to answer or otherwise respond to the complaint in Crowehad been extended to June 30, ~~2020;~~2020; on such date, the Company filed its answer to the complaint. Pursuant to the court’s rules, on July 16, 2020, the plaintiffs filed an amended ~~complaint;~~complaint; the sole difference as compared to the initial complaint is that seven new plaintiffs-tenants were added to the ~~caption;~~caption; there were no substantive changes to the complaint’s allegations. On August 5, 2020, the Company filed its answer to the amended complaint. The case was placed on the court’s calendar and is next scheduled for a discovery conference on November 16, 2022. Counsel for the parties have been engaged in and are continuing settlement discussions.

On March 9, 2021, the same law firm which filed the Kuzmichand Crowecases filed a third action involving another tenant (captioned Horn v 50 Murray Street Acquisition LLC, Supreme Court, New York County, Index No. 152415/21), which action advances the same claims as in Kuzmich and Crowe. The Company filed its answer to the complaint on May 21, 2021.

OnAs a result of the ~~March 4,~~May 9, 2022 ~~the Supreme Court, New York County rendered a~~ decision ~~to deny the Company’s motion to dismiss the~~ ~~Kuzmich~~ ~~case as noted above and a decision that quantified amounts owed to tenants for rent overcharges in the~~ ~~Kuzmich~~ ~~case. These decisions~~which established the probability and ability to reasonably compute amounts owed to tenants for all the ~~cases. As a result,~~cases the Company recorded a charge for litigation settlement and other of $2.7 million in the consolidated statements of operations in the quarter ended December 31, 2021 comprising rent overcharges, interest and legal costs of plaintiff’s counsel. The Company paid $2.3 million to the plaintiffs during the three-month period ended September 30, 2022. A remaining liability of $0.4 million is included in the balance sheet at September 30, 2022.

In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

The Office of the Attorney General of the State of New York (“OAG”) commenced an investigation concerning the conduct of screening of tenant applicants in the building portfolio in which Clipper Equity and its principals have a management and/or ownership interest. Clipper Equity cooperated with the investigation and, in April 2022 entered into an Assurance of Discontinuance with the OAG to resolve the investigation on behalf of itself and its affiliates, the terms of which have no impact to the Company’s financial position or results of operations.

The Company is obligated to provide parking availability through August 2025 under a lease with a tenant at the 250 Livingston Street property; the current cost to the Company is approximately $205 per year.

~~The~~While business conditions in 2022 have improved, government actions in 2020 and 2021 intended to curb the spread of COVID-19 ~~pandemic has adversely impacted global economic activity and contributed to significant volatility in financial markets. The COVID-~~19 ~~pandemic and associated government actions intended to curb its spread~~ created disruptions in ~~and adversely impacted,~~ many industries and negatively impacted ~~and could continue to negatively impact,~~ the Company’s business in several ways, including ~~affecting its~~reducing our tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. ~~The Tribeca House property and several other~~During this period, all our residential properties experienced declines in leased occupancy and residential rental ~~rate as a result of the COVID-~~19 ~~pandemic. Certain of the Company’s~~rates per square foot and certain commercial tenants ~~requested and~~ received partial rent deferrals ~~during~~or restructured lease terms unfavorable to us. Despite the ~~pandemic (the total deferred amount remaining at~~improvements in our revenues, net operating income, rental rates and leased occupancy in ~~June 30,~~ 2022,~~was $1.5 million). In~~ some ~~cases, the Company restructured rent~~of these conditions persist and other obligations under its leases with its tenants on terms that were less favorable to it than those currently in place. Additionally, the outbreak could have a continued material adverse impact on economic and market conditions which ~~may~~ ultimately result in a further decrease in occupancy levels across the Company’s portfolio as residents reduce their spending and replacement tenants become harder to find. Despite mitigation of the worst effects of the pandemic, we are still unable to make a prediction as to the ultimate material adverse impact of the COVID-19 ~~pandemic. Nevertheless, COVID-~~19 ~~presents~~present uncertainty and risk with respect to the Company’s tenants ~~which could adversely affect~~and the Company’s financial performance.

The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.

The breakdown between commercial and residential revenue is as follows (unaudited):

One tenant at our Tribeca House property comprised approximately 26% of our gross tenants and other receivables at September 30, 2022.

The Company recorded office and overhead expenses pertaining to a related company in general and administrative expense of $64 and ~~$68~~$66 for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$128~~$192 and ~~$134~~$200 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021. The Company recognized a charge/(credit) to reimbursable payroll expense pertaining to a related company in general and administrative expense of ~~$(9)~~$2 and $8 for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$(17)~~$(16) and ~~$(33)~~$(25) for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

The Company paid legal and advisory fees to firms in which two of our directors were principals or partners of $0 and $0$200 for the three months ended ~~June~~September 30, 2022 and 2021 respectively, and $0 and ~~$404~~$604 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

The Company has classified its reporting segments into commercial and residential rental properties. The commercial reporting segment includes the 141 Livingston Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties. The residential reporting segment includes the Flatbush Gardens property, the Clover House property, the 10 West 65^th Street property, the 1010 Pacific Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties.

The Company’s income from operations by segment for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, is as follows (unaudited):

The Company’s interest expense by segment for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, is as follows (unaudited):

The Company’s capital expenditures, including acquisitions, by segment for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, are as follows (unaudited):

On November 8, 2022, the Board of Directors of the Company declared cash dividends of $0.095 for each share of Common Stock, Class B LLC units and LTIP units. The dividends are payable on November 25, 2022, to stockholders of record on November 21, 2022 for the Common Shares and LTIP units and September 30, 2022 for the Class B units.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the more detailed information set forth under the caption, “Cautionary Note Concerning Forward-Looking Statements,” and in our financial statements and the related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Clipper Realty Inc. (the “Company” or “we”) 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 current portfolio in Manhattan and Brooklyn. Our primary focus is to own, manage and operate our portfolio and to acquire and reposition additional multifamily residential and commercial properties in the New York metropolitan area. The Company has been organized and operates in conformity with the requirements for qualification and taxation as a real estate investment trust (“REIT”) under the U.S. federal income tax law and elected to be treated as a REIT commencing with the taxable year ended December 31, 2015.

These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation.

The Company’s ownership interest in its initial portfolio of properties, which includes the Tribeca House, Flatbush Gardens and the two Livingston Street properties, was acquired in the formation transactions in connection with the private offering. These properties are owned by the LLC subsidiaries, which are managed by the Company through the Operating Partnership. The Operating Partnership’s interests in the LLC subsidiaries generally entitle the Operating Partnership to all cash distributions from, and the profits and losses of, the LLC subsidiaries other than the preferred distributions to the continuing investors who hold Class B LLC units in these LLC subsidiaries. The continuing investors own an aggregate amount of 26,317,396 Class B LLC units, representing 62.1% of the Company’s common stock on a fully diluted basis. Accordingly, the Operating Partnership’s interests in the LLC subsidiaries entitle the Operating Partnership to receive 37.9% of the aggregate distributions from the LLC subsidiaries. The Company, through the Operating Partnership, owns all of the ownership interests in the Aspen property, the Clover House property, the 10 West 65^th Street property, the 1010 Pacific Street property and the Dean Street property.

The Company is making substantial progress in recovering from the effects of the COVID-19 pandemic. In 2022, the Company has recorded steadily increasing quarterly revenue and operating income, culminating in record levels in the third quarter of 2022 of $32.8 million and $17.6 million, respectively. This compares to revenue and net operating income in the fourth quarter of 2019, immediately prior to the onset of the COVID-19 pandemic, ~~has adversely impacted global economic activity~~of $30.6 million and ~~contributed~~$16.6 million. At September 30, 2022, leased occupancy in the residential portfolio was 99.1% and weighted average rent per square foot was $37.36, both exceeding pre-pandemic levels in the fourth quarter of 2019 of 97.7% and $36.47 per square foot, respectively. Throughout 2022, residential rents per square foot for new tenants have increased by over 20% from prior rental rates and by over 9% for renewals. While these trends may not continue, we expect our properties and the New York City market to ~~significant volatility~~remain desirable to a broad range of tenants.

Business conditions in ~~financial markets. The COVID-19 pandemic~~2022 contrast with those in 2020 and ~~associated~~2021, where government actions intended to curb ~~its~~the spread of COVID-19 created disruptions in ~~and adversely impacted,~~ many industries and negatively impacted ~~and could continue to negatively impact,~~ the Company’s business in several ways, including ~~affecting its~~reducing our tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. ~~The Tribeca House property and several other~~During this period, all of our residential properties experienced declines in leased occupancy and residential rental ~~rate as a result of the COVID-19 pandemic. Certain of the Company’s~~rates per square foot and certain commercial tenants ~~requested and~~ received partial rent deferrals ~~during~~or restructured lease terms unfavorable to us. Despite the ~~pandemic (the total deferred amount at June 30, 2022, was $1.5 million). In~~improvements noted above, some ~~cases, the Company restructured rent~~of these conditions persist and other obligations under its leases with its tenants on terms that were less favorable to it than those currently in place. Additionally, the outbreak could have a continued material adverse impact on economic and market conditions which may ultimately result in a further decrease in occupancy levels across the Company’s portfolio as residents reduce their spending and replacement tenants become harder to find. Despite mitigation of the worst effects of the pandemic, we are still unable to make a prediction as to the ultimate material adverse impact of the COVID-19 pandemic. Nevertheless, COVID-19 presentspresent uncertainty and risk with respect to the Company’s tenants ~~which could adversely affect~~and the Company’s financial performance.

Despite these continuing very challenging circumstances, our business has remained durable. Our properties have remained open and operational throughout the pandemic. We are taking the necessary steps to keep our employees and tenants safe in compliance with state and local orders, and we continue to provide typical services to our residents. Our rent collection rate during the second quarter of 2022 was 97.3%; for full-year 2021, our rent collection rate was 96.7%. At June 30, 2022, our properties were 98% leased. We expect our properties and the New York City market to remain desirable to a broad range of tenants and our operations to return to a more normal state over time.

Our focus throughout 2021 and year-to-date 2022 has been to manage our properties to optimize revenues and control costs, while continuing to renovate and reposition certain properties. The discussion below highlights the specific properties contributing to the changes in the results of operations.

Income Statement for the Three Months Ended ~~June~~September 30, 2022 and 2021 (in thousands)

Revenue. Residential rental income increased to ~~$22,597~~$23,108 for the three months ended ~~June~~September 30, 2022, from ~~$21,573~~$21,341 for the three months ended ~~June~~September 30, 2021, primarily due to increases in rental rates and leased occupancy at ~~the Tribeca House, Clover House and Aspen~~all properties of ~~$1,640~~$2,527 partially offset by reserves and writeoffs of receivables recorded in accordance with ASC 842 of ~~$637.~~$760. For example, base rent per square foot increased at the Tribeca House property to ~~$67.14 (99.7%~~$70.56 (99.0% leased occupancy) at ~~June~~September 30, 2022, from ~~$60.14 (97.0%~~$59.84 (96.6% leased occupancy) at ~~June~~September 30, 2021; leased occupancy at the Flatbush Gardens property increased to ~~97.7%~~99.1% at ~~June~~September 30, 2022 from ~~92.5%~~92.6% at ~~June~~September 30, 2021.

Commercial rental income increased to $9,692 for the three months ended September 30, 2022, from $9,290 for the three months ended ~~June 30, 2022, from $9,098 for the three months ended June~~September 30, 2021 due to commencement of a new leases at the Tribeca House property and increased escalation billings at the 141 Livingston Street and 250 Livingston Street properties offset partially by decreased occupancy at the Aspen property.

Property operating expenses. Property operating expenses include property-level costs such as compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping and, in 2021, bad debt expense. Property operating expenses ~~decreased~~increased to ~~$6,928~~$7,267 for the three months ended ~~June~~September 30, 2022, from ~~$7,221~~$6,684 for the three months ended ~~June~~September 30, 2021, primarily due to increased costs for supplies, repairs and maintenance, water and sewer and utility costs, partially offset by bad debt expense ~~of $900~~ recorded in 2021 under ASC 450 which is now recorded as a reduction of revenues in accordance with the adoption of ASC ~~842 partially offset by higher utilities costs.~~842.

Real estate taxes and insurance. Real estate taxes and insurance expenses increased to ~~$7,886~~$8,252 for the three months ended ~~June~~September 30, 2022, from ~~$7,363~~$7,853 for the three months ended ~~June~~September 30, 2021, due to increased property ~~insurance~~taxes across the ~~portfolio.~~portfolio, partially offset by lower insurance costs at Flatbush Gardens.

General and administrative. General and administrative expenses increased to ~~$3,197~~$3,209 for the three months ended ~~June~~September 30, 2022, from ~~$2,802~~$2,684 for the three months ended ~~June~~September 30, 2021 primarily due to increased executive compensation expense.

Transaction pursuit costs. Transaction pursuit costs primarily reflect costs incurred for an abandoned ~~acquisition.~~transaction.

Depreciation and amortization. Depreciation and amortization expense increased to ~~$6,732~~$6,784 for the three months ended ~~June~~September 30, 2022, from ~~$6,289~~$6,452 for the three months ended ~~June~~September 30, 2021, due to completed additions to real estate across the portfolio.

Interest expense, net. Interest expense, net, decreased to ~~$10,005~~$10,086 for the three months ended ~~June~~September 30, 2022, from ~~$10,366~~$10,375 for the three months ended ~~June~~September 30, 2021 primarily due to increased interest capitalized related to development of the 1010 Pacific Street and Dean Street properties in 2022.

Net loss.As a result of the foregoing, net loss decreased to ~~$2,953~~$2,788 for the three months ended ~~June~~September 30, 2022, from ~~$3,231~~$3,417 for the three months ended ~~June~~September 30, 2021.

Income Statement for the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021 (in thousands)

Revenue. Residential rental income increased to ~~$44,059~~$67,167 for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~$43,177~~$64,518 for the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to increases in rental rates and leased occupancy at ~~the Tribeca House, Clover House and Aspen~~all properties of ~~$2,199~~$4,727 partially offset by reserves and writeoffs of receivables recorded in accordance with ASC 842 of ~~$1,338.~~$2,078. For example, base rent per square foot increased at the Tribeca House property to ~~$67.14 (99.7%~~$70.56 (99.0% leased occupancy) at ~~June~~September 30, 2022, from ~~$60.14 (97.0%~~$59.84 (96.6% leased occupancy) at ~~June~~September 30, ~~2021;~~2021; leased occupancy at the Flatbush Gardens property increased to ~~97.7%~~99.1% at ~~June~~September 30, 2022 from ~~92.5%~~92.6% at ~~June~~September 30, 2021.

Commercial rental income increased to ~~$19,878~~$29,570 for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~$18,145~~$27,435 for the ~~six~~nine months ended ~~June~~September 30, 2021 due the restoration of revenue as per ASC 842 from a tenant at Tribeca House now probable of collection of $1,100, commencement of new leases at the Tribeca House property and increased escalation billings at the 141 Livingston Street property.

Property operating expenses. Property operating expenses include property-level costs such as compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping and, in 2021, bad debt expense. Property operating expenses decreased to ~~$14,467~~$21,734 for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~$15,863~~$22,547 for the ~~six~~nine months ended ~~June~~September 30, 2021, primarily due to bad debt expense of ~~$2,078~~$2,263 recorded in 2021 under ASC 450 which is now recorded as a reduction of revenues in accordance with the adoption of ASC 842 partially offset by higher supplies, repairs and maintenance, ~~expense at the Flatbush Gardens property.~~water and sewer and utility costs.

Real estate taxes and insurance. Real estate taxes and insurance expenses increased to ~~$15,817~~$24,069 for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~$14,675~~$22,528 for the ~~six~~nine months ended ~~June~~September 30, 2021, due to increased property insurance and tax assessments across the portfolio.

General and administrative. General and administrative expenses increased to ~~$6,139~~$9,348 for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~$5,095~~$7,779 for the ~~six~~nine months ended ~~June~~September 30, 2021 primarily due to increased executive compensation expense.

Transaction pursuit costs. Transaction pursuit costs primarily reflect costs incurred for an abandoned ~~acquisition.~~transaction.

Depreciation and amortization. Depreciation and amortization expense increased to ~~$13,437~~$20,221 for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~$12,516~~$18,968 for the ~~six~~nine months ended ~~June~~September 30, 2021, due to additions to real estate across the portfolio.

Interest expense, net. Interest expense, net, decreased to ~~$19,990~~$30,076 for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~$20,583~~$30,958 for the ~~six~~nine months ended ~~June~~September 30, 2021 primarily due to interest capitalized related to development of the 1010 Pacific Street and Dean Street properties in 2022.

Loss on modification/extinguishment of debt. Loss on modification/extinguishment of debt related to the refinancing of the 141 Livingston Street loan in February 2021. The amount included charges for early termination and extinguishment of debt and the write-off of unamortized debt costs.

Gain on involuntary conversion. Gain on involuntary conversion represented insurance proceeds in excess of the carrying value of assets disposed of related to fire damage suffered by units at the Flatbush Gardens property.

Net loss.As a result of the foregoing, net loss decreased to ~~$6,429~~$9,217 for the ~~six~~nine months ended ~~June~~September 30, 2022, from ~~$10,365~~$13,782 for the ~~six~~nine months ended ~~June~~September 30, 2021.

As of ~~June~~September 30, 2022, we had ~~$1,152 million~~$1.2 billion of indebtedness, net of unamortized issuance costs, secured by our properties, ~~$29.4~~$20.0 million of cash and cash equivalents, and ~~$14.5~~$15.5 million of restricted cash. See Note 5, “Notes Payable” of our consolidated financial statements for a discussion of the Company’s property-level debt.

As a REIT, we are required to distribute at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gains, to stockholders on an annual basis. We expect that these needs will be met from cash generated from operations and other sources, including proceeds from secured mortgages and unsecured indebtedness, proceeds from additional equity issuances and cash generated from the sale of property.

Our short-term liquidity needs will primarily be to fund operating expenses, recurring capital expenditures, property taxes and insurance, interest and scheduled debt principal payments, general and administrative expenses, and distributions to stockholders and unit holders. We generally expect to meet our short-term liquidity requirements through net cash provided by operations and cash on hand, and we believe we will have sufficient resources to meet our short-term liquidity requirements.

Our principal long-term liquidity needs will primarily be to fund additional property acquisitions, major renovation and upgrading projects, and debt payments and debt payments at maturity. We do not expect that net cash provided by operations will be sufficient to meet all of these long-term liquidity needs. We anticipate meeting our long-term liquidity requirements by using cash as an interim measure and funds from public and private equity offerings and long-term secured and unsecured debt offerings.

We believe that as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements. These sources include the incurrence of additional debt and the issuance of additional equity. However, we cannot provide assurance that this will be the case. Our ability to secure additional debt will depend on a number of factors, including our cash flow from operations, our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed. Our ability to access the equity capital markets will depend on a number of factors as well, including general market conditions, market conditions for REITs and market perceptions about our company.

We believe that our current cash flows from operations and cash on hand, coupled with additional mortgage debt, will be sufficient to allow us to continue operations, satisfy our contractual obligations and make distributions to our stockholders and the members of our LLC subsidiaries for at least the next twelve months. However, no assurance can be given that we will be able to refinance any of our outstanding indebtedness in the future on favorable terms or at all.

In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. During the three months ended ~~June~~September 30, 2022 and 2021, we paid dividends and distributions on our common shares, Class B LLC units and LTIP units totaling ~~$4.2~~$4.3 million and $4.2 million, respectively, and during the nine months ended September 30, 2022 and 2021, we paid dividends and distributions on our common shares, Class B LLC units and LTIP units totaling $12.8 million and $12.6 million, respectively.

Cash Flows for the ~~Three~~Nine Months Ended ~~June~~September 30, 2022 and 2021 (in thousands)

Cash flows provided by (used in) operating activities, investing activities and financing activities for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, were as follows:

Net cash flow provided by operating activities was ~~$11,682~~$15,159 for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$9,006~~$13,489 for the ~~six~~nine months ended ~~June~~September 30, 2021. The net increase during the 2022 period primarily reflects improved revenues discussed above ~~and improved collection experience.~~partially offset by payments made for accrued expenses, specifically a litigation payment of $2,300.

Net cash used in investing activities was ~~$30,879~~$41,992 for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$12,756~~$20,653 for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase was primarily due to capital spending on developing 1010 Pacific Street and the Dean Street property including acquisition of a few remaining parcels of land purchased in 2022.

Net cash provided by financing activities was ~~$10,942~~$10,101 for the ~~six~~nine months ended ~~June~~September 30, 2022, compared to ~~$13,011~~$6,366 for the ~~six~~nine months ended ~~June~~September 30, 2021. Cash was provided in the ~~six~~nine months ended ~~June~~September 30, 2022, by borrowings under the lending facility for 1010 Pacific Street and 953 Dean Street development properties ($~~20,839)~~24,855) partially offset by dividends and distributions ($~~8,461)~~12,767), scheduled debt amortization payments ($~~1,101)~~1,652) and loan issuance and extinguishment cost ($335). Cash was provided in the ~~six~~nine months ended ~~June~~September 30, 2021 by ~~net refinancing~~ proceeds from a new loan on the 141 Livingston Street property ($~~25,759)~~100,000) and additional borrowings related to the development and refinance at the 1010 Pacific Street property ($~~505)~~21,764), ~~regularly~~partially offset by repayment of the existing loan on the 141 Livingston Street property ($74,241), repayment of the bridge loan on the 1010 Pacific Street property ($21,054) scheduled debt amortization ($~~1,062),~~1,594) and loan issuance and extinguishment costs ($~~3,809) and dividends and distributions ($8,382)~~5,939).

No provision has been made for income taxes since all of the Company’s operations are held in pass-through entities and accordingly the income or loss of the Company is included in the individual income tax returns of the partners or members.

We elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our first taxable three months ended March 31, 2015. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates. We believe that we are organized and operate in a manner that will enable us to qualify and be taxed as a REIT and we intend to continue to operate to satisfy the requirements for qualification as a REIT for federal income tax purposes.

Inflation ~~did not have~~has recently become a ~~significant impact on the results of operations for the Company’s business for the periods reported~~factor in the ~~consolidated financial statements.~~United States economy and has increased the cost of acquiring, replacing and operating properties. For the three and nine month periods ended September 30, 2022, inflation impacted utility, payroll and repairs and supplies expenses. A substantial portion of our interest costs relating to operating properties are fixed through 2027. We do not believe that inflation currently poses a material risk to the ~~Company. The~~Company principally because leases at our residential rental properties, which comprise approximately 69% of our revenue, are short-term in ~~nature. Our~~nature and permit rent increases to recover increased costs, and our longer-term commercial and retail leases ~~would~~ generally allow us to recover some increased operating ~~costs in the event of significant inflation.~~costs.

Although the impact of inflation has been relatively insignificant in recent years, it has recently become a factor in the United States economy and could increase the cost of acquiring, replacing and operating the properties in the future.

In this Quarterly Report on Form 10-Q, 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.

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 certain 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 (loss) 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 the Company’s FFO and AFFO for the periods presented to net loss, 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), acquisition and other costs, transaction pursuit costs, loss on modification/extinguishment of debt and certain 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):

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):

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Except for the effects of adoption of ASC 842 in the first quarter of 2022 as more fully described in Note 2 Significant Accounting Policies, we believe that there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Form 10-K for the year ended December 31, 2021.

See Note 2, “Significant Accounting Policies” of our consolidated financial statements for a discussion of recent accounting pronouncements.

Our future income, cash flows and fair value relevant to our financial instruments depends upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control, contribute to interest rate risk.

A one percent change in interest rates on our ~~$71.9~~$75.9 million of variable rate debt as of ~~June~~September 30, 2022, would impact annual net loss by approximately ~~$0.7~~$0.8 million.

At ~~June~~September 30, 2022, there were no interest rate caps for the Company’s outstanding debt.

The fair value of the Company’s notes payable was approximately ~~$1,102.7~~$1,080.9 million and $1,199.4 million as of ~~June~~September 30, 2022 and December 31, 2021, ~~respectively~~respectively.

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this ~~Annual~~Quarterly Report on Form ~~10-K.~~10-Q. Based on the evaluation of our disclosure controls and procedures as of ~~June~~September 30, 2022, our CEO and CFO concluded that, as of such date, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

See Note 8, “Commitments and Contingencies” of our consolidated financial statements for a discussion of legal proceedings.

The risk factors disclosed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition, liquidity and operating results. Such risk factors continue to be relevant to an understanding of our business, financial condition, liquidity and operating results as of ~~June~~September 30, 2022, and there have been no material changes to those risk factors for the ~~six~~three and nine months ended ~~June~~September 30, 2022. ~~Moreover, many of the risks described in the risk factors set forth in our Annual Report on Form 10-K may be more likely to impact us as a result of the COVID-19 pandemic.~~

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned.

	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
	(unaudited)						(unaudited)			(audited)
ASSETS
Investment in real estate
Land and improvements	$	540,859		$	540,859		$	540,859		$	540,859
Building and improvements		652,887			649,686			654,276			649,686
Tenant improvements		3,406			3,406			3,406			3,406
Furniture, fixtures and equipment		12,697			12,500			12,840			12,500
Real estate under development		126,507			97,301			134,775			97,301
Total investment in real estate		1,336,356			1,303,752			1,346,156			1,303,752
Accumulated depreciation		(171,320	)		(158,002	)		(178,043	)		(158,002	)
Investment in real estate, net		1,165,036			1,145,750			1,168,113			1,145,750
Cash and cash equivalents		29,432			34,524			19,987			34,524
Restricted cash		14,537			17,700			15,505			17,700
Tenant and other receivables, net of allowance for doubtful accounts of $178 and $7,905, respectively		4,689			10,260
Tenant and other receivables, net of allowance for doubtful accounts of $172 and $7,905, respectively								5,151			10,260
Deferred rent		2,600			2,656			2,630			2,656
Deferred costs and intangible assets, net		6,861			7,126			6,740			7,126
Prepaid expenses and other assets		9,916			15,641			10,866			15,641
TOTAL ASSETS	$	1,233,071		$	1,233,657		$	1,228,992		$	1,233,657

LIABILITIES AND EQUITY
Liabilities:
Notes payable, net of unamortized loan costs of $11,489 and $12,898, respectively	$	1,152,301		$	1,131,154
Notes payable, net of unamortized loan costs of $10,545 and $12,898, respectively							$	1,156,709		$	1,131,154
Accounts payable and accrued liabilities		17,640			19,558			13,649			19,558
Security deposits		7,586			7,110			8,006			7,110
Below-market leases, net		36			53			27			53
Other liabilities		5,286			5,833			6,618			5,833
TOTAL LIABILITIES		1,182,849			1,163,708			1,185,009			1,163,708
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		0			0			—			—
Common stock, $0.01 par value; 500,000,000 shares authorized,16,063,228 shares issued and outstanding		160			160			160			160
Additional paid-in-capital		88,392			88,089			88,610			88,089
Accumulated deficit		(69,516	)		(61,736	)		(72,099	)		(61,736	)
Total stockholders’ equity		19,036			26,513			16,671			26,513
Non-controlling interests		31,186			43,436			27,312			43,436
TOTAL EQUITY		50,222			69,949			43,983			69,949
TOTAL LIABILITIES AND EQUITY	$	1,233,071		$	1,233,657		$	1,228,992		$	1,233,657

	Number of common shares		Common stock		Additional paid-in- capital		Accumulated deficit			Total stockholders’ equity			Non- controlling interests			Total equity			Number of common shares		Common stock		Additional paid-in- capital		Accumulated deficit			Total stockholders’ equity			Non- controlling interests			Total equity
Balance December 31, 2021		16,063,228	$	160	$	88,089	$	(61,736	)	$	26,513		$	43,436		$	69,949			16,063,228	$	160	$	88,089	$	(61,736	)	$	26,513		$	43,436		$	69,949
Cumulative-effect adjustment		—		—		—		(2,291	)		(2,291	)		(3,755	)		(6,046	)		—		—		—		(2,291	)		(2,291	)		(3,755	)		(6,046	)
Amortization of LTIP grants		—		—		—		—			—			495			495			—		—		—		—			—			495			495
Dividends and distributions		—		—		—		(1,526	)		(1,526	)		(2,662	)		(4,188	)		—		—		—		(1,526	)		(1,526	)		(2,662	)		(4,188	)
Net loss		—		—		—		(1,318	)		(1,318	)		(2,158	)		(3,476	)		—		—		—		(1,318	)		(1,318	)		(2,158	)		(3,476	)
Reallocation of noncontrolling interests		—		0		126		0			126			(126	)		0			—		—		126		—			126			(126	)		—
Balance March 31, 2022		16,063,228	$	160	$	88,215	$	(66,871	)	$	21,504		$	35,230		$	56,734			16,063,228	$	160	$	88,215	$	(66,871	)	$	21,504		$	35,230		$	56,734
Amortization of LTIP grants		—		0		0		0			0			714			714			—		—		—		—			—			714			714
Dividends and distributions		—		0		0		(1,526	)		(1,526	)		(2,747	)		(4,273	)		—		—		—		(1,526	)		(1,526	)		(2,747	)		(4,273	)
Net loss		—		0		0		(1,119	)		(1,119	)		(1,834	)		(2,953	)		—		—		—		(1,119	)		(1,119	)		(1,834	)		(2,953	)
Reallocation of noncontrolling interests		—		0		177		0			177			(177	)		0			—		—		177		—			177			(177	)		—
Balance June 30, 2022		16,063,228	$	160	$	88,392	$	(69,516	)	$	19,036		$	31,186		$	50,222			16,063,228	$	160	$	88,392	$	(69,516	)	$	19,036		$	31,186		$	50,222
Amortization of LTIP grants																				—		—		—		—			—			855			855
Dividends and distributions																				—		—		—		(1,526	)		(1,526	)		(2,780	)		(4,306	)
Net loss																				—		—		—		(1,057	)		(1,057	)		(1,731	)		(2,788	)
Reallocation of noncontrolling interests																				—		—		218		—			218			(218	)		—
Balance September 30, 2022																				16,063,228	$	160		88,610	$	(72,099	)	$	16,671			27,312		$	43,983

	Number of common shares		Common stock		Additional paid-in- capital		Accumulated deficit			Total stockholders’ equity			Non- controlling interests			Total equity			Number of common shares		Common stock		Additional paid-in- capital		Accumulated deficit			Total stockholders’ equity			Non- controlling interests			Total equity
Balance December 31, 2020		16,063,228	$	160	$	87,347	$	(48,045	)	$	39,462		$	64,652		$	104,114			16,063,228	$	160	$	87,347	$	(48,045	)	$	39,462		$	64,652		$	104,114
Amortization of LTIP grants		—		—		—		—			—			486			486			—		—		—		—			—			486			486
Dividends and distributions		—		—		—		(1,526	)		(1,526	)		(2,665	)		(4,191	)		—		—		—		(1,526	)		(1,526	)		(2,665	)		(4,191	)
Net loss		—		—		—		(2,704	)		(2,704	)		(4,430	)		(7,134	)		—		—		—		(2,704	)		(2,704	)		(4,430	)		(7,134	)
Reallocation of noncontrolling interests		—		0		122		0			122			(122	)		0			—		—		122		—			122			(122	)		—
Balance March 31, 2021		16,063,228	$	160	$	87,469	$	(52,275	)	$	35,354		$	57,921		$	93,275			16,063,228	$	160	$	87,469	$	(52,275	)	$	35,354		$	57,921		$	93,275
Amortization of LTIP grants		—		0		0		0			0			795			795			—		—		—		—			—			795			795
Dividends and distributions		—		0		0		(1,526	)		(1,526	)		(2,665	)		(4,191	)		—		—		—		(1,526	)		(1,526	)		(2,665	)		(4,191	)
Net loss		—		0		0		(1,225	)		(1,225	)		(2,006	)		(3,231	)		—		—		—		(1,225	)		(1,225	)		(2,006	)		(3,231	)
Reallocation of noncontrolling interests		—		0		238		0			238			(238	)		0			—		—		238		—			238			(238	)		—
Balance June 30, 2021		16,063,228	$	160	$	87,707	$	(55,026	)	$	32,841		$	53,807		$	86,648			16,063,228	$	160	$	87,707	$	(55,026	)	$	32,841		$	53,807		$	86,648
Amortization of LTIP grants																				—		—		—		—			—			665			665
Dividends and distributions																				—		—		—		(1,526	)		(1,526	)		(2,662	)		(4,188	)
Net loss																				—		—		—		(1,295	)		(1,295	)		(2,122	)		(3,417	)
Reallocation of noncontrolling interests																				—		—		191		—			191			(191	)		—
Balance September 30, 2021																				16,063,228	$	160	$	87,898	$	(57,847	)	$	30,211		$	49,497		$	79,708

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share amounts)	2022			2021			2022			2021			2022			2021			2022			2021
Numerator
Net loss attributable to common stockholders	$	(1,119	)	$	(1,225	)	$	(2,437	)	$	(3,929	)	$	(1,057	)	$	(1,295	)	$	(3,494	)	$	(5,224	)
Less: income attributable to participating securities		(246	)		(165	)		(408	)		(330	)		(280	)		(161	)		(688	)		(491	)
Subtotal	$	(1,365	)	$	(1,390	)	$	(2,845	)	$	(4,259	)	$	(1,337	)	$	(1,456	)	$	(4,182	)	$	(5,715	)
Denominator
Weighted-average common shares outstanding		16,063			16,063			16,063			16,063			16,063			16,063			16,063			16,063

Basic and diluted net loss per share attributable to common stockholders	$	(0.08	)	$	(0.09	)	$	(0.18	)	$	(0.27	)	$	(0.08	)	$	(0.09	)	$	(0.26	)	$	(0.36	)

	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
	(unaudited)						(unaudited)
Deferred costs	$	348		$	348		$	348		$	348
Lease origination costs		1,286			1,191			1,345			1,191
In-place leases		428			428			428			428
Real estate tax abatements		9,142			9,142			9,142			9,142
Total deferred costs and intangible assets		11,204			11,109			11,263			11,109
Less accumulated amortization		(4,343	)		(3,983	)		(4,523	)		(3,983	)
Total deferred costs and intangible assets, net	$	6,861		$	7,126		$	6,740		$	7,126

Building and improvements (in years)	10	–	44	10	-	44
Tenant improvements	Shorter of useful life or lease term			Shorter of useful life or lease term
Furniture, fixtures and equipment (in years)	3	–	15	3	-	15

2022 (Remainder)	$	328	$	148
2023		581		581
2024		565		565
2025		555		555
2026		539		539
Thereafter		4,293		4,352
Total	$	6,861	$	6,740

Property	Maturity	Interest Rate		June 30, 2022			December 31, 2021			Maturity	Interest Rate		September 30, 2022			December 31, 2021

Flatbush Gardens, Brooklyn, NY (a)	6/1/2032		3.125%	$	329,000		$	329,000		6/1/2032		3.125%	$	329,000		$	329,000
250 Livingston Street, Brooklyn, NY (b)	6/6/2029		3.63%		125,000			125,000		6/6/2029		3.63%		125,000			125,000
141 Livingston Street, Brooklyn, NY (c)	3/6/2031		3.21%		100,000			100,000		3/6/2031		3.21%		100,000			100,000
Tribeca House, Manhattan, NY (d)	3/6/2028		4.506%		360,000			360,000		3/6/2028		4.506%		360,000			360,000
Aspen, Manhattan, NY (e)	7/1/2028		3.68%		63,303			64,047		7/1/2028		3.68%		62,934			64,047
Clover House, Brooklyn, NY (f)	12/1/2029		3.53%		82,000			82,000		12/1/2029		3.53%		82,000			82,000
10 West 65^th Street, Manhattan, NY (g)	11/1/2027		3.375%		32,563			32,921		11/1/2027		3.375%		32,381			32,921
1010 Pacific Street, Brooklyn, NY (h)	9/1/2024		LIBOR + 3.60%		34,939			21,084		9/1/2024	LIBOR + 3.60%			38,954			21,084
Dean Street, Brooklyn, NY (i)	12/22/2022		Prime + 1.60%		36,985			30,000		12/22/2022	Prime + 1.60%			36,985			30,000
Total debt	Total debt			$	1,163,790		$	1,144,052		Total debt			$	1,167,254		$	1,144,052
Unamortized debt issuance costs	Unamortized debt issuance costs				(11,489	)		(12,898	)	Unamortized debt issuance costs				(10,545	)		(12,898	)
Total debt, net of unamortized debt issuance costs	Total debt, net of unamortized debt issuance costs			$	1,152,301		$	1,131,154		Total debt, net of unamortized debt issuance costs			$	1,156,709		$	1,131,154

2022 (Remainder)	$	38,099	$	37,548
2023		2,297		2,296
2024		37,312		41,328
2025		2,468		2,468
2026		4,549		2,559
Thereafter		1,079,065		1,081,055
Total	$	1,163,790	$	1,167,254

2022 (Remainder)		15,286	$	7,730
2023		29,159		30,470
2024		28,916		30,359
2025		23,249		24,721
2026		2,933		4,434
Thereafter		11,018		20,812
Total	$	110,561	$	118,526

	Commercial			Residential			Total
Three months ended June 30, 2022		29	%		71	%		100	%
Three months ended June 30, 2021		30	%		70	%		100	%
Six months ended June 30, 2022		31	%		69	%		100	%
Six months ended June 30, 2021		30	%		70	%		100	%

Nine months ended September 30, 2022	Commercial		Residential		Total
Rental income	$	29,570	$	67,167	$	96,737
Total revenues		29,570		67,167		96,737
Property operating expenses		3,567		18,167		21,734
Real estate taxes and insurance		6,264		17,805		24,069
General and administrative		1,745		7,603		9,348
Transaction pursuit costs		81		425		506
Depreciation and amortization		4,108		16,113		20,221
Total operating expenses		15,765		60,113		75,878
Income from operations	$	13,805	$	7,054	$	20,859

	2022			2021			Increase (decrease)			%			2022			2021			Increase (decrease)			%
Revenues
Residential rental income	$	22,597		$	21,573		$	1,024			4.7	%	$	23,108		$	21,341		$	1,767			8.3	%
Commercial rental income		9,290			9,098			192			2.1	%		9,692			9,290			402			4.3	%
Total revenues		31,887			30,671			1,216			4.0	%		32,800			30,631			2,169			7.1	%
Operating Expenses
Property operating expenses		6,928			7,221			(293	)		(4.1	)%		7,267			6,684			583			8.7	%
Real estate taxes and insurance		7,886			7,363			523			7.1	%		8,252			7,853			399			5.1	%
General and administrative		3,197			2,802			395			14.1	%		3,209			2,684			525			19.6	%
Transaction pursuit costs		92			—			92			100.0	%		(10	)		—			(10	)		(100.0	)%
Depreciation and amortization		6,732			6,289			443			7.0	%		6,784			6,452			332			5.1	%
Total operating expenses		24,835			23,675			1,160			4.9	%		25,502			23,673			1,829			7.7	%
Income from operations		7,052			6,996			56			0.8	%		7,298			6,958			340			4.9	%
Interest expense, net		(10,005	)		(10,366	)		(361	)		(3.5	)%		(10,086	)		(10,375	)		289			2.8	%
Gain on involuntary conversion		—			139			(139	)		(100.0	)%
Net loss	$	(2,953	)	$	(3,231	)	$	278			8.6	%	$	(2,788	)	$	(3,417	)	$	629			18.4	%

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
FFO
Net loss	$	(2,953	)	$	(3,231	)	$	(6,429	)	$	(10,365	)	$	(2,788	)	$	(3,417	)	$	(9,217	)	$	(13,782	)
Real estate depreciation and amortization		6,732			6,289			13,437			12,516			6,784			6,452			20,221			18,968
FFO	$	3,779		$	3,058		$	7,008		$	2,151		$	3,996		$	3,035		$	11,004		$	5,186

AFFO
FFO	$	3,779		$	3,058		$	7,008		$	2,151		$	3,996		$	3,035		$	11,004		$	5,186
Amortization of real estate tax intangible		121			121			241			241			121			120			361			361
Amortization of above- and below-market leases		(8	)		(32	)		(17	)		(63	)		(9	)		(33	)		(26	)		(96	)
Straight-line rent adjustments		(1	)		(52	)		(190	)		(53	)		(31	)		(72	)		(220	)		(125	)
Amortization of debt origination costs		313			313			626			621			313			313			939			934
Amortization of LTIP awards		714			795			1,209			1,281			856			665			2,064			1,946
Transaction pursuit costs		92			—			516			60			(10	)		—			506			60
Loss on extinguishment / modification of debt		—			—			—			3,034			—			—			—			3,034
Gain on involuntary conversion		—			(139	)		—			(139	)		—			—			—			(139	)
Certain litigation-related expenses		166			65			253			124			(65	)		75			188			199
Recurring capital spending		(89	)		(58	)		(138	)		(108	)		(138	)		(51	)		(276	)		(159	)
AFFO	$	5,087		$	4,071		$	9,508		$	7,149		$	5,033		$	4,052		$	14,540		$	11,201

Exhibit Number	Description
*31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

*31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

**101.INS	Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

**101.SCH	Inline XBRL Taxonomy Extension Schema Document

**101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

**101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

**101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

**101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

**104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	CLIPPER REALTY INC.

~~August~~November 9, 2022	By:	/s/ David Bistricer
		David Bistricer
		Co-Chairman and Chief Executive Officer