Company: CLPR
Filing Date: 2025-02-14
Form Type: 10-K
Source: 0001437749-25-003988
Chunk: 41

Company: Clipper Realty Inc.
Filing Date: 2025-02-14
Form: 10-K
Item: Item 1A
Chunk 41
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●   force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of the 100% tax on income from prohibited transactions) or in violation of certain covenants to which we may be subject;
●   subject us to increased sensitivity to interest rate increases;                                                                                                                                                                                 
●   make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events;                                                                                                                                     
●   limit our ability to withstand competitive pressures;                                                                                                                                                                                           
●   limit our ability to refinance our indebtedness at maturity or result in refinancing terms that are less favorable than the terms of our original indebtedness;                                                                                 
●   reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or                                                                                                                             
●   place us at a competitive disadvantage to competitors that have relatively less debt than we have.                                                                                                                                              
 
If any one of these events were to occur, our financial condition, results of operations, cash flow and the market value of our common stock could be adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hurt our ability to meet the REIT distribution requirements imposed by the Code.
 
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Changing interest rates could increase interest costs and adversely affect our cash flows and the market price of our securities. 
 
We currently have, and expect to incur in the future, interest-bearing debt at rates that vary with market interest rates. As of December 31, 2024, we had approximately $140.0 million of variable rate indebtedness outstanding, for our Dean Street development property and our 10 West 65th Street property, which constitutes approximately 11.0% of total outstanding indebtedness as of such date, and we have experienced increases in the interest rates on such indebtedness, which has increased our interest expense and adversely impacted our results of operations and cash flows. Continued increases in interest rates would further increase our interest expense and increase the cost of refinancing existing indebtedness and of issuing new debt. The effect of prolonged interest rate increases could negatively impact our ability to service our indebtedness, make distributions and make acquisitions and develop properties.
 
Our tax protection agreement requires our Operating Partnership to maintain certain debt levels that otherwise would not be required to operate our business.
 
Under our tax protection agreement, we undertake that our LLC subsidiaries will maintain a certain level of indebtedness and, in the case that level of indebtedness cannot be maintained, we are required to provide our continuing investors the opportunity to guarantee