CLIPPER REALTY INC. 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. Overview of Our CompanyClipper 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 theNew York metropolitan area, with a current portfolio inManhattan andBrooklyn . Our primary focus is to own, manage and operate our portfolio and to acquire and reposition additional multifamily residential and commercial properties in theNew 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 theU.S. federal income tax law and elected to be treated as a REIT commencing with the taxable year endedDecember 31, 2015 .
As of
• two neighboring residential/retail rental properties at
53 Park Place in theTribeca neighborhood ofManhattan ;
• one residential property complex in the East Flatbush neighborhood of
consisting of 59 buildings;
• two primarily commercial properties in
includes 36 residential apartment units);
• one residential/retail rental property at
• one residential rental property at 107
Heights neighborhood of Brooklyn ;
• one residential rental property at
neighborhood of Manhattan ; and
• one property at
Brooklyn , being redeveloped as a residential rental building.
• the
building.
These properties are located in the most densely populated major city in
21
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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 65th Street property, the 1010 Pacific Street property and the Dean Street
property.
COVID-19 Pandemic
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, of $30.6 million and
$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 remain desirable to a broad range of
tenants.
Business conditions in 2022 contrast with those in 2020 and 2021, where
government actions intended to curb the spread of COVID-19 created disruptions
in many industries and negatively impacted the Company's business in several
ways, including reducing our tenants' ability or willingness to pay rents and
reducing demand for housing in the New York metropolitan area. During this
period, all of our residential properties experienced declines in leased
occupancy and residential rental rates per square foot and certain commercial
tenants received partial rent deferrals or restructured lease terms unfavorable
to us. Despite the improvements noted above, some of these conditions persist
and present uncertainty and risk with respect to the Company's tenants and the
Company's financial performance.
Results of Operations
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.
22
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Income Statement for the Three Months Ended September 30, 2022 and 2021 (in
thousands)
Increase
2022 2021 (decrease) %
Revenues
Residential rental income $ 23,108 $ 21,341 $ 1,767 8.3 %
Commercial rental income 9,692 9,290 402 4.3 %
Total revenues 32,800 30,631 2,169 7.1 %
Operating Expenses
Property operating expenses 7,267 6,684 583 8.7 %
Real estate taxes and insurance 8,252 7,853 399 5.1 %
General and administrative 3,209 2,684 525 19.6 %
Transaction pursuit costs (10 ) - (10 ) (100.0 )%
Depreciation and amortization 6,784 6,452 332 5.1 %
Total operating expenses 25,502 23,673 1,829 7.7 %
Income from operations 7,298 6,958 340 4.9 %
Interest expense, net (10,086 ) (10,375 ) 289 2.8 %
Net loss $ (2,788 ) $ (3,417 ) $ 629 18.4 %
Revenue. Residential rental income increased to $23,108 for the three months
ended September 30, 2022 , from $21,341 for the three months ended September 30,
2021 , primarily due to increases in rental rates and leased occupancy at all
properties of $2,527 partially offset by reserves and writeoffs of receivables
recorded in accordance with ASC 842 of $760 . For example, base rent per square
foot increased at the Tribeca House property to $70.56 (99.0% leased occupancy)
at September 30, 2022 , from $59.84 (96.6% leased occupancy) at September 30,
2021 ; leased occupancy at the Flatbush Gardens property increased to 99.1% at
September 30, 2022 from 92.6% at 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 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 increased to $7,267 for the three months ended
September 30, 2022 , from $6,684 for the three months ended 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 recorded in
2021 under ASC 450 which is now recorded as a reduction of revenues in
accordance with the adoption of ASC 842.
Real estate taxes and insurance. Real estate taxes and insurance expenses
increased to $8,252 for the three months ended September 30, 2022 , from $7,853
for the three months ended September 30, 2021 , due to increased property taxes
across the portfolio, partially offset by lower insurance costs at Flatbush
Gardens .
General and administrative. General and administrative expenses increased to
$3,209 for the three months ended September 30, 2022 , from $2,684 for the three
months ended September 30, 2021 primarily due to increased executive
compensation expense.
Transaction pursuit costs. Transaction pursuit costs primarily reflect costs incurred for an abandoned transaction.
Depreciation and amortization. Depreciation and amortization expense increased to$6,784 for the three months endedSeptember 30, 2022 , from$6,452 for the three months endedSeptember 30, 2021 , due to completed additions to real estate across the portfolio. Interest expense, net. Interest expense, net, decreased to$10,086 for the three months endedSeptember 30, 2022 , from$10,375 for the three months endedSeptember 30, 2021 primarily due to increased interest capitalized related to development of the1010 Pacific Street andDean Street properties in 2022. Net loss. As a result of the foregoing, net loss decreased to$2,788 for the three months endedSeptember 30, 2022 , from$3,417 for the three months endedSeptember 30, 2021 . 23
-------------------------------------------------------------------------------- Income Statement for the Nine Months EndedSeptember 30, 2022 and 2021 (in thousands) Increase 2022 2021 (decrease) % Revenues Residential rental income$ 67,167 $ 64,518 $ 2,649 4.1 % Commercial rental income 29,570 27,435 2,135 7.8 % Total revenues 96,737 91,953 4,784 5.2 % Operating Expenses Property operating expenses 21,734 22,547 (813 ) (3.6 )% Real estate taxes and insurance 24,069 22,528 1,541 6.8 % General and administrative 9,348 7,779 1,569 20.2 % Transaction pursuit costs 506 60 446 743.3 % Depreciation and amortization 20,221 18,968 1,253 6.6 % Total operating expenses 75,878 71,882 3,996 5.6 % Income from operations 20,859 20,071 788 3.9 % Interest expense, net (30,076 ) (30,958 ) 882 2.8 % Loss on modification/extinguishment of debt - (3,034 ) 3,034 100.0 % Gain on involuntary conversion - 139 (139 ) (100.0 )% Net loss$ (9,217 ) $ (13,782 ) $ 4,565 33.1 % Revenue. Residential rental income increased to$67,167 for the nine months endedSeptember 30, 2022 , from$64,518 for the nine months endedSeptember 30, 2021 , primarily due to increases in rental rates and leased occupancy at all properties of$4,727 partially offset by reserves and writeoffs of receivables recorded in accordance with ASC 842 of$2,078 . For example, base rent per square foot increased at the Tribeca House property to$70.56 (99.0% leased occupancy) atSeptember 30, 2022 , from$59.84 (96.6% leased occupancy) atSeptember 30, 2021 ? leased occupancy at theFlatbush Gardens property increased to 99.1% atSeptember 30, 2022 from 92.6% atSeptember 30, 2021 . Commercial rental income increased to$29,570 for the nine months endedSeptember 30, 2022 , from$27,435 for the nine months endedSeptember 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 theTribeca House property and increased escalation billings at the141 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$21,734 for the nine months endedSeptember 30, 2022 , from$22,547 for the nine months endedSeptember 30, 2021 , primarily due to bad debt expense of$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,water and sewer and utility costs.
Real estate taxes and insurance. Real estate taxes and insurance expenses
increased to
General and administrative. General and administrative expenses increased to$9,348 for the nine months endedSeptember 30, 2022 , from$7,779 for the nine months endedSeptember 30, 2021 primarily due to increased executive compensation expense.
Transaction pursuit costs. Transaction pursuit costs primarily reflect costs incurred for an abandoned transaction.
Depreciation and amortization. Depreciation and amortization expense increased to$20,221 for the nine months endedSeptember 30, 2022 , from$18,968 for the nine months endedSeptember 30, 2021 , due to additions to real estate across the portfolio. Interest expense, net. Interest expense, net, decreased to$30,076 for the nine months endedSeptember 30, 2022 , from$30,958 for the nine months endedSeptember 30, 2021 primarily due to interest capitalized related to development of the1010 Pacific Street andDean Street properties in 2022. 24 -------------------------------------------------------------------------------- Loss on modification/extinguishment of debt. Loss on modification/extinguishment of debt related to the refinancing of the141 Livingston Street loan inFebruary 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
Net loss. As a result of the foregoing, net loss decreased to$9,217 for the nine months endedSeptember 30, 2022 , from$13,782 for the nine months endedSeptember 30, 2021 .
Liquidity and Capital Resources
As of
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.
Short-Term and Long-Term Liquidity Needs
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. Distributions 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 endedSeptember 30, 2022 and 2021, we paid dividends and distributions on our common shares,Class B LLC units and LTIP units totaling$4.3 million and$4.2 million , respectively, and during the nine months endedSeptember 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$12.6 million , respectively. 25
-------------------------------------------------------------------------------- Cash Flows for the Nine Months EndedSeptember 30, 2022 and 2021 (in thousands) Nine Months Ended September 30, 2022 2021 Operating activities$ 15,159 $ 13,489 Investing activities (41,992 ) (20,653 ) Financing activities 10,101 6,366 Cash flows provided by (used in) operating activities, investing activities and financing activities for the nine months endedSeptember 30, 2022 and 2021, were as follows: Net cash flow provided by operating activities was$15,159 for the nine months endedSeptember 30, 2022 , compared to$13,489 for the nine months endedSeptember 30, 2021 . The net increase during the 2022 period primarily reflects improved revenues discussed above partially offset by payments made for accrued expenses, specifically a litigation payment of$2,300 .
Net cash used in investing activities was
Net cash provided by financing activities was$10,101 for the nine months endedSeptember 30, 2022 , compared to$6,366 for the nine months endedSeptember 30, 2021 . Cash was provided in the nine months endedSeptember 30, 2022 , by borrowings under the lending facility for1010 Pacific Street and953 Dean Street development properties ($24,855 ) partially offset by dividends and distributions ($12,767 ), scheduled debt amortization payments ($1,652 ) and loan issuance and extinguishment cost ($335 ). Cash was provided in the nine months endedSeptember 30, 2021 by proceeds from a new loan on the141 Livingston Street property ($100,000 ) and additional borrowings related to the development and refinance at the1010 Pacific Street property ($21,764 ), partially offset by repayment of the existing loan on the141 Livingston Street property ($74,241 ), repayment of the bridge loan on the1010 Pacific Street property ($21,054 ) scheduled debt amortization ($1,594 ) and loan issuance and extinguishment costs ($5,939 ). Income Taxes 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 forU.S. federal income tax purposes, beginning with our first taxable three months endedMarch 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 Inflation has recently become a factor inthe United States economy and has increased the cost of acquiring, replacing and operating properties. For the three and nine month periods endedSeptember 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 principally because leases at our residential rental properties, which comprise approximately 69% of our revenue, are short-term in nature and permit rent increases to recover increased costs, and our longer-term commercial and retail leases generally allow us to recover some increased operating costs. 26 --------------------------------------------------------------------------------
Non-GAAP Financial Measures
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.
Funds From Operations and Adjusted Funds From Operations
FFO is defined by theNational 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. 27
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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):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
FFO
Net loss $ (2,788 ) $ (3,417 ) $ (9,217 ) $ (13,782 )
Real estate depreciation and
amortization 6,784 6,452 20,221 18,968
FFO $ 3,996 $ 3,035 $ 11,004 $ 5,186
AFFO
FFO $ 3,996 $ 3,035 $ 11,004 $ 5,186
Amortization of real estate tax
intangible 121 120 361 361
Amortization of above- and below-market
leases (9 ) (33 ) (26 ) (96 )
Straight-line rent adjustments (31 ) (72 ) (220 ) (125 )
Amortization of debt origination costs 313 313 939 934
Amortization of LTIP awards 856 665 2,064 1,946
Transaction pursuit costs (10 ) - 506 60
Loss on extinguishment / modification of
debt - - - 3,034
Gain on involuntary conversion - - - (139 )
Certain litigation-related expenses (65 ) 75 188 199
Recurring capital spending (138 ) (51 ) (276 ) (159 )
AFFO $ 5,033 $ 4,052 $ 14,540 $ 11,201 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):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Adjusted EBITDA
Net loss $ (2,788 ) $ (3,417 ) $ (9,217 ) $ (13,782 )
Real estate depreciation and
amortization 6,784 6,452 20,221 18,968
Amortization of real estate tax
intangible 121 120 361 361
Amortization of above- and below-market
leases (9 ) (33 ) (26 ) (96 )
Straight-line rent adjustments (31 ) (72 ) (220 ) (125 )
Amortization of LTIP awards 856 665 2,064 1,946
Interest expense, net 10,086 10,375 30,076 30,958
Transaction pursuit costs (10 ) - 506 60
Loss on extinguishment / modification of
debt - - - 3,034
Gain on involuntary conversion - - - (139 )
Certain litigation-related expenses (65 ) 75 188 199
Adjusted EBITDA $ 14,944 $ 14,165 $ 43,953 $ 41,384
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Net Operating Income We believe that NOI is a useful measure of our operating performance. We define NOI as income from operations plus real estate depreciation and amortization, general and administrative expenses, acquisition and other costs, transaction pursuit costs, amortization of identifiable intangibles and straight-line rent adjustments to revenue from long-term leases, less gain on termination of lease. We believe that this measure is widely recognized and provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We use NOI to evaluate our performance because NOI allows us to evaluate the operating performance of our company by measuring the core operations of property performance and capturing trends in rental housing and property operating expenses. NOI is also a widely used metric in valuation of properties.
However, NOI should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to that of other REITs.
The following table sets forth a reconciliation of NOI for the periods presented
to income from operations, computed in accordance with GAAP (amounts in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
NOI
Income from operations $ 7,298 $ 6,958 $ 20,859 $ 20,071
Real estate depreciation and
amortization 6,784 6,452 20,221 18,968
General and administrative expenses 3,209 2,684 9,348 7,779
Transaction pursuit costs (10 ) - 506 60
Amortization of real estate tax
intangible 121 120 361 361
Amortization of above- and below-market
leases (9 ) (33 ) (26 ) (96 )
Straight-line rent adjustments (31 ) (72 ) (220 ) (125 )
NOI $ 17,362 $ 16,109 $ 51,049 $ 47,018
Critical Accounting Policies
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 .
Recent Accounting Pronouncements
See Note 2, "Significant Accounting Policies" of our consolidated financial statements for a discussion of recent accounting pronouncements.
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