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 September 30, 2020March 31, 2021

 

Commission File Number: 000-53650

 

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland 20-8198863
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

1985 Cedar Bridge Avenue, Suite 1, Lakewood, New Jersey 08701

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code:  (888) 808-7348

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

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 ý☒   No ¨☐

 

Indicate by check mark whether the Registrant has submitted electronically, if any, 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 and post such files).

Yes ý☒   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 the definitions 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 x☒ Smaller reporting company x☒
  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 ý☒

 

As of NovemberMay 10, 2020,2021, the Registrant had approximately 20.2 million shares of common stock outstanding.

 

 

 

 

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST V, INC.

INDEX

 

    Page
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements  (Unaudited) 1
   
  Consolidated Balance Sheets as of September 30, 2020March 31, 2021 and December 31, 20192020 31
   
  Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30,March 31, 2021 and 2020 and 2019 42
     
  Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30,March 31, 2021 and 2020 and 2019 53
     
  Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2021 and 2020 and 2019 64
   
  Notes to Consolidated Financial Statements 75
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1815
   
Item 4. Controls and Procedures 3025
   
PART II OTHER INFORMATION  
   
Item 1. Legal Proceedings 3126
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 3126
   
Item 3. Defaults Upon Senior Securities 3126
   
Item 4. Mine Safety Disclosures 3126
   
Item 5. Other Information  3126
   
Item 6. Exhibits 3126

 


i

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

 

 September 30, 2020  December 31, 2019  March 31, 2021  December 31, 2020 
 (unaudited)     (unaudited)    
Assets                
Investment property:                
Land and improvements $73,509  $65,767  $63,886  $63,873 
Building and improvements  266,851   227,938   248,670   248,079 
Furniture, fixtures and equipment  7,982   7,231   6,836   6,552 
Gross investment property  348,342   300,936   319,392   318,504 
Less accumulated depreciation  (58,344)  (49,693)  (53,573)  (50,823)
Net investment property  289,998   251,243   265,819   267,681 
                
Cash and cash equivalents  27,811   15,802   27,040   27,078 
Marketable securities, available for sale  3,653   5,496   3,593   3,654 
Restricted cash  7,356   4,148   19,320   4,373 
Note receivable, net  12,355   10,423   13,229   12,794 
Prepaid expenses and other assets  1,895   1,318   1,286   1,604 
Assets held for sale  -   18,192   -   24,140 
        
Total Assets $343,068  $306,622  $330,287  $341,324 
                
Liabilities and Stockholders' Equity        
Liabilities and Stockholders’ Equity        
Notes payable, net $248,034  $183,788  $213,330  $212,989 
Accounts payable and accrued and other liabilities  5,154   3,717   6,581   6,530 
Payables to related parties  3   6   4   - 
Accrued property tax  3,677   2,326 
Liabilities held for sale  -   13,686   -   37,165 
        
Total liabilities  256,868   203,523   219,915   256,684 
                
Commitments and Contingencies                
                
Stockholders' Equity:        
Stockholders’ Equity:        
                
Company's stockholders' equity:        
Company’s stockholders’ equity:        
Preferred stock, $.0001 par value per share; 50.0 million shares authorized, none issued and outstanding  -   -   -   - 
Convertible stock, $.0001 par value per share; 1,000 shares authorized, issued and outstanding  -   -   -   - 
Common stock, $.0001 par value per share; 350.0 million shares authorized, 20.2 million and 22.2 million shares issued and outstanding, respectively  2   2 
Common stock, $.0001 par value per share; 350.0 million shares authorized, 20.2 million shares issued and outstanding  2   2 
Additional paid-in-capital  189,217   204,912   187,088   189,216 
Accumulated other comprehensive income  144   111   90   140 
Accumulated deficit  (101,380)  (102,404)  (75,484)  (102,519)
Total Company’s stockholders’ equity  111,696   86,839 
                
Total Company's stockholders' equity  87,983   102,621 
Noncontrolling interests  (1,783)  478   (1,324)  (2,199)
        
Total Stockholders' Equity  86,200   103,099 
        
Total Liabilities and Stockholders' Equity $343,068  $306,622 
Total Stockholders’ Equity  110,372   84,640 
Total Liabilities and Stockholders’ Equity $330,287  $341,324 

See Notes to Consolidated Financial Statements.


1

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Operations and Comprehensive Income

(dollars and shares in thousands, except per share amounts)

(unaudited)

 

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
  2020  2019  2020  2019 
Rental revenues $10,185  $9,575  $29,662  $27,619 
                 
Expenses                
Property operating expenses  3,694   3,622   9,749   9,494 
Real estate taxes  1,496   1,412   4,161   3,844 
General and administrative  1,634   1,514   4,745   4,658 
Depreciation and amortization  3,145   3,402   9,067   9,851 
Total operating expenses  9,969   9,950   27,722   27,847 
                 
Operating income/(loss)  216   (375)  1,940   (228)
                 
Interest expense, net  (2,556)  (2,494)  (7,087)  (6,753)
Interest income  465   503   1,402   1,163 
Gain on sale of investment property  -   -   5,474   - 
Other income, net  196   124   522   452 
Net (loss)/income  (1,679)  (2,242)  2,251   (5,366)
Net loss/(income) attributable to noncontrolling interests  5   78   (1,227)  94 
Net (loss)/income attributable to the Company's shares $(1,674) $(2,164) $1,024  $(5,272)
Weighted average shares outstanding:                
Basic and diluted  20,201   22,680   20,925   23,058 
Basic and diluted (loss)/income per share $(0.08) $(0.10) $0.05  $(0.23)
Comprehensive (loss)/income:                
Net (loss)/income $(1,679) $(2,242) $2,251  $(5,366)
Other comprehensive (loss)/income:                
Holding (loss)/gain on marketable securities, available for sale  (4)  24   96   249 
Reclassification adjustment for (gain)/loss included in net (loss)/income  (11)  -   (63)  54 
Foreign currency translation loss  -   -   -   (35)
                 
Total other comprehensive (loss)/income  (15)  24   33   268 
Comprehensive (loss)/income:  (1,694)  (2,218)  2,284   (5,098)
Comprehensive loss/(income) attributable to noncontrolling interests  5   78   (1,227)  94 
Comprehensive (loss)/income attributable to the Company's shares $(1,689) $(2,140) $1,057  $(5,004)
  For the Three Months Ended March 31, 
  2021  2020 
       
Rental revenues $10,287  $9,400 
         
Expenses        
Property operating expenses  3,177   2,960 
Real estate taxes  1,471   1,218 
General and administrative  1,653   1,539 
Depreciation and amortization  2,910   2,511 
Total operating expenses  9,211   8,228 
         
Operating income  1,076   1,172 
         
Interest expense, net  (2,453)  (2,140)
Interest income  483   487 
Gain on sale of investment property  27,825   5,474 
Other income, net  181   199 
Net income  27,112   5,192 
Net income attributable to noncontrolling interests  (77)  (1,211)
Net income attributable to the Company’s shares $27,035  $3,981 
Weighted average shares outstanding:        
Basic and diluted  20,193   22,223 
Basic and diluted income per share $1.34  $0.18 
Comprehensive income:        
Net income $27,112  $5,192 
Other comprehensive loss:        
Holding loss on marketable securities, available for sale  (42)  (28)
Reclassification adjustment for gain included in net income  (8)  (6)
Total other comprehensive loss  (50)  (34)
Comprehensive income:  27,062   5,158 
Comprehensive income attributable to noncontrolling interest  (77)  (1,211)
Comprehensive income attributable to the Company’s shares $26,985  $3,947 

 

See Notes to Consolidated Financial Statements.


2

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Stockholders’ Equity

(dollars and shares in thousands)

(unaudited)

 

        Additional  Accumulated Other        Total 
  Convertible Stock  Common Stock  Paid-In  Comprehensive  Accumulated  Noncontrolling  Stockholders' 
  Shares  Amount  Shares  Amount  Capital  (Loss)/Income  Deficit  Interests  Equity 
BALANCE, December 31, 2018  1  $-   23,432  $2  $214,537  $(217) $(95,295) $794  $119,821 
                                     
Net loss  -   -   -   -   -      -   (5,272)  (94)  (5,366)
Distributions paid to noncontrolling interests  -   -   -       -   -   -   -   (179)  (179)
Redemption and cancellation of shares  -   -   (932)  -   (7,367)  -   -   -   (7,367)
Contributions received from noncontrolling interests    -         -   -   -   -     -   -   30   30 
Other comprehensive income:                                      
     Holding gain on marketable securities, available for sale  -   -   -   -   -   249   -   -   249 
     Foreign currency translation loss  -   -   -   -   -   (35)  -   -   (35)
     Reclassification adjustment for loss on sale of marketable
     securities included in net loss		  -   -   -   -   -   54   -   -   54 
                                   - 
BALANCE, September 30, 2019  1  $-   22,500  $2  $207,170  $51  $(100,567) $551  $107,207 
              Additional  Accumulated
Other		        Total 
  Convertible Stock  Common Stock  Paid-In  Comprehensive  Accumulated  Noncontrolling  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Income  Deficit  Interests  Equity 
                            
BALANCE, December 31, 2019  1  $    -   22,223  $2  $204,912  $111  $(102,404) $478  $103,099 
                                     
Net income  -   -   -   -   -   -   3,981   1,211   5,192 
Distributions paid to noncontrolling interest holders  -   -   -   -   -   -   -   (1,840)  (1,840)
Costs associated with redemptions of common stock  -   -   -   -   (71)  -   -   -   (71)
Other comprehensive loss:                                    
Holding loss on marketable securities, available for sale  -   -   -   -   -   (28)  -   -   (28)
Reclassification adjustment for gain on sale of marketable securities included in net income  -   -   -   -   -   (6)  -   -   (6)
                                     
BALANCE, March 31, 2020  1  $    -   22,223  $2  $204,841  $77  $(98,423) $(151) $106,346 

 

              Additional  Accumulated
Other		        Total 
  Convertible Stock  Common Stock  Paid-In  Comprehensive  Accumulated  Noncontrolling  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Income  Deficit  Interests  Equity 
BALANCE, December 31, 2020  1  $      -   20,193  $2  $189,216  $140  $(102,519) $(2,199) $84,640 
                                     
Net income  -   -   -   -   -   -   27,035   77   27,112 
Distributions paid to noncontrolling interest holders  -   -   -   -   -   -   -   (244)  (244)
Acquisition of noncontrolling interest in a subsidiary  -   -   -   -   (2,128)  -   -   1,042   (1,086)
Other comprehensive loss:                                    
Holding loss on marketable securities, available for sale  -   -   -   -   -   (42)  -   -   (42)
Reclassification adjustment for gain on sale of marketable securities included in net income  -   -   -   -   -   (8)  -   -   (8)
                                     
BALANCE, March 31, 2021  1  $-   20,193  $2  $187,088  $90  $(75,484) $(1,324) $110,372 

        Additional  Accumulated Other        Total 
  Convertible Stock  Common Stock  Paid-In  Comprehensive  Accumulated  Noncontrolling  Stockholders' 
  Shares  Amount  Shares  Amount  Capital  (Loss)/Income  Deficit  Interests  Equity 
BALANCE, June 30, 2019  1  $-   22,811  $2  $209,670  $27  $(98,403) $649  $111,945 
                                     
Net loss  -       -   -       -   -           -   (2,164)  (78)  (2,242)
Distributions paid to noncontrolling interests     -   -   -   -   -   -   -   (17)  (17)
Redemption and cancellation of shares  -   -   (311)  -   (2,500)  -   -   -   (2,500)
Contributions received from noncontrolling interests  -   -   -   -   -   -   -   (3)  (3)
Other comprehensive income:                                    
Holding gain on marketable securities, available for sale  -   -   -   -   -   24   -      -   24 
                                     
BALANCE, September 30, 2019  1  $-   22,500  $2  $207,170  $51  $(100,567) $551  $107,207 

        Additional  Accumulated Other        Total 
  Convertible Stock  Common Stock  Paid-In  Comprehensive  Accumulated  Noncontrolling  Stockholders' 
  Shares  Amount  Shares  Amount  Capital  Income  Deficit  Interests  Equity 
BALANCE, December 31, 2019  1  $-   22,223  $2  $204,912  $  111  $(102,404) $478  $103,099 
                                     
Net income  -          -   -          -   -   -   1,024   1,227   2,251 
Distributions paid to noncontrolling interests  -   -   -   -   -       -   -   (3,488)  (3,488)
Tender of common stock  -   -   (2,030)  -   (15,695)  -   -   -   (15,695)
Other comprehensive loss:                                    
Holding gain on marketable securities, available for sale  -   -   -   -   -   96   -   -   96 
Reclassification adjustment for gain on sale of marketable
securities included in net income		  -   -   -   -   -   (63)  -   -   (63)
                                     
BALANCE, September 30, 2020  1  $-   20,193  $2  $189,217  $144  $(101,380) $(1,783) $86,200 

        Additional  Accumulated Other        Total 
  Convertible Stock  Common Stock  Paid-In  Comprehensive  Accumulated  Noncontrolling  Stockholders' 
  Shares  Amount  Shares  Amount  Capital  (Loss)/Income  Deficit  Interests  Equity 
BALANCE, June 30, 2020  1  $    -   20,220  $2  $189,311  $159  $(99,706) $(1,567) $88,199 
                           -         
Net loss  -   -   -   -   -   -   (1,674)  (5)  (1,679)
Distributions paid to noncontrolling interests  -   -   -   -   -   -   -   (211)  (211)
Tender of common stock  -   -   (27)  -   (94)  -   -   -   (94)
Other comprehensive loss:                                    
Holding loss on marketable securities, available for sale  -   -   -   -   -   (4)  -   -   (4)
Reclassification adjustment for gain on sale of marketable
securities included in net loss		  -   -   -   -   -   (11)  -   -   (11)
                                     
BALANCE, September 30, 2020  1  $-   20,193  $2  $189,217  $144  $(101,380) $(1,783) $86,200 

 

See Notes to Consolidated Financial Statements.

53

 

 

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

  For the Three Months Ended March 31, 
  2021  2020 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income $27,112  $5,192 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  2,910   2,511 
Amortization of deferred financing fees  167   125 
Gain on sale of investment property  (27,825)  (5,474)
Non-cash interest income  (447)  (418)
Other non-cash adjustments  (13)  33 
Changes in operating assets and liabilities:        
Decrease in prepaid expenses and other assets  3,120   405 
Decrease in accounts payable and accrued and other liabilities  (1,976)  (879)
Increase in payables to related parties  4   297 
Net cash provided by operating activities  3,052   1,792 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of investment property  (1,056)  (45,172)
Purchases of marketable securities  (457)  (566)
Proceeds from sale of marketable securities  476   524 
Funding of note receivable, net  -   (659)
Acquisition of noncontrolling interest  (1,086)  - 
Proceeds from sale of investment property, net of closing costs  14,364   23,673 
Cash provided by/(used in) activities  12,241   (22,200)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from notes payable  -   29,920 
Payments on notes payable  (140)  (12,714)
Proceeds from advance from advisor  -   25,000 
Payments on advance from advisor  -   (15,000)
Payment of loan fees and expenses  -   (611)
Costs associated with redemptions of common stock  -   (71)
Distributions to noncontrolling interest holders  (244)  (1,840)
Net cash (used in)/provided by financing activities  (384)  24,684 
         
Net change in cash, cash equivalents and restricted cash  14,909   4,276 
Cash, cash equivalents and restricted cash, beginning of year  31,451   19,572 
         
Cash, cash equivalents and restricted cash, end of period $46,360  $23,848 
         
Supplemental cash flow information for the periods indicated is as follows:        
Cash paid for interest $2,287  $1,967 
Debt assumed by buyer in connection with disposition of investment property $35,700  $- 
Capital expenditures for investment property in accrued liabilities and accounts payable $51  $6 
Holding loss on marketable securities, available for sale $50  $34 
         
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:        
Cash $27,040  $19,213 
Restricted cash  19,320   4,635 
Total cash and restricted cash $46,360  $23,848 

  For the Nine Months Ended September 30, 
  2020  2019 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income/(loss) $2,251  $(5,366)
Adjustments to reconcile net income/(loss) to net cash        
provided by operating activities:        
Depreciation and amortization  9,067   9,851 
Amortization of deferred financing fees  432   464 
Gain on sale of investment property  (5,474)  - 
Non-cash interest income  (1,295)  (719)
Other non-cash adjustments  (63)  66 
Changes in operating assets and liabilities:        
(Increase)/decrease in prepaid expenses and other assets  (93)  2,843 
Increase in accounts payable and accrued and other liabilities  1,461   2,191 
Decrease in payables to related parties  (3)  (300)
         
Net cash provided by operating activities  6,283   9,030 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of investment property  (48,035)  (77,971)
Purchases of marketable securities  (1,280)  (2,247)
Proceeds from sale of marketable securities  3,220   11,450 
Funding of note receivable, net  (636)  (7,771)
Acquisition fee paid on note receivable  -   (175)
Proceeds from sale of investment property, net of closing costs  23,673   - 
Proceeds from disposition of investment in unconsolidated joint venture  -   10,944 
         
Net cash used in investing activities  (23,058)  (65,770)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from notes payable  65,620   72,214 
Payments on notes payable  (12,862)  (619)
Proceeds from advance from advisor  25,000   - 
Payments on advance from advisor  (25,000)  - 
Payment of loan fees and expenses  (1,583)  (1,428)
Tender of common stock  (15,695)  - 
Redemption and cancellation of common stock  -   (7,367)
Contributions received from noncontrolling interests  -   30 
Distributions to noncontrolling interests  (3,488)  (179)
         
Net cash provided by financing activities  31,992   62,651 
         
Effect of exchange rate changes on cash, cash equivalents, and restricted cash  -   (35)
Net change in cash, cash equivalents and restricted cash  15,217   5,876 
Cash, cash equivalents and restricted cash, beginning of year  19,950   32,652 
Cash, cash equivalents and restricted cash, end of period $35,167  $38,528 
         
Supplemental cash flow information for the periods indicated is as follows:        
Cash paid for interest $6,538  $3,934 
Capital expenditures for real estate in accrued liabilities and accounts payable $259  $279 
Holding gain on marketable securities, available for sale $33  $303 
         
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:        
Cash and cash equivalents $27,811  $33,958 
Restricted cash  7,356   4,570 
Total cash, cash equivalents and restricted cash $35,167  $38,528 

See Notes to Consolidated Financial Statements.


4

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

 

1.                    Business and Organization

1.Business

 

Lightstone Value Plus Real Estate Investment Trust V, Inc., which was previously named Behringer Harvard Opportunity REIT II, Inc., prior to July 20, 2017 (which may be referred to as the “Company,” “we,” “us,” or “our”), was organized as a Maryland corporation on January 9, 2007 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes.

 

We wereThe Company was formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, we havethe Company has focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines.  We haveThe Company has acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily.  We haveThe Company has purchased existing, income-producing properties, and newly-constructed properties. We haveThe Company has also invested in other real estate-related investments such as mortgage and mezzanine loans. We intendThe Company intends to hold the various real properties in which we haveit has invested until such time as ourits board of directors determines that a sale or other disposition appears to be advantageous to achieve ourthe Company’s investment objectives or until it appears that the objectives will not be met. WeThe Company currently havehas one operating segment. As of September 30, 2020, weMarch 31, 2021, the Company had eightseven real estate investments (five wholly owned properties and threetwo properties consolidated through investments in joint ventures) and one real estate-related investment (mezzanine loan).

 

Substantially all of ourthe Company’s business is conducted through Lightstone REIT V OP LP, a limited partnership organized in Delaware (the “Operating Partnership”).  As of September 30, 2020, ourMarch 31, 2021, the Company’s wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a 0.1% partnership interest in the Operating Partnership as its sole general partner.  As of September 30, 2020, ourMarch 31, 2021, the Company’s wholly-owned subsidiary, BHO Business Trust II, a Maryland business trust, was the sole limited partner of the Operating Partnership and owned the remaining 99.9% interest in the Operating Partnership.

 

OurThe Company’s business is managed by an external advisor and we havethe Company has no employees. Effective February 10, 2017, wethe Company engaged affiliates of The Lightstone Group (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide advisory services to us.the Company. Lightstone is majority owned by the chairman of ourthe Company’s board of directors, David Lichtenstein. SubjectPursuant to the terms of an advisory agreement and subject to the oversight of ourthe Company’s board of directors, our external advisorthe Advisor is responsible for managing ourthe Company’s day-to-day affairs and for services related to the management of ourthe Company’s assets.

Organization

 

In connection with ourthe Company’s initial capitalization, wethe Company issued 22,500 shares of ourits common stock and 1,000 shares of ourits convertible stock to ourthe Company’s previous advisor on January 19, 2007.  The 1,000 shares of convertible stock were transferred to an affiliate of Lightstone on February 10, 2017 and remain outstanding asoutstanding. As of September 30, 2020.March 31, 2021, the Company had 20.2 million shares of common stock outstanding. 

 

OurThe Company’s common stock is not currently listed on a national securities exchange. The timing of a liquidity event for ourthe Company’s stockholders will depend upon then prevailing market conditions. OurOn January 9, 2020, the Company’s board of directors previouslyextended the targeted June 30, 2023 astimeline for the commencement ofCompany to commence a liquidity event however, on January 9, 2020, our board of directors elected to extend the targeted timeline until June 30, 2028 based on their assessment of ourthe Company’s investment objectives and liquidity options for ourthe Company’s stockholders. WeThe Company can provide no assurances as to the actual timing of the commencement of a liquidity event for ourits stockholders or the ultimate liquidation of the Company. WeThe Company will seek stockholder approval prior to liquidating ourits entire portfolio.

5

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

Noncontrolling Interests

 

Noncontrolling interests represents the noncontrolling ownership interest’s proportionate share of the equity in our consolidated real estate investments.  Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage.   If a property reaches a defined return threshold, then it will result in distributions to noncontrolling interests which is different from the standard pro-rata allocation percentage. In certain instances, our joint venture agreements provide for liquidating distributions based on achieving certain return metrics.

 

7

Acquisition of Noncontrolling Member’s Ownership Interest (Lakes of Margate)

Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts

On March 17, 2021, the Company acquired the noncontrolling member’s 7.5% ownership interest in thousands, except per share/unit datathe Lakes of Margate for $1.1 million and where indicated in millions)as a result, owned 100% of the Lakes of Margate, which was subsequently sold (see Note 3).

 

2.Summary of Significant Accounting Policies

2.                     Summary of Significant Accounting Policies

Interim Unaudited Financial Information

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, which was filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020.25, 2021.  The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust V, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 108-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

Principles of Consolidation and Basis of Presentation

 

Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which we havethe Company has control. All inter-company transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and entities deemed to be variable interest entities (“VIE”) in which we arethe Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which we havethe Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which we havethe Company has less than a controlling interest or entities which we are not deemed to be the primary beneficiary, we accountit accounts for the investment using the equity method of accounting.

 

The consolidated balance sheet as of December 31, 20192020 included herein has been derived from the consolidated balance sheet included in the Company'sCompany’s Annual Report on Form 10-K.

 

The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

 

Reclassifications Investment in Unconsolidated Joint Venture (Prospect Park)

On May 10, 2021 the Company received a payment of $1.5 million for the settlement of its prior participation in the residual interests of a mezzanine financing to an unaffiliated third-party entity that owned an apartment complex in Denver, Colorado. 

 


Certain prior periodLightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts have been reclassified to conform to the current year presentation (see Note 7).in thousands, except per share/unit data and where indicated in millions)

 

Earnings per Share

The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during the applicable period.

Restricted cash

As required by the Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate taxes, and other reserves for certain of our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. As of March 31, 2021, restricted cash also included $14.1 million of the proceeds from the sale of Lakes of Margate. These funds have been temporarily placed in escrow with a qualified intermediary to potentially facilitate a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended. See Note 3 for additional information.

COVID-19 Pandemic

 

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantines,quarantine guidelines, limitations on travel, and “shelter in place” rules and certain other measures in an effort to reduce its duration and the severity of its spread. TheAlthough the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and while most statesother measures have initiated a phased approach allowing for reductionsnow been reduced and/or lifting of restrictions,lifted. However, the situationCOVID-19 pandemic remains highly unpredictable and dynamic.


Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notesdynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future. The Company’s consolidated portfolio of properties currently consists of sevensix multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, the Company’s multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. The Company’s student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. Because of the COVID-19 pandemic, UGA previously transitioned to online instruction during its Spring 2020 semester and for its other course offerings throughout the summer. However, UGA returnedbefore resuming to “on-campus” classes forbeginning with its Fall 2020 semester which are currently taking place.semester. The Company’s student housing complex is located “off-campus” and therefore, its tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of the Company’s student housing complex in future periods. Additionally, the Company’s note receivable relates tois collateralized by a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, the Condominium Project and the Company’s note receivable hashave not been significantly impacted by the COVID-19 pandemic.

 

While the Company’s business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which it may be affected in future periods remainswill largely depend on current and future developments, all of which are highly uncertain and cannot be reasonably predicted.

 

If the Company’s properties and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) demand for its student housing complex declines, and (iii) its borrower is unable to pay scheduled debt service on the outstanding note receivable; the Company’s business and financial results could be materially and adversely impacted. While the Company has implemented various cost reduction strategies, including the deferral of certain non-critical capital expenditures, there can be no assurance that these cost savings will fully mitigate the potential adverse impact of any lost revenue and income.

 


COVID-19 Lease Modification Accounting ReliefLightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

Due to the business disruptions(Dollar amounts in thousands, except per share/unit data and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic and restrictions intended to prevent its spread.

In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing GAAP, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. As of September 30, 2020, the Company had not entered into any lease modification agreements with any of its tenants as a result of the COVID-19 pandemic. Accordingly, the Company is still evaluating the impact of this policy election and has not yet concluded on whether it will apply the election.where indicated in millions)

 

New Accounting Pronouncements

 

In June 2016, the FASB issued new guidance which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  The Company is currently in the process of evaluating the impact the adoption of this standard will have on the Company’s consolidated financial statements.

 


Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.

 

3.Held for Sale and Disposition of Lakes of Margate

3.                   Real Estate Asset Acquisition

Lakes of Margate 

 

Autumn Breeze ApartmentsDuring the fourth quarter of 2020, Lakes of Margate met the criteria to be classified as held for sale and therefore, its associated assets and liabilities were classified as held for sale in the consolidated balance sheet as of December 31, 2020. 

 

On March 17, 2020,2021, the Company completed the acquisitiondisposition of a 280-unit multifamily property located in Noblesville, Indiana (the “Autumn Breeze Apartments”) fromthe Lakes of Margate to Lakes of Margate FL LLC, an unrelated third party (the “Lakes of Margate Buyer”), for aggregate consideration of $50.8 million. At closing, the Lakes of Margate Buyer paid $15.1 million and assumed the existing Lakes of Margate Loan with an aggregate purchase priceoutstanding principal balance of approximately $43.0$35.7 million excluding closing and other related$14.1 million of the proceeds were placed in escrow with a qualified intermediary to potentially facilitate a like-kind exchange transaction costs.in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, and is included in restricted cash on the consolidated balance sheet as of March 31, 2021. In connection with the acquisition,disposition of the Lakes of Margate, the Company paidrecognized a gain on sale of investment property of $27.8 million during the Advisor an aggregatefirst quarter of approximately $0.8 million in acquisition fees and acquisition expense reimbursements.2021.

 

The Company determined this acquisition was an asset acquisitiondisposition of the Lakes of Margate did not qualify to be reported as discontinued operations since it did not represent a strategic shift that had a major effect on the Company’s operations and allocatedfinancial results. Accordingly, the total purchase price, including acquisition fees and expenses, tooperating results of the assets acquired based on their relative fair value. Approximately $7.2 million was allocated to land and improvements, $36.0 million was allocated to building and improvements, and $0.6 million was allocated to in-place lease intangibles.Lakes of Margate are reflected in our results from continuing operations for all periods presented through its date of disposition.

 

The capitalization rate forfollowing summary presents the acquisitionmajor components of the Autumn Breeze Apartments was approximately 4.86%. The Company calculates the capitalization rateLakes of Margate’s assets and liabilities held for a real property by dividing the net operating income (“NOI”)sale, of the property by the purchase price of the property, excluding costs. For purposes of this calculation, NOI was based upon the twelve months ended February 29,as December 31, 2020. Additionally, NOI is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.

 

4.                 Note Receivable

  As of 
  December 31,
2020		 
    
Net investment property $21,308 
Other assets  2,832 
     
Total assets held for sale $24,140 
     
Note payable, net $35,136 
Accounts payable and accrued expenses  2,029 
     
Total liabilities held for sale $37,165 

 

4.Note Receivable

500 West 22nd Street Mezzanine Loan

 

On February 28, 2019, the Company, as the lender, and an unrelated third party (the “500 West 22nd Street Mezzanine Loan Borrower”), as the borrower, entered into a loan promissory note (the “500 West 22nd Street Mezzanine Loan”) pursuant to which the Company would fund up to $12.0 million of mezzanine financing. On the same date, the Company initially funded $8.0 million of the 500 West 22nd Street Mezzanine Loan. Subsequently, through the first quarter of 2020, the Company funded an additional $4.0 million and as a result, the 500 West 22nd Street Mezzanine Loan has been fully funded.


Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

 

The 500 West 22nd Street Mezzanine Loan is recorded in note receivable, net on the consolidated balance sheet. In connection with the fundings made for the 500 West 22nd Street Mezzanine Loan, ourthe Advisor has received an aggregate of approximately $0.2 million in acquisition fees from the Company. The acquisition fees are accounted for as an addition to the carrying value of the 500 West 22nd Street Mezzanine Loan and are being amortized as a reduction to interest income over the initial term of the 500 West 22nd Street Mezzanine Loan using a straight-line method that approximates the effective interest method.

 

The 500 West 22nd Street Mezzanine Loan is due August 31, 2021 and is collateralized by the ownership interests of the 500 West 22nd Street Mezzanine Loan Borrower. The 500 West 22nd Street Mezzanine Loan Borrower owns a parcel of land located at 500 West 22nd Street, New York, New York on which it is developing and constructing the Condominium Project. Although New York City previously restrictedAt the onset of the COVID-19 pandemic, the Borrower’s construction activities related to the Condominium Project were temporarily suspended due to restrictions on certain non-essential construction activities because of the COVD-19 pandemic, which led to a temporarily suspension of construction of the Condominium Project,imposed by New York City. However, construction activities for the Condominium Project fully resumed in early May 2020 and its anticipated construction timeline has not been significantly impacted to date.


Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

 

The 500 West 22nd Street Mezzanine Loan bears interest at a rate of LIBOR + 11.0% per annum with a floor of 13.493% (13.493% as of September 30, 2020)March 31, 2021). The Company received an origination fee of 1.0% of the loan balance, or approximately $0.1 million, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and is being amortized to interest income, using a straight-line method that approximates the effective interest method, over the initial term of the 500 West 22nd Street Mezzanine Loan. The 500 West 22nd Street Mezzanine Loan may be extended two additional six-month periods by the 500 West 22nd Street Mezzanine Loan Borrower provided certain conditions are met, including the establishment of an additional reserve for interest and the payment of an extension fee equal to 0.25% of the outstanding loan balance.

 

In connection with the initial funding under the 500 West 22nd Street Mezzanine Loan, the Company retained approximately $2.1 million of the proceeds to establish a reserve for interest and other items, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and are being applied against the first 8.0% of monthly interest due during the initial term of the 500 West 22nd Street Mezzanine Loan. Through September 30, 2020,March 31, 2021, approximately $1.5$2.0 million of the reserve has been recognized as interest income and the remaining balance of the reserve was approximately $0.6$0.1 million as of September 30, 2020.March 31, 2021. The additional monthly interest due above the 8.0% threshold is added to the balance of the 500 West 22nd Street Mezzanine Loan and payable at maturity. As of September 30, 2020,March 31, 2021, approximately $1.0$1.3 million of additional interest due is included in the balance of the 500 West 22nd Street Mezzanine Loan.

 

During both the three and nine months ended September 30,March 31, 2021 and 2020, the Company recorded approximately $0.5$0.4 million and $1.3 million, respectively, of interest income related to the note receivable and during the three and nine months ended September 30, 2019, the Company recorded approximately $0.3 million and $0.7 million, respectively, of interest income related to the note receivable. As of September 30, 2020,March 31, 2021, the outstanding principal balance of the 500 West 22nd Street Mezzanine Loan was approximately $12.4$13.4 million.

 

5.                   Financial Instruments

5.Financial Instruments

 

WeThe Company determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. The use of different market assumptions or only estimation methodologies may have a material effect on the estimated fair value amounts.

 

As of September 30, 2020March 31, 2021 and December 31, 2019,2020,  management estimated that the carrying value of cash and cash equivalents, restricted cash, note receivable, prepaid expenses and other assets, accounts payable and accrued and other liabilities accrued property tax and payables to related parties were at amounts that reasonably approximated their fair value based on their highly-liquid nature andand/or short-term maturities. The carrying amount of the note receivable approximates fair value because the interest rate is variable


Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and reflective of the market rate. where indicated in millions)

The fair value of the notes payable is categorized as a Level 2 in the fair value hierarchy. The fair value was estimated using a discounted cash flow analysis valuation on the estimated borrowing rates currently available for loans with similar terms and maturities. The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate. Disclosure about fair value of financial instruments is based on pertinent information available to management as of September 30, 2020March 31, 2021 and December 31, 2019.2020. Carrying amounts of our notes payable and the related estimated fair value is summarized as follows:

 

  As of September 30, 2020  As of December 31, 2019 
  Carrying Amount   Estimated Fair
Value		   Carrying Amount   Estimated Fair
Value		 
Notes payable $252,159  $254,945  $186,761  $187,304 
  As of March 31, 2021  As of December 31, 2020 
  Carrying
Amount		  Estimated Fair
Value		  Carrying
Amount		  Estimated Fair
Value		 
Notes payable $216,242  $220,496  $216,382  $219,625 

 

6.Marketable Securities and Fair Value Measurements

6.                 Marketable Securities and Fair Value Measurements

Marketable Securities


Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

 

The following is a summary of the Company’s available for sale securities as of the dates indicated:

 

 As of September 30, 2020  As of March 31, 2021 
 Adjusted Cost  Gross Unrealized Gains  Gross Unrealized
Losses		  Fair Value  Adjusted Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
Debt securities:                                
Corporate and Government Bonds $3,509  $145  $(1) $3,653  $3,504  $103  $(14) $3,593 

 

 As of December 31, 2019  As of December 31, 2020 
 Adjusted Cost  Gross Unrealized Gains  Gross Unrealized
Losses		  Fair Value  Adjusted Cost  Gross Unrealized Gains  Gross Unrealized Losses  Fair Value 
Debt securities:                                
Corporate and Government Bonds $5,385  $113  $(2) $5,496  $3,515  $140  $(1) $3,654 

 

When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. As of September 30, 2020,March 31, 2021, the Company did not recognize any impairment charges.

 

Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

 


Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

 

 •●Level 1 – Quoted prices in active markets for identical assets or liabilities.
   
 •●Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
   
 •●Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The fair values of the Company’s investments in debt securities are measured using quoted prices for these investments; however, the markets for these assets are not active. As of September 30, 2020,March 31, 2021, all of the Company’s debt securities were classified as Level 2 assets and there were no transfers between the level classifications during the ninethree months ended September 30, 2020.


Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)March 31, 2021.

 

The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:

 

 As of September 30, 2020  As of
March 31,
2021		 
Due in 1 year $517  $629 
Due in 1 year through 5 years  3,136   2,867 
Due in 5 years through 10 years  -   97 
Due after 10 years  -   - 
Total $3,653  $3,593 

 

7.       Held for Sale and Disposition of Gardens Medical Pavilion

Gardens Medical Pavilion

On December 23, 2019, the Company and its noncontrolling member, and CPI/AHP Garden Medical Pavilion Mob Owner, L.L.C. (the “Gardens Medical Pavilion Buyer”), an unaffiliated third party, entered into a purchase and sale agreement (the “Gardens Medical Pavilion Agreement”) pursuant to which the Company and the noncontrolling member would dispose of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million.

As of December 31, 2019, the Gardens Medical Pavilion met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2019.

On January 15, 2020, the Company and the noncontrolling member completed the disposition of the Gardens Medical Pavilion for a contractual sales price of $24.3 million.  In connection with the disposition of the Gardens Medical Pavilion, the Company recognized a gain on the sale of investment property of approximately $5.5 million during the first quarter of 2020. Approximately $12.6 million of the proceeds were used towards the repayment in full of a mortgage loan secured by the Gardens Medical Pavilion. Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member.

The following summary presents the major components of the Gardens Medical Pavilion’s assets and liabilities held for sale as of December 31, 2019:

  As of 
  December 31, 2019 
Net investment property $17,448 
Other assets  744 
     
Total assets held for sale $18,192 
     
Note payable, net  12,441 
Accounts payable and accrued expenses  1,245 
     
Total liabilities held for sale $13,686 

Lakes of Margate


Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

 

7.Notes Payable

Beginning with the fourth quarter of 2019, Lakes of Margate met the criteria to be

Notes payable, excluding debt classified as held for sale, and therefore, its associated assets and liabilities, which were expected to be sold within 12 months, were previously classified as held for sale in the consolidated balance sheets as of both March 31, 2020 and December 31, 2019.

However, because of the COVID-19 pandemic the Company subsequently decided during the second quarter of 2020 to discontinue its marketing efforts and to retain the property for the foreseeable future. Additionally, the Company obtained a new 10-year mortgage financing on the property, which previously was unencumbered, on June 26, 2020 (see Note 8). As a result, the Company determined the property should no longer be classified as held for sale effective as of June 30, 2020 because a sale was no longer considered probable within the next 12 months.  Since the fair value of the property was in excess of the Company’s carrying value, the Company recorded catch-up depreciation for the period the property was previously classified as held for sale. In addition, the Company is no longer classifying the long-lived asset as held for sale for all periods presented on the consolidated balance sheets.

8.       Notes Payable

Notes payable consists of the following:

               
Property Interest Rate  Weighted Average
Interest Rate as of
September 30, 2020		  Maturity Date Amount Due at
Maturity		  As of
 September 30, 2020		  As of
 December 31, 2019		 
River Club and the Townhomes at River Club  LIBOR + 1.78%   1.93% May 1, 2025 $28,419  $30,359  $30,359 
                       
Lakes of Margate  LIBOR + 2.98%   3.14% July 1, 2030  32,702   35,700   - 
                       
Arbors Harbor Town  4.53%   4.53% December 28, 2025  29,000   29,000   29,000 
                               
Parkside  4.45%   4.45% June 1, 2025  15,782   17,366   17,588 
                       
Axis at Westmont  4.39%   4.39% February 1, 2026  34,343   37,600   37,600 
                       
Valley Ranch Apartments  4.16%   4.16% March 1, 2026  43,414   43,414   43,414 
                       
Flats at Fishers  3.78%   3.78% July 1, 2026  26,090   28,800   28,800 
                       
Autumn Breeze Apartments  3.39%   3.39% April 1, 2030  25,518   29,920   - 
                       
                       
Total notes payable      3.71%   $235,268   252,159   186,761 
                       
Less: Deferred financing costs                (4,125)  (2,973)
                       
Total notes payable, net               $248,034  $183,788 

 

On March 31, 2020, the Company entered into a ten-year $29.9 million non-recourse mortgage loan (the “Autumn Breeze Apartments Loan”) scheduled to mature on April 1, 2030. The Autumn Breeze Apartments Loan bears interest at 3.39% and requires monthly interest-only payments through June 30, 2023 and monthly principal and interest payments of approximately $0.1 million thereafter, through its stated maturity. The Autumn Breeze Apartments Loan is collateralized by the Autumn Breeze Apartments. In connection with the Autumn Breeze Apartments Loan, the Company paid the Advisor an aggregate of approximately $0.3 million in financing fees.

On June 26, 2020, the Company and its noncontrolling member entered into a ten-year, $35.7 million non-recourse mortgage loan (the "Lakes of Margate Loan") scheduled to mature on July 1, 2030. The Lakes of Margate Loan bears interest at LIBOR + 2.98% and requires monthly interest-only payments through the first four years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization. The Lakes of Margate Loan is collateralized by the Lakes of Margate.  In connection with the Lakes of Margate Loan, the Company paid the Advisor an aggregate of approximately $0.4 million in financing fees. Additionally, approximately $1.4 million of the financing proceeds were distributed to the noncontrolling member.


Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

The Company’s loan agreements stipulate that it complies with certain reporting and financial covenants. The Company is currently in compliance with all of its debt covenants.

Property Interest Rate Weighted Average Interest Rate as of
March 31,
2021		  Maturity Date Amount Due at Maturity  

As of

March 31,
2021

  

As of

December 31,
2020

 
                 
River Club and the Townhomes at River Club LIBOR + 1.78%  1.89% May 1, 2025 $28,419  $30,359  $30,359 
                     
Arbors Harbor Town 4.53%  4.53% December 28, 2025  29,000   29,000   29,000 
                     
Parkside 4.45%  4.45%  June 1, 2025  15,782   17,209   17,289 
                     
Axis at Westmont 4.39%  4.39%  February 1, 2026  34,343   37,540   37,600 
                     
Valley Ranch Apartments 4.16%  4.16%  March 1, 2026  43,414   43,414   43,414 
                     
Flats at Fishers 3.78%  3.78%  July 1, 2026  26,090   28,800   28,800 
                     
Autumn Breeze Apartments 3.39%  3.39%  April 1, 2030  25,518   29,920   29,920 
                     
Total notes payable    3.80%   $202,566   216,242   216,382 
                     
Less: Deferred financing costs              (2,912)  (3,393)
                     
Total notes payable, net             $213,330  $212,989 

  

The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of September 30, 2020.March 31, 2021.

  

 2020  2021  2022  2023  2024  Thereafter  Total  2021  2022  2023  2024  2025  Thereafter  Total 
Principal maturities $77  $1,023  $1,468  $2,498  $3,490  $243,603  $252,159  $883  $1,468  $2,498  $3,181  $46,590  $161,622  $216,242 
                                                        
Less: deferred financing costs                          (4,125)                          (2,912)
                                                        
Total notes payable, net                         $248,034                          $213,330 

 

9.      Stockholders’ Equity

2020 Tender Offer

The Company commenced a tender offer on June 16, 2020, pursuant to which it offered to acquire up to 300,000 shares of its common stock at a purchase price of $2.25 per share, or approximately $0.7 million in the aggregate (the “2020 Tender Offer”).

The 2020 Tender Offer terminated on July 24, 2020, and a total of 26,637 shares were validly tendered and not withdrawn pursuant to the 2020 Tender Offer as of such date. In accordance with the terms of the 2020 Tender Offer, the Company subsequently repurchased all of the tendered shares for approximately $0.1 million in August 2020.

8.Stockholders’ Equity

 

2019 Tender Offer

The Company commenced a tender offer on December 17, 2019, pursuant to which it offered to acquire up to 2.0 million shares of its common stock at a purchase price of $7.75 per share, or $15.5 million in the aggregate (the “2019 Tender Offer”).

The 2019 Tender Offer terminated on February 28, 2020, and a total of 2,183,888 shares were validly tendered and not withdrawn pursuant to the 2019 Tender Offer as of such date, an amount that exceeded the maximum number of shares the Company offered to purchase pursuant to the 2019 Tender Offer. In accordance with the terms of the 2019 Tender Offer, the Company subsequently repurchased a total of approximately 2.0 million shares for approximately $15.6 million in April 2020.

Because the amount of repurchase requests exceeded the maximum number of shares the Company had offered to repurchase, the Company repurchased shares on a pro-rata basis, subject to “odd lot” priority as described in the 2019 Tender Offer. Excluding the stockholders eligible for “odd lot” priority that were not be subject to proration, approximately 91.58% of the number of shares tendered by each remaining stockholder who participated in the 2019 Tender Offer were repurchased by the Company.

Share Redemption Program and Redemption Price

 

The Company’s board of directors has adopted a share redemption program (the “SRP”) that permits stockholders to sell their shares back to it, subject to the significant conditions and limitations of the program.  The Company’s board of directors can amend the provisions of the SRP at any time without the approval of the stockholders.

 

On August 9, 2017, the board of directors adopted a Fourth Amended and Restated Share Redemption Program (the “Fourth Amended SRP”) which became effective July 1, 2018. The Fourth Amended SRP established that the price at which the Company would redeem shares submitted for redemption will be a percentage of the estimated net asset value per share (“NAV per Share”) as of the Effective Date, as defined, as follows:

 


Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

For Redemptions with an Effective Date Between 
July 1, 2018 and June 30, 2019:92.5% of the estimated NAV per Share
July 1, 2019 and June 30, 2020:95.0% of the estimated NAV per Share
July 1, 2020 and June 30, 2021:97.5% of the estimated NAV per Share
Thereafter:100% of the estimated NAV per Share


Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

 

Pursuant to the terms of the Fourth Amended SRP, any shares approved for redemption are redeemed on a periodic basis as determined from time to time by the Company’s board of directors, and no less frequently than annually.  The Company will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.  In addition, the cash available for redemptions is limited to no more than $10.0 million in any twelve-month period.  Any redemption requests are honored pro rata among all requests received based on funds available and are not honored on a first come, first served basis.

 

On December 28, 2018, the Company’s board of directors adopted a Fifth Amended and Restated Share Redemption Program (the “Fifth Amended SRP”) which became effective on January 31, 2019. The only material change to the program was to change the measurement period for the limitations on the number and dollar amount of shares that may be accepted for redemption from a rolling 12 month-period to a calendar year.

 

In accordance with the Company’s Fifth Amended SRP, the per share redemption price automatically adjusted to $8.64 effective November 7, 2019 as a result of the determination and approval by the Company’s board of directors of the updated estimated NAV per Share.

 

On December 13, 2019, the Company’s board of directors approved the suspension of the SRP. Pursuant to the terms of the SRP, while the SRP is suspended, the Company will not accept any requests for redemption.

 

Effective March 25, 2021, the Company’s Board of Directors reopened the SRP solely for redemptions submitted in connection with a stockholder’s death and set the price for all such purchases to $9.42, which is 100% of the NAV per Share as of September 30, 2020. Deaths that occurred subsequent to January 1, 2020 are eligible for consideration. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration. 

On an annual basis, the Company will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year. Death redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if death redemption requests exceed the annual limitation. 

The Company’s board of directors will continue to consider the liquidity available to stockholders going forward, balanced with other long-term interests of the stockholders and the Company. It is possible that in the future additional liquidity will be made available by the Company through the SRP, issuer tender offers or other methods, though it can make no assurances as to whether that will happen, or the timing or terms of any such liquidity.

Distributions

 

The Company made an election to qualify as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 2008. U.S. federal tax law requires a REIT distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance with GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, wethe Company may be required to make distributions in excess of cash available. Distributions are authorized at the discretion of the Company’s board of directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods.  TheseSuch analyses may include actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for the Company’s portfolio, capital expenditure needs, general financial and market conditions, proceeds from asset sales, and other factors that the Company’s board of directors deems relevant.

The Company’s board of director’s decisionsdirectors’ decision will be substantially influenced by thetheir obligation to ensure that the Company maintains its federal tax status as a REIT.  The Company cannot provide assurance that it will pay distributions at any particular level, or at all.

 

10.    Related Party TransactionsThe Company did not make any distributions to its stockholders during the three months ended March 31, 2021 and 2020.

9.Related Party Transactions

 

The Company has agreements with the Advisor providing for the payment ofand its affiliates to pay certain fees and reimbursement of administrative services costs (the “Administrative Services Reimbursement”) in exchange for services performed by these entities and costs incurred by the Advisor and/or its affiliated entities. Amounts the Company owes to the Advisor and its affiliated entities, which are principally for these fees and the Administrative Services Reimbursement, are classified as payables toother related parties on the consolidated balance sheets.

parties. On June 10, 2020, the advisory managementthese agreements were extended an additional year through June 10, 2021.  ForThe Company is dependent on the period June 11, 2020 through June 10, 2021,Advisor and property manager for certain services that are essential to it, including asset disposition decisions, property management and leasing services, and other general administrative responsibilities. In the Administrative Services Reimbursement is limitedevent that these companies were unable to provide the lesser ofCompany with their respective services, the actual costs incurred or $1.33 million.Company would be required to obtain such services from other sources.


Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

 

The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:

 


Lightstone Value Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

  For the Three Months Ended March 31, 
  2021  2020 
Acquisition fees and acquisition expense reimbursement(1) $-  $764 
Debt financing fees(2)  -   299 
Property management fees (property operating expenses)  118   115 
Administrative services reimbursement (general and administrative costs)  333   328 
Asset management fees (general and administrative costs)  695   632 
         
Total $1,146  $2,138 

 

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
  2020  2019  2020  2019 
Acquisition fees and acquisition expense reimbursement (1) $-  $17  $764  $1,404 
Debt financing fees (2)  -   -   656   722 
Property management fees (property operating expenses)  123   131   350   337 
Administrative services reimbursement (general and administrative costs)  333   328   989   972 
Asset management fees (general and administrative costs)  691   624   2,014   1,792 
                 
Total $1,147  $1,100  $4,773  $5,227 

(1)Capitalized to the corresponding asset and amortized over its estimated useful life.

(2)Capitalized upon the execution of the loan, presented in the consolidated balance sheets as a direct deduction from the carrying value of the corresponding loan and amortized over the initial term of the corresponding loan.

Advance from Advisor

On March 16, 2020, the Advisor provided an advance of $25.0 million to the Company that bore interest at a fixed-rate of 5.00%. On March 31, 2020, the Company repaid $15.0 million of the advance and on June 29, 2020, the Company repaid the remaining $10.0 million of the advance and aggregate accrued interest of $0.2 million. Approximately $0.2 million of interest expense was incurred on the advance during the nine months ended September 30, 2020.

11.   Commitments and Contingencies

10.Commitments and Contingencies

 

Legal Proceedings

 

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

 

As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto.

 

Forward-Looking Statements

 

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus Real Estate Investment Trust V, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated net asset value per share of our common stock (“NAV per Share”), and other matters.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements. 

 

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below: 

 

 •●market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases;
 •●uncertainties regarding the impact of the current COVID-19 pandemic, and restrictions and other measures intended to prevent its spread on our business and the economy generally;
 •●the availability of cash flow from operating activities for distributions, if any;
 •●conflicts of interest arising out of our relationships with our advisor and its affiliates;
 •●our ability to retain our executive officers and other key individuals who provide advisory and property management services to us;
 •●our level of debt and the terms and limitations imposed on us by our debt agreements;
 •●the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt;
 •●our ability to make accretive investments in a diversified portfolio of assets;
 •●future changes in market factors that could affect the ultimate performance of any development or redevelopment projects, including but not limited to construction costs, plan or design changes, schedule delays, availability of construction financing, performance of developers, contractors and consultants and growth in rental rates and operating costs;
 •●our ability to secure leases at favorable rental rates;
 •●our ability to sell our assets at a price and on a timeline consistent with our investment objectives;
 •●impairment charges;
 •●unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and
 •●factors that could affect our ability to qualify as a real estate investment trust.

 


Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law.  We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 21E of the Exchange Act.

 

Cautionary Note

 

The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties.  Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

 

Executive Overview

 

We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis.  In particular, we have focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who were distressed or faced time-sensitive deadlines.  In addition, our opportunistic and value-add investment strategy has included investments in real estate-related assets that present opportunities for higher current income. Since inception, we have acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily. We have purchased existing, income-producing properties and newly constructed properties. We have also invested in mortgage and mezzanine loans. We have made our investments in or in respect of real estate assets located in the United States and other countries based on our view of existing market conditions. As of September 30, 2020,March 31, 2021, our investments included multifamily and student housing communities and a note receivable. All of our current investments are located in the United States. We currently intend to hold our various real properties until such time as our board of directors determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met.

 

Current Environment

 

Our operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession.

 

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantines,quarantine guidelines, limitations on travel, and “shelter in place” rules and certain other measures in an effort to reduce its duration and the severity of its spread. TheAlthough the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and while most statesother measures have initiated a phased approach allowing for reductionsnow been reduced and/or lifting of restrictions,lifted. However, the situationCOVID-19 pandemic remains highly unpredictable and dynamic.dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future. 

 


Our consolidated portfolio of properties currently consists of sevensix multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, our multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. Our student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. Because of the COVID-19 pandemic, UGA previously transitioned to online instruction during its Spring 2020 semester and for its other course offerings throughout the summer. However, UGA returned toresumed “on-campus” classes forbeginning with its Fall 2020 semester which are currently taking place.2020. Our student housing complex is located “off-campus” and therefore, its tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of our student housing complex in future periods. Additionally, our note receivable relates tois collateralized by a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, the Condominium Project and our note receivable hashave not been significantly impacted by the COVID-19 pandemic.

 

While the Company’sour business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which itwe may be affected in future periods remainswill largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predictedpredicted. 

  

If our properties and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) demand for ourits student housing complex declines, and (iii) theits borrower is unable to pay scheduled debt service on the outstanding note receivable; our business and financial results could be materially and adversely impacted. While we have implemented various cost reduction strategies, including the deferral of certain non-critical capital expenditures, there can be no assurance that these cost savings will fully mitigate the potential adverse impact of any lost revenue and income.

These and other market and economic challenges could materially affect (i) the value and performance of our investments, (ii) our ability to pay future distributions, if any, (iii) the availability or terms of financings, (iv) our ability to make scheduled principal and interest payments, and (v) our ability to refinance any outstanding debt when contractually due.

  

We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Form 10-Q. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. Actual results may differ from those estimates and assumptions used in these consolidated financial statements.

 

Liquidity and Capital Resources

 

We had unrestricted cash and cash equivalents of $27.8$27.0 million and marketable securities, available for sale of $3.7$3.6 million as of September 30, 2020.March 31, 2021. Our principal demands for funds going forward will be for the payment of (a) operating expenses and (b) scheduled interest and principal payments on our outstanding indebtedness. We also may, at our discretion use funds for (a) tender offers and/or redemptions of shares of our common stock, (b) distributions, if any, to our shareholders, and (c) selective acquisitions and/or real estate-related investments. Generally, we expect to meet our cash needs with our cash on hand and cash flow from operations.operations as well as the release of certain funds held in restricted cash. However, to the extent that our cash on hand and cash flow from operations are not sufficient to cover our cash needs, we may use proceeds from additional borrowings and/or selective asset sales to fund such needs. We have borrowed and may continue to borrow money to acquire properties and make other investments.  Under our charter, the maximum amount of our indebtedness is limited to 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors.  In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests.  Our policy limitation, however, does not apply to individual real estate assets.


Acquisition and Disposition Activities

Disposition of Lakes of Margate

 

On March 17, 2021, we completed the disposition of the Lakes of Margate for a contractual sales price of $50.8 million to an unrelated third party.  At closing, the buyer paid $15.1 million and assumed the existing mortgage loan secured by the Lakes of Margate with an outstanding principal balance of $35.7 million. Approximately $14.1 million of the proceeds were placed in escrow with a qualified intermediary to potentially facilitate a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, and is included in restricted cash on the consolidated balance sheet as of March 31, 2021. In connection with the disposition of the Lakes of Margate, we recognized a gain on the sale of investment property of $27.8 million during the first quarter of 2021.

Acquisition of Autumn Breeze Apartments

On March 17, 2020, we completed the acquisition of a 280-unit multifamily property located in Noblesville, Indiana (the “Autumn Breeze Apartments”) from an unrelated third party, for an aggregate purchase price of approximately $43.0 million, excluding closing and other related transaction costs. In connection with the acquisition, our Companywe paid the Advisor an aggregate of approximately $0.8 million in acquisition fees and acquisition expense reimbursements.

 


Disposition of Gardens Medical Pavilion

On January 15, 2020, we and our noncontrolling member completed the disposition of the Gardens Medical Pavilion for a contractual sales price of $24.3 million.million to an unrelated third-party. In connection with the disposition of the Gardens Medical Pavilion, we recognized a gain on the sale of investment property of approximately $5.5 million during the first quarter of 2020. Approximately $12.6 million of the proceeds were used towards the repayment in full of a mortgage loan secured by the Gardens Medical Pavilion. Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member.

 

Debt Financings

From time to time, we have obtained mortgage, bridge, or mezzanine loans for acquisitions and investments, as well as property development.  In the future, we may obtain new financings to acquire properties and for property renovation development and redevelopment activities or refinance our existing real estate assets, depending on multiple factors.

 

As of September 30, 2020,March 31, 2021, our outstanding notes payable were $248.0$213.3 million, net of deferred financing fees of $4.1$2.9 million and had a weighted average interest rate of 3.7%3.80%. As of December 31, 2019, the Company2020, we had notes payable of $183.8$213.0 million, net of deferred financing fees of $3.0$3.4 million, with a weighted average interest rate of 4.1%3.71%.

Autumn Breeze Apartments Loan

On March 31, 2020, we entered into a ten-year $29.9 million non-recourse mortgage loan (the “Autumn Breeze Apartments Loan”) scheduled to mature on April 1, 2030. The Autumn Breeze Apartments Loan bears interest at 3.39% and requires monthly interest-only payments through June 30, 2023 and monthly principal and interest payments of approximately $0.1 million thereafter, through its stated maturity. The Autumn Breeze Apartments Loan is collateralized by the Autumn Breeze Apartments. In connection with the Autumn Breeze Apartments Loan, we paid the Advisor an aggregate of approximately $0.3 million in financing fees.

Lakes of Margate Loan

On June 26, 2020, we and our noncontrolling member entered into a ten-year, $35.7 million non-recourse mortgage loan (the "Lakes of Margate Loan") scheduled to mature on July 1, 2030. The Lakes of Margate Loan bears interest at LIBOR + 2.98% and requires monthly interest-only payments through the first four years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization. The Lakes of Margate Loan is collateralized by the Lakes of Margate.  In connection with the Lakes of Margate Loan, we paid the Advisor an aggregate of approximately $0.4 million in financing fees. Additionally, approximately $1.4 million of the financing proceeds were distributed to the noncontrolling member.

Our loan agreements stipulate that we comply with certain reporting and financial covenants.  These covenants include, among other things, maintaining minimum debt service coverage ratios, loan to value ratios, and liquidity.  We are currently in compliance with all of our debt covenants.

 

One of our principal short-term and long-term liquidity requirements includes the repayment of maturing debt.  The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of September 30, 2020March 31, 2021 (dollars in thousands).

 

Contractual Obligations 2020  2021  2022  2024  2023  Thereafter  Total 
Notes Payable $77  $1,023  $1,468  $2,498  $3,490  $243,603  $252,159 
Interest Payments  2,642   9,458   9,402   9,335   9,249   18,627   58,713 
                             
Total Contractual Obligations $2,719  $10,481  $10,870  $11,833  $12,739  $262,230  $310,872 


Advance from Advisor

Contractual Obligations 2021  2022  2023  2024  2025  Thereafter  Total 
Mortgage Payable $883  $1,468  $2,498  $3,181  $46,590  $161,622  $216,242 
Interest Payments(1)  6,261   8,258   8,188   8,108   7,307   5,545   43,667 
                             
Total Contractual Obligations $7,144  $9,726  $10,686  $11,289  $53,897  $167,167  $259,909 

 

On March 16, 2020, the Advisor provided an advance of $25.0 million to us that bore interest at a fixed-rate of 5.00%. On March 31, 2020, we repaid $15.0 million of the advance and on June 29, 2020, we repaid the remaining $10.0 million of the advance and aggregate accrued interest of $0.2 million. Approximately $0.2 million of interest expense was incurred on the advance during the nine months ended September 30, 2020.

2020 Tender Offer

We commenced a tender offer on June 16, 2020, pursuant to which we offered to acquire up to 300,000 shares of our common stock at a purchase price of $2.25 per share, or approximately $0.7 million in the aggregate (the “2020 Tender Offer”).

The 2020 Tender Offer terminated on July 24, 2020, and a total of 26,637 shares were validly tendered and not withdrawn pursuant to the 2020 Tender Offer as of such date. In accordance with the terms of the 2020 Tender Offer, we subsequently repurchased all of the tendered shares for approximately $0.1 million in August 2020.

2019 Tender Offer

We commenced a tender offer on December 17, 2019, pursuant to which we offered to acquire up to 2.0 million shares of our common stock at a purchase price of $7.75 per share, or $15.5 million in the aggregate (the “2019 Tender Offer”).

The 2019 Tender Offer terminated on February 28, 2020, and a total of 2,183,888 shares were validly tendered and not withdrawn pursuant to the 2019 Tender Offer as of such date, an amount that exceeded the maximum number of shares we offered to purchase pursuant to the 2019 Tender Offer. In accordance with the terms of the 2019 Tender Offer, we subsequently repurchased a total of approximately 2.0 million shares for approximately $15.6 million in April 2020.

Because the amount of repurchase requests exceeded the maximum number of shares we had offered to repurchase, we repurchased shares on a pro-rata basis, subject to “odd lot” priority as described in the 2019 Tender Offer. Excluding the stockholders eligible for “odd lot” priority that were not be subject to proration, approximately 91.58% of the number of shares tendered by each remaining stockholder who participated in the 2019 Tender Offer were repurchased by us.

Results of Operations

 

As of September 30, 2020,March 31, 2021, we had eightseven real estate investments (five wholly owned properties and threetwo properties consolidated through investments in joint ventures) and one real estate-related investment (mezzanine loan). 

 


The tables below reflect occupancy and effective monthly rental rates for our operating properties owned as of September 30, 2020:March 31, 2021:

                
  Occupancy  Effective Monthly Rent per Bed/Unit(1)    
  As of September 30,  As of September 30,    
Property 2020  2019  2020  2019    
River Club and the Townhomes at River Club  97%  99% $471.84  $449.93   per bed 
Lakes of Margate  95%  97%  1,425.76   1,381.27   per unit 
Arbors Harbor Town  95%  93%  1,331.67   1,359.28   per unit 
Parkside  95%  96%  1,179.61   1,098.13   per unit 
Flats at Fishers  96%  94%  1,169.65   1,139.28   per unit 
Axis at Westmont  94%  93%  1,167.06   1,156.97   per unit 
Valley Ranch Apartments (2)  95%  92%  1,378.67   1,446.60   per unit 
Autumn Breeze Apartments (3)  95%  N/A   1,058.45   N/A   per unit 

 


  Occupancy  Effective Monthly Rent per Square Foot/Unit(1)   
  As of March 31,  As of March 31,   
Property 2021  2020  2021  2020   
River Club and the Townhomes at River Club  97%  96% $473.10  $457.43  per bed
Arbors Harbor Town  96%  93% $1,367.38  $1,316.19  per unit
Parkside  98%  99% $1,196.53  $1,156.84  per unit
Flats at Fishers  95%  96% $1,220.47  $1,147.02  per unit
Axis at Westmont  95%  93% $1,177.28  $1,174.67  per unit
Valley Ranch Apartments  95%  97% $1,463.39  $1,383.47  per unit
Autumn Breeze Apartments (2)  95%  95% $1,075.84  $1,065.79  per unit

 

(1)Effective monthly rent is calculated as in-place contracted monthly rental revenue, including any premiums due for short-term or month-to-month leases, less any concessions or discounts.

 

(2)The Valley Ranch Apartments were acquired on February 14, 2019.

(3)The Autumn Breeze Apartments were acquired on March 17, 2020.

 

On March 17, 2020, we acquired the Autumn Breeze Apartments (the “2020“2020 Acquisition”) and on February 14, 2019, we acquired the Valley Ranch Apartments (the “2019 Acquisition” and collectively, the “Acquisitions”). Additionally, on January 4, 2019 we received proceeds of approximately $10.9 million representing the minimum amount payable for our participation in the residual interests of our equity method investment in Prospect Park. Any additional amounts received will be recognized upon receipt.

On January 15, 2020, we disposed of the Gardens Medical Pavilion (the “Disposition”“2020 Disposition”) and on March 17, 2021, we disposed of the dispositionLakes of thisMargate (the “2021 Disposition” and collectively, the “Dispositions”). In connection with the dispositions of Gardens Medical Pavilion and the Lakes of Margate, we recognized gains on the sale of investment property of $5.5 million during the first quarter of 2020 and $27.8 million during the first quarter of 2021, respectively. The Dispositions did not qualify to be reported as discontinued operations since it did not representneither disposition represented a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of this propertythese properties are reflected in our results from continuing operations for all periods presented through its datetheir respective dates of disposition.

 

Our results of operations for the respective periods presented reflect our acquisition and disposition activities. Properties owned by us during the entire periods presented are referred to as our “Same Store” properties.

Three months ended September 30, 2020March 31, 2021 as compared to the three months ended September 30, 2019.March 31, 2020.

The following table provides summary information about our results of operations (dollars in thousands):

 

 Three Months Ended       Change Change Change due to 
 Three Months Ended       Change Change Change  March 31,  Increase/  Percentage  due to  due to  Same 
 September 30,  Increase/  Percentage  due to  due to  due to  2021  2020  (Decrease)  Change  Acquisitions(1)  Dispositions(2)  Store(3) 
 2020  2019  (Decrease)  Change  Acquisitions(1)  Dispositions(2)  Same Store(3)                
Rental revenues $10,185  $9,575  $610   6.0% $940  $(594) $264  $10,287  $9,400  $887   9.0% $817  $(285) $355 
Property operating expenses  3,694   3,622   72   2.0%  342   (206)  (64)  3,177   2,960   217   7.0%  273   (89)  33 
Real estate taxes  1,496   1,412   84   6.0%  171   (82)  (5)  1,471   1,218   253   21.0%  149   (70)  174 
General and administrative  1,634   1,514   120   8.0%  6   (6)  120   1,653   1,539   114   7.0%  4   23   87 
Depreciation and amortization  3,145   3,402   (257)  (8.0%)  455   (286)  (426)  2,910   2,511   399   16.0%  477   -   (78)
Interest expense, net  2,556   2,494   62   2.0%  274   (208)  (4)  2,453   2,140   313   15.0%  266   230   (183)

 

Notes:

(1)Represents the effect on our operating results for the periods indicated resulting from our 2020 acquisition of the Autumn Breeze Apartments.Acquisition.

(2)Represents the effect on our results for the periods indicated resulting from our 2020 disposition of the Gardens Medical Pavilion.Dispositions.

(3)Represents the change for the three months ended September 30, 2020March 31, 2021 compared to the same period in 20192020 for real estate and real estate-related investments owned by us during the entire periods presented (“Same Store”). Our results for Same Store properties for the three months ended September 30,March 31, 2021 and 2020 and 2019 include River Club and the Townhomes at River Club, Lakes of Margate, Arbors Harbor Town, Parkside, Flats at Fishers, Axis at Westmont and the Valley Ranch Apartments.

 


The following table reflects total rental revenues and total property operating expenses for the three months ended September 30,March 31, 2021 and 2020 and 2019 for: (i) our Same Store properties, (ii) the 2020 Acquisition and (iii) the Disposition (dollars in thousands):

 

 Three Months Ended September 30,   Three Months Ended
March 31,		    
Description 2020  2019  Change  2021  2020  Change 
Rental Revenues:                        
Same Store $9,245  $8,981  $264  $8,276  $7,921  $355 
2020 Acquisition  940   -   940 
Acquisitions  958   141   817 
Disposition  -   594   (594)  1,053   1,338   (285)
Total rental revenues $10,185  $9,575  $610  $10,287  $9,400  $887 
                        
Property operating expenses:                        
Same Store $3,352  $3,416  $(64) $2,512  $2,479  $33 
2020 Acquisition  342   -   342 
Acquisitions  300   27   273 
Disposition  -   206   (206)  365   454   (89)
Total property operating expenses $3,694  $3,622  $72 
Total property and hotel operating expenses $3,177  $2,960  $217 

 

Revenues.  Rental revenues for the three months ended September 30, 2020March 31, 2021 were $10.2$10.3 million, an increase of $0.6$0.9 million, compared to $9.6$9.4 million for the same period in 2019.2020.  Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $0.3$0.4 million for our Same Store properties primarily as a result of increases in the average monthly rent per unit.

 

Property Operating Expenses.    Property operating expenses for the three months ended September 30, 2020March 31, 2021 were $3.7$3.2 million, a slightan increase of $0.1$0.2 million, compared to $3.6$3.0 million for the same period in 2019.2020. Excluding the effect of our acquisition and disposition activities, our property operating expenses decreased slightly by $0.1 millionwere flat for our Same Store properties.

 

Real Estate Taxes.  Real estate taxes for the three months ended September 30, 2020March 31, 2021 were $1.5 million, a slightan increase of $0.1$0.3 million, compared to $1.4$1.2 million for the same period in 2019.2020. Excluding the effect of our acquisition and disposition activities, our real estate taxes were flatincreased by $0.2 million for our Same Store properties.

 

General and Administrative Expenses.   General and administrative expenses for the three months ended September 30, 2020March 31, 2021 was $1.6$1.7 million, a slightan increase of $0.1$0.2 million, compared to $1.5 million for the same period in 2019.2020. Excluding the effect of our acquisition and disposition activities, our general and administrative expenses decreasedincreased slightly by $0.1 million for our Same Store properties.

 

Depreciation and Amortization.   Depreciation and amortization expense for the three months ended September 30, 2020March 31, 2021 was $3.1$2.9 million, a decreasean increase of $0.4 million, compared to $3.4$2.5 million for the same period in 2019.2020. Excluding the effect of our acquisition and disposition activities, depreciation and amortization expenses decreased slightly by $0.4$0.1 million for our Same Store properties primarily as a result of the decreased amortization expense resulting from in-place lease intangibles becoming fully amortized during the first quarter of 2020.properties.

 

Interest Expense, net.   Interest expense for the three months ended September 30, 2020March 31, 2021 was $2.6$2.5 million, a slightan increase of $0.1$0.4 million, compared to $2.5$2.1 million for the same period in 2019.2020. Excluding the effect of our acquisition and disposition activities, interest expense was flat for our Same Store properties.

Nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

The following table provides summary information about our results of operations (dollars in thousands):

  Nine Months Ended        Change  Change  Change 
  September 30,  Increase/  Percentage  due to  due to  due to 
  2020  2019  (Decrease)  Change  Acquisitions(1)  Dispositions(2)  Same Store(3) 
Rental revenues $29,662  $27,619  $2,043   7.0% $2,841  $(1,662) $864 
Property operating expenses  9,749   9,494   255   3.0%  949   (525)  (169)
Real estate taxes  4,161   3,844   317   8.0%  527   (233)  23 
General and administrative  4,745   4,658   87   2.0%  26   (39)  100 
Depreciation and amortization  9,067   9,851   (784)  (8.0%)  537   (829)  (492)
Interest expense, net  7,087   6,753   334   5.0%  778   (546)  102 
Gain on sale of real estate  5,474   -   5,474   100.0%  -   5,474   - 


Notes:

(1)Represents the effect on our operating results for the periods indicated resulting from our 2019 acquisition of the Valley Ranch Apartments and our 2020 acquisition of the Autumn Breeze Apartments.
(2)Represents the effect on our results for the periods indicated resulting from our 2020 disposition of the Gardens Medical Pavilion.
(3)Represents the change for the nine months ended September 30, 2020 compared to the same period in 2019 for real estate and real estate-related investments owned by us during the entire periods presented (“Same Store”). Our results for Same Store properties for the nine months ended September 30, 2020 and 2019 include River Club and the Townhomes at River Club, Lakes of Margate, Arbors Harbor Town, Parkside, Flats at Fishers and the Axis at Westmont.

The following table reflects total rental revenues and total property operating expenses for the nine months ended September 30, 2020 and 2019 for: (i) our Same Store properties, (ii) the Acquisitions and (iii) the Disposition (dollars in thousands):

  Nine Months Ended September 30,   
Description 2020  2019  Change 
Rental Revenues:            
Same Store $22,732  $21,868  $864 
Acquisitions  6,827   3,986   2,841 
Disposition  103   1,765   (1,662)
Total rental revenues $29,662  $27,619  $2,043 
             
Property operating expenses:            
Same Store $7,818  $7,987  $(169)
Acquisitions  1,916   967   949 
Disposition  15   540   (525)
Total property operating expenses $9,749  $9,494  $255 

Revenues.  Rental revenues for the nine months ended September 30, 2020 were $29.7 million, an increase of $2.0 million, compared to $27.6 million for the same period in 2019.  Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $0.9 million for our Same Store properties primarily as a result of increases in average monthly rent per unit.

Property Operating Expenses.    Property operating expenses for the nine months ended September 30, 2020 were $9.7 million, an increase of $0.2 million, compared to 9.5 million for the same period in 2019. Excluding the effect of our acquisition and disposition activities, our property operating expenses decreased by $0.3$0.2 million for our Same Store properties.

 

Real Estate Taxes.  Real estate taxes for the nine months ended September 30, 2020 were $4.2 million, an increase of $0.4 million, compared to $3.8 million for the same period in 2019. Excluding the effect of our acquisition and disposition activities, our real estate taxes were flat for our Same Store properties.

General and Administrative Expenses.   General and administrative expenses for the nine months ended September 30, 2020 and 2019 were relatively flat at $4.7 million.

Depreciation and Amortization.   Depreciation and amortization expense for the nine months ended September 30, 2020 was $9.1 million, a decrease of $0.8 million, compared to $9.9 million for the same period in 2019. Excluding the effect of our acquisition and disposition activities, depreciation and amortization decreased by $0.5 million for our Same Store Properties primarily as a result of the of decreased amortization expense resulting from in-place lease intangibles becoming fully amortized during the first quarter of 2020.

Interest Expense, net.   Interest expense for the nine months ended September 30, 2020 was $7.1 million, an increase of $0.3 million, compared to $6.8 million for the same period in 2019. Excluding the effect of our acquisition and disposition activities, interest expense increased slightly by $0.1 million for our Same Store properties.

Gain on Sale of Investment Property.   During the first quarter of 2020, we recognized a gain on the sale of the Gardens Medical Pavilion of approximately $5.5 million. 


Related Party Transactions

 

We have agreements with the Advisor providing for the payment ofand its affiliates to pay certain fees and reimbursement of administrative services costs (the “Administrative Services Reimbursement”) in exchange for services performed by these entities and costs incurred by the Advisor and/or its affiliated entities. Amounts we owe to the Advisor and its affiliated entities, which are principally for these fees and the Administrative Services Reimbursement, are classified as payables toother related parties on the consolidated balance sheets.

parties.  On June 10, 2020, the advisory managementthese agreements were extended an additional year through June 10, 2021. ForWe are dependent on the period June 11, 2020 through June 10, 2021,Advisor and property manager for certain services that are essential to us, including asset disposition decisions, property management and leasing services, and other general administrative responsibilities. In the Administrative Services Reimbursement is limitedevent that these companies were unable to the lesser of the actual costs incurred or $1.33 million.provide us with their respective services, we would be required to obtain such services from other sources.

 


The following table represents the fees incurred associated with the payments to our Advisor for the periods indicated:

 

 For the Three Months Ended
September 30,		  For the Nine Months Ended
September 30,		  For the Three Months
Ended March 31,		 
 2020  2019  2020  2019  2021  2020 
Acquisition fees and acquisition expense reimbursement (1) $-  $17  $764  $1,404  $-  $764 
Debt financing fees (2)  -   -   656   722   -   299 
Property management fees (property operating expenses)  123   131   350   337   118   115 
Administrative services reimbursement (general and administrative costs)  333   328   989   972   333   328 
Asset management fees (general and administrative costs)  691   624   2,014   1,792   695   632 
                        
Total $1,147  $1,100  $4,773  $5,227  $1,146  $2,138 

 

(1)Capitalized to the corresponding asset and amortized over its estimated useful life.

(2)Capitalized upon the execution of the loan, presented in the consolidated balance sheets as a direct deduction from the carrying value of the corresponding loan and amortized over the initial term of the corresponding loan.

  

Summary of Cash Flows

Operating activities

The net cash provided by operating activities of $6.3$3.0 million for the ninethree months ended September 30, 2020March 31, 2021 consisted primarily of our net income of $2.3$27.1 million, and depreciation and amortization and amortization of deferred financing costs aggregating $9.5$3.1 million and the net change in assets and liabilities of $1.1 million offset by a gain on the sale of investment property from the sale of the Gardens Medical PavilionLakes of $5.5Margate $27.8 million and non-cash interest income of $0.4 million.

 

Investing activities

The net cash used inprovided by investing activities of $23.1$12.3 million for the ninethree months ended September 30, 2020March 31, 2021 consists primarily of the following:

 

·●net proceeds from the acquisitionsale of the Autumn Breeze Apartments for $45.0Lakes of Margate of $14.4 million;

 

·●capital expenditurespayment of $3.0 million;

·net proceeds$1.1 million to acquire the noncontrolling member’s 7.5% ownership interest in the Lakes of $1.9 million from the sale and purchase of marketable securities;

·funding of note receivable of $0.6 million;Margate; and

 

·●proceeds from the salecapital expenditures of the Gardens Medical Pavilion of $23.7$1.1 million.

Financing activities

 

The net cash provided byused in financing activities of $32.0$0.4 million for the ninethree months ended September 30, 2020March 31, 2021 consists primarily of the following:

 

·net proceeds from notes payable of $64.0 million;

·aggregate payments of $15.7 million to tender approximately 2.0 million shares of common stock;


·aggregate Advances from advisor of $25.0 million and aggregate repayments of advances from Advisor of $25.0 million:

·●debt principal payments of $12.9 million (including $12.6 million for the repayment in full of the Gardens Medical Pavilion mortgage loan);$0.1 million; and

 

·●distributions paid to noncontrolling interests of $3.5$0.2 million.

 

Funds from Operations and Modified Funds from Operations

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.

 

Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"(“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"(“FFO”), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT'sREIT’s operating performance. FFO is not equivalent to our net income or loss as determined under generally accepted accounting principles in the United States of America (“GAAP”).

 


We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the "White Paper"“White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT'sNAREIT’s definition.

 

We believe that the use of FFO provides a more complete understanding of our performance to investors and to management and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

 

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT'sNAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.

 

Because of these factors, the Investment Program Association (the "IPA"“IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"(“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.

 


We define MFFO, a non-GAAP measure, consistent with the IPA'sIPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline"“Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to deferred rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

 

We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.

 

Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.


Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.

 

Our calculations of FFO and MFFO are presented below (dollars and shares in thousands, except per share amounts):

 

 For the Three Months Ended September 30,  For the Nine Months Ended September 30,  For the Three Months
Ended March 31,		 
Description 2020  2019  2020  2019  2021  2020 
Net (loss)/income $(1,679) $(2,242) $2,251  $(5,366)
Net income $27,112  $5,192 
FFO adjustments:                        
Depreciation and amortization of real estate assets  3,145   3,402   9,067   9,851   2,910   2,511 
Gain on sale of investment property  -   -   (5,474)  -   (27,825)  (5,474)
FFO  1,466   1,160   5,844   4,485   2,197   2,229 
MFFO adjustments:                        
Other adjustments:                        
Acquisition and other transaction related costs expensed(1)  -   -   -   10   -   - 
Noncash adjustments:                        
Amortization of above or below market leases and liabilities(2)  -   (22)  -   (60)
Mark-to-market adjustments(3)  (4)  -   5   - 
Non-recurring (loss)/gain from extinguishment/sale of debt, derivatives or securities holdings(4)  (11)  -   (63)  54 
Mark to market adjustments(2)  (2)  - 
Non-recurring gain from extinguishment/sale of debt, derivatives or securities holdings(3)  (8)  (6)
MFFO before straight-line rent  1,451   1,138   5,786   4,489   2,187   2,223 
Straight-line rent(5)  -   16   (32)  19 
Straight-line rent(4)  -   (32)
MFFO - IPA recommended format $1,451  $1,154  $5,754  $4,508  $2,187  $2,191 
                        
Net (loss)/income $(1,679) $(2,242) $2,251  $(5,366)
Less: loss/(income) attributable to noncontrolling interests  5   78   (1,227)  94 
Net (loss)/income applicable to Company's common shares $(1,674) $(2,164) $1,024  $(5,272)
Net (loss)/income per common share, basic and diluted $(0.08) $(0.10) $0.05  $(0.23)
Net income $27,112  $5,192 
Less: income attributable to noncontrolling interests  (77)  (1,211)
Net income applicable to Company’s common shares $27,035  $3,981 
Net income per common share, basic and diluted $1.34  $0.18 
                        
FFO $1,466  $1,160  $5,844  $4,485  $2,197  $2,229 
Less: FFO attributable to noncontrolling interests  (89)  (83)  (368)  (373)  (150)  (170)
FFO attributable to Company's common shares $1,377  $1,077  $5,476  $4,112 
FFO attributable to Company’s common shares $2,047  $2,059 
FFO per common share, basic and diluted $0.07  $0.05  $0.26  $0.18  $0.10  $0.09 
                        
MFFO - IPA recommended format $1,451  $1,154  $5,754  $4,508  $2,187  $2,191 
Less: MFFO attributable to noncontrolling interests  (89)  (81)  (362)  (366)  (150)  (164)
MFFO attributable to Company's common shares $1,362  $1,073  $5,392  $4,142 
MFFO attributable to Company’s common shares $2,037  $2,027 
                        
Weighted average number of common shares outstanding, basic and diluted  20,201   22,680   20,925   23,058   20,193   22,223 

 

28

1)The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. Such fees and expenses are paid in cash, and therefore such funds will not be available to distribute to investors. Such fees and expenses negatively impact our operating performance during the period in which properties are being acquired. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. Acquisition fees and expenses will not be paid or reimbursed, as applicable, to our advisor even if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses would need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.


2)Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.
3)Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable equity securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.

4)3)Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods.

5)4)Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.

  

Distributions

 

We made an election to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2008. U.S. federal tax law requires a REIT to distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles, or GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, we may be required to make distributions in excess of cash available. Distributions, if any, are authorized at the discretion of our board of directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. Such analyses may include actual and anticipated operating cash flow, capital expenditure needs, general financial and market conditions, proceeds from asset sales and other factors that our board of directors deems relevant. Our board of directors’ decisions will be substantially influenced by their obligation to ensure that we maintain our federal tax status as a REIT. We cannot provide assurance that we will pay distributions at any particular level, or at all.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

 

29

Critical Accounting Policies and Estimates

 

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 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 contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, we evaluate these estimates, including investment impairment.  These estimates include such items as impairment of long-lived assets, depreciation and amortization, and allowance for doubtful accounts.  Actual results could differ from those estimates.

 

Our critical accounting policies and estimates have not changed significantly from the discussion found in the Management Discussion and Analysis and Results of Operations in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2020.25, 2021.


Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our principal executive officer and principal financial officer, evaluated, as of September 30, 2020,March 31, 2021, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e) using the criteria established in Internal Control-New Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of September 30, 2020,March 31, 2021, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized, and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

 

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

 

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting that occurred during the quarter ended September 30, 2020March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 


PART II

OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.

 

As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, we have not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Recent Sales of Unregistered Securities

 

During the period covered by this quarterly report, we did not sell any equity securities that were not registered under the Securities Act of 1933.

Our common stock is not currently listed on a national securities exchange. The timing of a liquidity event for our stockholders will depend upon then prevailing market conditions. Our board of directors previously targeted June 30, 2023 as the commencement of a liquidity event, however, onOn January 9, 2020, our board of directors elected to extendextended the targeted timeline for us to commence a liquidity event until June 30, 2028 based on their assessment of our investment objectives and liquidity options for our stockholders. We can provide no assurances as to the actual timing of the commencement of a liquidity event for our stockholders or theour ultimate liquidation of the Company.liquidation. We will seek stockholder approval prior to liquidating our entire portfolio.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item5. Other Information.

 

None.

 

Item 6. Exhibits.

 

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

 

3126

 

SIGNATURE

 

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

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE

INVESTMENT TRUST V, INC.

  
Date: November 12, 2020May 13, 2021By:  /s/ Mitchell C. Hochberg
 Mitchell C. Hochberg
 

Chief Executive Officer (Principal

(Principal Executive Officer)

  

Date: November 12, 2020May 13, 2021By:  /s/ Seth Molod
 Seth Molod
 

Chief Financial Officer

(Duly Authorized Officer and Principal Financial and Accounting Officer)


Index to Exhibits

 

Index to ExhibitsExhibit
Number

Description
31.1* Rule 13a-14(a)/15d-14(a) Certification
31.2* Rule 13a-14(a)/15d-14(a) Certification
32.1* Section 1350 Certification**
32.2* Section 1350 Certification**
99.1*Sixth Amended and Restated Share Redemption Program of Lightstone Value Plus Real Estate Investment Trust V, Inc. adopted as of March 25, 2021
101* The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020,March 31, 2021, filed on November 12, 2020,May 13, 2021, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.

 

*Filed or furnished herewith

**In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.  Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.