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 SeptemberJune 30, 20172021

Commission File Number: 000-53650

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

(Exact Name of Registrant as Specified in Its Charter)

1985 Cedar Bridge Avenue, Suite 1, Lakewood, New Jersey08701

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:  (888) (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.  Yesx ☒ No¨ ☐

Indicate by check mark whether the Registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 ☒ No ☐

Yesx 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:

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 ☒

Yes¨ Nox

As of November 3, 2017,August 10, 2021, the Registrant had approximately 24.820.2 million shares of common stock outstanding.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST V, INC.

(FORMERLY BEHRINGER HARVARD OPPORTUNITY REIT II, INC.)INDEX

INDEX

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Consolidated Balance Sheets

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

See Notes to Consolidated Financial Statements.

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)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Stockholders’ Equity

(dollars and shares in thousands)

(unaudited)

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share amounts)

(Unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)Consolidated Statements of Cash Flows

Consolidated Statement of Stockholders’ Equity

(dollars in thousands)

(Unaudited)(unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Notes to Consolidated Financial Statements (Unaudited)(unaudited)

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

Business

Behringer Harvard Opportunity REIT II, Inc., which changed its name to Lightstone Value Plus Real Estate Investment Trust V, Inc. effectivewhich 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. The Company currently has one operating segment. As of SeptemberJune 30, 2017, we2021, the Company had seven real estate investments six of which were(five wholly owned properties and two properties consolidated through investments in joint ventures.ventures) and one real estate-related investment (mezzanine loan).

Substantially all of ourthe Company’s business is conducted through Behringer Harvard OpportunityLightstone REIT V OP II LP, a limited partnership organized in Delaware (the “Operating Partnership”).  As of SeptemberJune 30, 2017, our2021, the Company’s wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a 0.1%0.1% partnership interest in the Operating Partnership as its sole general partner.  As of SeptemberJune 30, 2017, our2021, 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%99.9% interest in the Operating Partnership.

OurThe Company’s business has beenis managed by an external advisor sinceand the commencement of our initial public offering, and we haveCompany has no employees. From January 4, 2008 throughEffective February 10, 2017, an affiliate of Stratera Services, LLC, formerly known as “Behringer Harvard Holdings, LLC” (“Behringer”), acted as our external advisor (the “Behringer Advisor”). On February 10, 2017, we terminated our engagement of the Behringer Advisor andCompany engaged affiliates of theThe Lightstone Group (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide advisory services to us. The external advisorthe Company. Lightstone is majority owned by the chairman of the Company’s board of directors, David Lichtenstein. Pursuant to the terms of an advisory agreement and subject to the oversight of the Company’s board of directors, the 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 22.5 thousand22,500 shares of ourits common stock and 1.0 thousand1,000 shares of ourits convertible stock to Behringerthe Company’s previous advisor on January 19, 2007.  Behringer transferred itsThe 1,000 shares of convertible stock to one of its affiliates on April 2, 2010. Behringerwere transferred its shares of convertible stock to an affiliate of Lightstone on February 10, 2017.2017 and remain outstanding. As of SeptemberJune 30, 2017, we2021, the Company had 24.820.2 million shares of common stock outstanding and 1.0 thousand shares of convertible stock outstanding. 

The outstanding convertible stock is held by an affiliate of Lightstone.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Notes to Consolidated Financial Statements (Unaudited)

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

OurCompany’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. We previouslyOn January 9, 2020, the Company’s board of directors extended the targeted timeline for the commencement ofCompany to commence a liquidity event within six years after the termination of our initial public offering, which occurred on July 3, 2011. On June 29, 2017, our board of directors elected to extend the targeted timeline an additional six years until June 30, 20232028 based on their assessment of ourthe Company’s investment objectives and liquidity options for ourthe Company’s stockholders. However, 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.

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.

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

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

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, 2016,2020, which was filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2017.25, 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 generally accepted 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.

The consolidated balance sheet as of December 31, 2016 included herein has been derived from the consolidated balance sheet included in the Company'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.

Use of Estimates in the Preparation of Financial Statements

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.  The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

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.

There are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we areThe consolidated balance sheet as of December 31, 2020 included herein has been derived from the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility, and using a discount rate to determine the net present value of those future losses. A changeconsolidated balance sheet included in the judgments, assumptions, and estimates outlined above could resultCompany’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.

Investment in consolidatingUnconsolidated Joint Venture (Prospect Park)

The Company previously participated in the residual interests of a mezzanine financing made to an unaffiliated third-party entity, that should not be consolidated or accountingwhich it accounted for an investment usingin accordance with the equity method that shouldof accounting. The third-party entity owned an apartment complex located in fact beDenver, Colorado (“Prospect Park”) which was sold to a third-party buyer in December 2017 and the carrying value of the Company’s unconsolidated investment was subsequently reduced to zero during the first quarter of 2018. On May 10, 2021, the Company received an additional payment of $1.5 million in full settlement related to its prior participation in the residual interests Prospect Park and recognized a gain on disposition of unconsolidated joint venture of $1.5 million in the consolidated statements of operations during the effectssecond quarter of which could be material to our consolidated financial statements.2021.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Notes to Consolidated Financial Statements (Unaudited)(unaudited)

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

Real EstateEarnings 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

Accumulated depreciation and amortization related to our consolidated investments in real estate assets and intangibles were as follows:

We amortize the value of in-place leases, in-place tenant improvements, and in-place leasing commissions to expense over the initial term of the respective leases.  In no event does the amortization period for intangible assets or liabilities exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the acquired lease intangibles related to that tenant would be charged to expense.

Real Estate Held for Sale

We classify properties as held for sale when certain criteria are met in accordance with GAAP.  At that time, we present the assets and obligations of the property held for sale separately in our consolidated balance sheet and we cease recording depreciation and amortization expense related to that property.  Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell.  We did not have any real estate assets classified as held for sale as of September 30, 2017 or December 31, 2016.

Restricted Cash

As required by ourthe 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 tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. RestrictedAs of June 30, 2021, restricted cash may also include certainincluded $14.1 million of the proceeds from the sale of Lakes of Margate. These funds were temporarily placed in escrowsescrow with a qualified intermediariesintermediary and subsequently released on July 7, 2021 in order to facilitate potentialcomplete a like-kind exchange transactionstransaction in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended. See Notes 3 and 11 for additional information.

COVID-19 Pandemic

The World Health Organization declared COVID-19 a global pandemic on March 11, 2020 and since that time many of the previously imposed restrictions and other measures which were instituted in response have been subsequently reduced or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, the administration and ultimate effectiveness of vaccines, and the eventual timeline to achieve a sufficient level of herd immunity among the general population. Accordingly, the COVID-19 pandemic may have negative effects on the health of the U.S. economy for the foreseeable future.

As of June 30, 2021, the Company’s consolidated portfolio of properties consisted of six multi-family apartment complexes and one student housing complex. Its multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental rates and rental collections have remained stable. 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. Shortly after the onset of the COVID-19 pandemic, UGA transitioned to online instruction during its Spring 2020 semester but subsequently resumed “on-campus” classes beginning with its Fall 2020 semester. The Company’s student housing complex is located “off-campus” and therefore, its tenants would not be required to vacate even if UGA did not conduct “on-campus” classes. The Company’s student housing complex has also not been significantly impacted by the COVID-19 pandemic and its occupancy level, rental rates and rental collections have remained stable. 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 is collateralized by a condominium development project located in New York City (the “Condominium Project”), which has been subject to similar restrictions and risks. To date, both the Condominium Project and the Company’s note receivable have not been significantly impacted by the COVID-19 pandemic. 

The Company continues to closely monitor the overall extent as to which its business may be affected by the ongoing COVID-19 pandemic which will largely depend on current and future developments, all of which are highly uncertain and cannot be reasonably predicted. 

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Notes to Consolidated Financial Statements (Unaudited)(unaudited)

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

We early adoptedIf the new Financial Accounting Standards Board (“FASB”) guidance on December 31, 2016, which changed the presentation of our statements of cash flowsCompany’s properties and related disclosures for all periods presented and accordingly, the following is a summary of our cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the nine months ended September 30, 2016:

Investment Impairment

For all of our real estate andits real estate-related investments we monitor eventsare negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) leasing demand falls causing declines in occupancy levels and/or rental rates, and changes(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.

New Accounting Pronouncements

In June 2016, the FASB issued new guidance which replaces the incurred loss impairment methodology currently in circumstances indicatinguse with a methodology that the carrying amountsreflects expected credit losses and requires consideration of the real estate assets may not be recoverable.  Examplesa broader range of the types of eventsreasonable and circumstances that would cause managementsupportable information to assess our assetsinform credit loss estimates.  The new guidance is effective for potential impairment include, but are not limited to: a significant decreasefiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  The Company is currently in the market priceprocess of an asset;evaluating the impact the adoption of this standard will have on the Company’s consolidated financial statements.

The Company has reviewed and determined that other recently issued accounting pronouncements will not have a significant adverse change in the manner in which the asset is being used; an accumulationmaterial impact on its financial position, results of costs in excess of the acquisition basis plus construction of the property; major vacanciesoperations and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers; and changes in the global and local markets or economic conditions.  To the extent that our portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at those properties within a short time period, which may result in asset impairments.  When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows, expectedor do not apply to its current operations.

Lakes of Margate 

During the fourth quarter of 2020, Lakes of Margate met the criteria to be generated over the life of the assetclassified as held for sale and fromtherefore, its eventual disposition to the carrying amount of the asset.  These projected cash flows are prepared internally by the Advisorassociated assets and reflect in-place and projected leasing activity, market revenue and expense growth rates, market capitalization rates, discount rates, and changes in economic and other relevant conditions. The Company’s principal executive officer and principal financial officer review these projected cash flows to assure that the valuation is prepared using reasonable inputs and assumptions that are consistent with market data or with assumptions that would be used by a third-party market participant and assume the highest and best use of the investment. We consider trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist.  In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.  While we believe our estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.

In evaluating our investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership, and the projected sales price of each of the properties.  A future change in these estimates and assumptions could result in understating or overstating the carrying value of our investments, which could be material to our financial statements. In addition, we may incur impairment charges on assetsliabilities were classified as held for sale in the future ifconsolidated balance sheet as of December 31, 2020. 

On March 17, 2021, the carrying amountCompany completed the disposition of the asset upon classificationLakes 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 outstanding principal balance of $35.7 million and $14.1 million of the proceeds were temporarily placed in escrow with a qualified intermediary and subsequently released on July 7, 2021 in order to complete 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 June 30, 2021. See Note 11 for additional information. In connection with the disposition of the Lakes of Margate, the Company recognized a gain on sale of investment property of $27.8 million during the first quarter of 2021.

The disposition 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 financial results. Accordingly, the operating results of the Lakes of Margate are reflected in our results from continuing operations for all periods presented through its date of disposition.

The following summary presents the major components of the Lakes of Margate’s assets and liabilities held for sale, exceeds the estimated fair value, less costs to sell.of as December 31, 2020.

We also evaluate our investments in unconsolidated joint ventures at each reporting date.  If we believe there is an other than temporary decline in market value, we will record an impairment charge based on these evaluations.  We assess potential impairment by comparing our portion of estimated future undiscounted operating cash flows expected to be generated by the joint venture over the life of the joint venture’s assets to the carrying amount of the joint venture.  In the event that the carrying amount exceeds our portion of estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the joint venture to its estimated fair value.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Notes to Consolidated Financial Statements (Unaudited)(unaudited)

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

We believe

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. 

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, the Advisor has received an aggregate of $0.2 million in acquisition fees from the Company. The acquisition fees are accounted for as an addition to the carrying value of our operating real estate assets and our investment in an unconsolidated joint venture is currently recoverable.  There were no impairment charges for the nine months ended September 30, 2017 and 2016.  However, if market conditions worsen unexpectedly or if changes in our strategy significantly affect any key assumptions used in our fair value calculations, we may need to take charges in future periods for impairments related to our existing investments.  Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations.

Investment in Unconsolidated Joint Venture

We provide funding to third-party developers for the acquisition, development, and construction of real estate (“ADC Arrangement”).  Under an ADC Arrangement, we may participate in the residual profits of the project through the sale or refinancing of the property.  We evaluate this arrangement to determine if it has characteristics similar to a loan or if the characteristics are more similar to a joint venture or partnership such as participating in the risks and rewards of the project as an owner or an investment partner.  When we determine that the characteristics are more similar to a jointly-owned investment or partnership, we account for the arrangement as an investment in an unconsolidated joint venture under the equity method of accounting or a direct investment (consolidated basis of accounting) instead of applying loan accounting. The ADC Arrangement is reassessed at each reporting period. See Note 8, Investment in Unconsolidated Joint Venture, for further discussion.

Revenue Recognition

We recognize rental revenue generated from leases of our operating properties on a straight-line basis over the terms of the respective leases, including the effect of rent holidays, if any. Leases associated with our multifamily, student housing, and hotel assets are generally short-term in nature, and thus have no straight-line rent.

Hotel revenue is derived from the operations of the Courtyard Kauai Coconut Beach Hotel and consists primarily of guest room, food and beverage, and other ancillary revenues such as laundry and parking. Hotel revenue is recognized as the services are rendered.

Accounts Receivable

Accounts receivable primarily consist of receivables related to our consolidated properties of $1.9 million and $1.4 million as of September 30, 2017 and December 31, 2016, respectively, and included straight-line rental revenue receivables of $0.4 million as of September 30, 2017 and December 31, 2016.  The allowance for doubtful accounts was insignificant as of both September 30, 2017 and December 31, 2016.

Furniture, Fixtures, and Equipment

Furniture, fixtures, and equipment are recorded at cost500 West 22nd Street Mezzanine Loan and are depreciated according to the Company’s capitalization policy, which uses the straight-line method over their estimated useful lives of five to seven years.  Furniture, fixtures, and equipment associated with properties classified as held for sale are not depreciated. Maintenance and repairs are charged to operations as incurred.  Accumulated depreciation associated with our furniture, fixtures, and equipment was $5.0 million and $9.9 million as of September 30, 2017 and December 31, 2016, respectively.

Deferred Financing Fees

Deferred financing fees are recorded at cost, accounted forbeing amortized as a reduction to notes payable,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 has an initial maturity date of August 31, 2021, subject to two six-month extension options discussed below, and areis 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. At 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 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.

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 June 30, 2021). The Company received an origination fee of 1.0% of the loan balance, or $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 expenseincome, using a straight-line method that approximates the effective interest method, over the lifeinitial term of the related debt. Deferred financing fees, net were $0.5500 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 $2.1 million of the proceeds to establish a reserve for interest and $0.8 million as of September 30, 2017 and December 31, 2016, respectively.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Notes to Consolidated Financial Statements (Unaudited)

(Dollar and share amountsother items, which is presented in thousands, except per share/unit data and where indicated in millions)

Income Taxes

We have elected to be taxedthe consolidated balance sheets as a REIT under Sections 856 through 860direct deduction from the carrying value of the Internal Revenue Code of 1986, as amended (the “Code”), and have qualified as a REIT since the year ended December 31, 2008.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code and intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. Taxable income from non-REIT activities managed through a taxable REIT subsidiary (“TRS”) is subject to applicable federal, state, and local income and margin taxes. We currently have no taxable income associated with a TRS. Our operating partnerships are flow-through entities500 West 22nd Street Mezzanine Loan and are not subject to federal income taxes atbeing applied against the entity level.

During 2015, we recorded an aggregate provision for income taxfirst 8.0% of approximately $2.7 million representing estimated foreign income taxmonthly interest due as a resultduring the initial term of the sale500 West 22nd Street Mezzanine Loan. Through June 30, 2021, the entire $2.1 million reserve has been recognized as interest income. The additional monthly interest due above the 8.0% threshold is added to the balance of two foreign investments, Alte Jakobstraße (“AJS”)the 500 West 22nd Street Mezzanine Loan and Holstenplatz.  During the third quarterpayable at maturity. As of 2016, we recorded an income tax benefitJune 30, 2021, $1.6 million of less than $0.1 million representing the difference in the actual taxesadditional interest due and the originally estimated taxes payable on the sale of Holstenplatz.  During the third quarter of 2017, we recorded an aggregate income tax benefit of approximately $1.6 million consisting of (i) a refund of foreign income tax of approximately $0.8 million and (ii) the reversal of our previously estimated taxes payable on these sales of $0.8 million.

We have reviewed our tax positions under GAAP guidance that clarify the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination. We believe it is more likely than not that the tax positions taken relative to our federal tax status as a REIT will be sustained in any tax examination.

Foreign Currency Translation

For our international investments where the functional currency is other than the U.S. dollar, assets and liabilities are translated using period-end exchange rates, while the statement of operations amounts are translated using the average exchange rates for the respective period. Gains and losses resulting from the change in exchange rates from period to period are reported separately as a component of other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations and comprehensive income (loss).

Upon the substantial liquidation of our investment in a foreign entity, the cumulative translation adjustment (“CTA”) balance is required to be released into earnings. In accordance with Accounting Standards Update (“ASU”) 2013-05, upon disposal of the property, we recognize the CTA as an adjustment to the resulting gain or loss on sale.500 West 22nd Street Mezzanine Loan.

The Euro was the functional currency for the operations of AJS and Holstenplatz, which were both sold in 2015. As a result of the sale of AJS and Holstenplatz, we no longer have foreign operations. However, we still maintain a Euro-denominated bank account that is comprised primarily of the remaining undistributed proceeds from the sale of these properties, which we translate into U.S. dollars at the current exchange rate at each reporting period. As of September 30, 2017, we maintained approximately $5.2 million in Euro-denominated accounts. ForDuring the three and ninesix months ended SeptemberJune 30, 2017,2021, the foreign currency translation adjustment was a gain of $0.2Company recorded $0.5 million and $0.5$0.9 million, respectively. Forrespectively, of interest income related to the note receivable and during the three and ninesix months ended SeptemberJune 30, 2016,2020, the foreign currency translation adjustment was a gainCompany recorded $0.4 million and $0.8 million, respectively, of less than $0.1 million.

Concentration of Credit Risk

interest income related to the note receivable. As of SeptemberJune 30, 2017 and December 31, 2016, we had cash and cash equivalents deposited in certain financial institutions in excess of federally insured levels.  We have diversified our cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities.  We regularly monitor2021, the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Notes to Consolidated Financial Statements (Unaudited)

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

Geographic and Asset Type Concentration

Our investments may at times be concentrated in certain asset types that are subject to higher risk of foreclosure, or secured by assets concentrated in a limited number of geographic locations. For the nine months ended September 30, 2017, 42% and 16% of our total revenues were derived from our properties located in Hawaii and Florida, respectively. Additionally, 42%, 31%, and 21% of our total revenues for the nine months ended September 30, 2017 were from our hotel, multifamily, and student housing investments, respectively. To the extent that our portfolio is concentrated in limited geographic regions or types of assets, downturns relating generally to such region or type of asset may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our common stock and accordingly limit our ability to fund our operations. The Courtyard Kauai Coconut Beach Hotel, our only hotel and sole property located in Hawaii, was sold on August 15, 2017. See Note 7 for additional information.

Noncontrolling Interest

Noncontrolling interest represents the noncontrolling ownership interest’s proportionate shareoutstanding principal balance 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 interest which is different from the standard pro-rata allocation percentage. In certain instances, our joint venture agreement provides for liquidating distributions based on achieving certain return metrics (“promoted interest”).500 West 22nd Street Mezzanine Loan was $13.6 million.

Earnings per Share

The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, 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.

New Accounting Pronouncements to be Adopted

In May 2014, the FASB issued an update (“ASU 2014-09”) to ASC Topic 606, Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  The new guidance will require companies to apply a five-step model in accounting for revenue arising from contracts with customers, as well as enhance disclosures regarding revenue recognition. Lease contracts will be excluded from this revenue recognition criteria; however, the sale of real estate will be required to follow the new model.  ASU 2014-09 is effective for public companies for interim and annual reporting periods beginning after December 15, 2017. Either full retrospective adoption or modified retrospective adoption is permitted. The Company is continuing to evaluate the standard; however, we do not expect its adoption to have a significant impact on the consolidated financial statements, as substantially all revenues consist of rental income from leasing arrangements, which is specifically excluded from the standard.

During the quarter ended June 30, 2016, the FASB issued subsequent updates to ASU 2014-09. In April 2016, the FASB issued an update (“ASU 2016-10”) to ASC Topic 606, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing. In May 2016, the FASB issued an update (“ASU 2016-12”) to ASC Topic 606, Revenue from Contracts with Customers, Narrow-Scope Improvement and Practical Expedients.  The amendments in these updates did not change the core principle of the guidance in Topic 606; rather, they added improvements to reduce the diversity in practice at initial application and the cost and complexity of applying Topic 606 both at transition and an ongoing basis. The areas affected include: assessing the collectability criteria; presentation of sales taxes and other similar taxes collected from customers; noncash consideration; contract modification and completed contracts at transition; and technical correction as it relates to retrospective application and disclosure.  The new guidance is effective January 1, 2018 and allows full or modified retrospective application.  We do not expect the adoption of ASU 2016-10 and ASU 2016-12 to have a material effect on our consolidated financial statements; however, we will continue to evaluate this assessment until the guidance becomes effective.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Formerly Behringer Harvard Opportunity REIT II, Inc.)

Notes to Consolidated Financial Statements (Unaudited)

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