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, 20172022
Commission File Number: 000-53650
Lightstone Value Plus Real Estate Investment TrustREIT V, Inc.
(Formerly Behringer Harvard Opportunity REIT II, 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 Jersey08701
(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. 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:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Yes¨ Nox
As of November 3, 2017,August 8, 2022, the Registrant had approximately 24.8 million shares of common stock outstanding.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUSTREIT V, INC.
(FORMERLY BEHRINGER HARVARD OPPORTUNITY REIT II, INC.)
INDEX
INDEX
i
FINANCIAL INFORMATION
| Item 1. | Financial Statements. |
Lightstone Value Plus Real Estate Investment TrustREIT V, Inc.
(Formerly Behringer Harvard Opportunity REIT II, Inc.)
Consolidated Balance Sheets
(dollars in thousands, except share and per share amounts)
| September 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Real estate | ||||||||
| Land and improvements, net | $ | 30,388 | $ | 42,710 | ||||
| Building and improvements, net | 102,849 | 132,359 | ||||||
| Total real estate | 133,237 | 175,069 | ||||||
| Cash and cash equivalents | 53,228 | 67,111 | ||||||
| Restricted cash | 34,679 | 6,101 | ||||||
| Accounts receivable, net | 1,935 | 1,415 | ||||||
| Prepaid expenses and other assets | 420 | 1,051 | ||||||
| Investment in unconsolidated joint venture | 14,658 | 14,658 | ||||||
| Furniture, fixtures and equipment, net | 1,259 | 3,148 | ||||||
| Lease intangibles, net | 285 | 352 | ||||||
| Total Assets | $ | 239,701 | $ | 268,905 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Notes payable, net | $ | 102,902 | $ | 142,332 | ||||
| Accounts payable | 240 | 491 | ||||||
| Payables to related parties | 70 | 370 | ||||||
| Acquired below-market leases, net | 55 | 65 | ||||||
| Distributions payable to noncontrolling interest | 18 | 21 | ||||||
| Income taxes payable | 51 | 38 | ||||||
| Deferred gain | 558 | 1,247 | ||||||
| Accrued property tax | 2,338 | 1,385 | ||||||
| Accrued and other liabilities | 3,885 | 4,317 | ||||||
| Total liabilities | 110,117 | 150,266 | ||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, $.0001 par value per share; 50,000,000 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; 350,000,000 shares authorized, 24,757,612 and 25,218,770 shares issued and outstanding, respectively | 3 | 3 | ||||||
| Additional paid-in-capital | 225,505 | 227,891 | ||||||
| Accumulated other comprehensive income (loss) | 4 | (495 | ) | |||||
| Accumulated deficit | (100,954 | ) | (114,666 | ) | ||||
| Total Company stockholders' equity | 124,558 | 112,733 | ||||||
| �� | ||||||||
| Noncontrolling interest | 5,026 | 5,906 | ||||||
| Total Stockholder's Equity | 129,584 | 118,639 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 239,701 | $ | 268,905 | ||||
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | 83,822 | $ | 83,599 | ||||
| Building and improvements | 320,303 | 316,370 | ||||||
| Furniture, fixtures and equipment | 9,331 | 8,952 | ||||||
| Gross investment property | 413,456 | 408,921 | ||||||
| Less accumulated depreciation | (52,497 | ) | (45,915 | ) | ||||
| Net investment property | 360,959 | 363,006 | ||||||
| Cash and cash equivalents | 59,435 | 24,360 | ||||||
| Marketable securities, available for sale | 3,446 | 3,645 | ||||||
| Restricted cash | 4,716 | 20,879 | ||||||
| Note receivable, net | 5,422 | 13,919 | ||||||
| Prepaid expenses and other assets | 4,252 | 5,690 | ||||||
| Total Assets | $ | 438,230 | $ | 431,499 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Notes payable, net | $ | 288,997 | $ | 277,598 | ||||
| Accounts payable, accrued expenses and other liabilities | 8,617 | 8,031 | ||||||
| Total liabilities | 297,614 | 285,629 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Company’s stockholders’ equity: | ||||||||
| Preferred stock, $ par value per share; million shares authorized, issued and outstanding | 0 | 0 | ||||||
| Convertible stock, $ par value per share; shares authorized, issued and outstanding | 0 | 0 | ||||||
| Common stock, $ par value per share; million shares authorized, million shares issued and outstanding | 2 | 2 | ||||||
| Additional paid-in-capital | 170,507 | 171,079 | ||||||
| Accumulated other comprehensive (loss)/income | (174 | ) | 13 | |||||
| Accumulated deficit | (29,719 | ) | (25,224 | ) | ||||
| Total stockholders’ equity | 140,616 | 145,870 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 438,230 | $ | 431,499 | ||||
See Notes to Consolidated Financial Statements.
1
Lightstone Value Plus Real Estate Investment TrustREIT V, Inc.
(Formerly Behringer Harvard Opportunity REIT II, Inc.)
Consolidated Statements of Operations and Comprehensive Income
(dollars and shares in thousands, except per share amounts)
(Unaudited)(unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | ||||||||||||||||
| Rental revenues | $ | 6,122 | $ | 6,740 | $ | 18,345 | $ | 21,590 | ||||||||
| Hotel revenues | 2,653 | 4,653 | 13,207 | 13,946 | ||||||||||||
| Total revenues | 8,775 | 11,393 | 31,552 | 35,536 | ||||||||||||
| Expenses | ||||||||||||||||
| Property operating expenses | 2,697 | 2,635 | 6,758 | 7,128 | ||||||||||||
| Hotel operating expenses | 1,921 | 3,509 | 9,167 | 10,219 | ||||||||||||
| Interest expense, net | 1,601 | 1,561 | 4,843 | 4,692 | ||||||||||||
| Real estate taxes | 1,090 | 1,197 | 3,315 | 4,113 | ||||||||||||
| Property management fees | 285 | 374 | 1,043 | 1,164 | ||||||||||||
| Asset management fees | 426 | 554 | 1,445 | 1,773 | ||||||||||||
| General and administrative | 863 | 705 | 2,624 | 2,246 | ||||||||||||
| Depreciation and amortization | 2,353 | 2,616 | 7,499 | 8,396 | ||||||||||||
| Total expenses | 11,236 | 13,151 | 36,694 | 39,731 | ||||||||||||
| Interest income, net | 73 | 39 | 200 | 72 | ||||||||||||
| Loss on early extinguishment of debt | - | (500 | ) | - | (500 | ) | ||||||||||
| Other (expense) income | (3 | ) | 52 | - | 263 | |||||||||||
| Loss before gain on sale of real estate and income taxes | (2,391 | ) | (2,167 | ) | (4,942 | ) | (4,360 | ) | ||||||||
| Gain on sale of real estate and other assets, net | 21,336 | 11,462 | 21,619 | 11,462 | ||||||||||||
| Income tax benefit | 1,592 | 29 | 1,592 | 29 | ||||||||||||
| Net income | 20,537 | 9,324 | 18,269 | 7,131 | ||||||||||||
| Net (income) loss attributable to the noncontrolling interest | (4,430 | ) | 59 | (4,557 | ) | 14 | ||||||||||
| Net income attributable to the Company's shares | $ | 16,107 | $ | 9,383 | $ | 13,712 | $ | 7,145 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic and diluted | 24,899 | 25,391 | 25,031 | 25,470 | ||||||||||||
| Basic and diluted earnings per share | $ | 0.65 | $ | 0.37 | $ | 0.55 | $ | 0.28 | ||||||||
| Comprehensive income: | ||||||||||||||||
| Net income | $ | 20,537 | $ | 9,324 | $ | 18,269 | $ | 7,131 | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation gain | 212 | 37 | 499 | 106 | ||||||||||||
| Total other comprehensive income | 212 | 37 | 499 | 106 | ||||||||||||
| Comprehensive income: | 20,749 | 9,361 | 18,768 | 7,237 | ||||||||||||
| Comprehensive (income) loss attributable to noncontrolling interest | (4,430 | ) | 59 | (4,557 | ) | 14 | ||||||||||
| Comprehensive income attributable to the Company's shares | $ | 16,319 | $ | 9,420 | $ | 14,211 | $ | 7,251 | ||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Rental revenues | $ | 11,612 | $ | 9,390 | $ | 22,818 | $ | 19,677 | ||||||||
| Expenses | ||||||||||||||||
| Property operating expenses | 4,030 | 3,062 | 7,277 | 6,239 | ||||||||||||
| Real estate taxes | 1,646 | 1,358 | 3,374 | 2,829 | ||||||||||||
| General and administrative | 1,899 | 1,568 | 3,717 | 3,221 | ||||||||||||
| Depreciation and amortization | 4,953 | 2,755 | 9,872 | 5,665 | ||||||||||||
| Total operating expenses | 12,528 | 8,743 | 24,240 | 17,954 | ||||||||||||
| Operating (loss)/income | (916 | ) | 647 | (1,422 | ) | 1,723 | ||||||||||
| Interest expense | (3,307 | ) | (2,215 | ) | (6,421 | ) | (4,668 | ) | ||||||||
| Interest income | 368 | 495 | 877 | 978 | ||||||||||||
| Gain on sale of investment property | 0 | 0 | 0 | 27,825 | ||||||||||||
| Gain on disposition of unconsolidated joint venture | 0 | 1,457 | 0 | 1,457 | ||||||||||||
| Mark to market adjustment on derivative financial instruments | 492 | 0 | 1,110 | 0 | ||||||||||||
| Income tax benefit | 0 | 0 | 776 | 0 | ||||||||||||
| Other income, net | 247 | 115 | 585 | 296 | ||||||||||||
| Net (loss)/income | (3,116 | ) | 499 | (4,495 | ) | 27,611 | ||||||||||
| Net income attributable to noncontrolling interests | 0 | (54 | ) | 0 | (131 | ) | ||||||||||
| Net (loss)/income attributable to the Company’s shares | $ | (3,116 | ) | $ | 445 | $ | (4,495 | ) | $ | 27,480 | ||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic and diluted | 20,089 | 20,193 | 20,100 | 20,193 | ||||||||||||
| Basic and diluted income/(loss) per share | $ | (0.16 | ) | $ | 0.02 | $ | (0.22 | ) | $ | 1.36 | ||||||
| Comprehensive (loss)/income: | ||||||||||||||||
| Net (loss)/income | $ | (3,116 | ) | $ | 499 | $ | (4,495 | ) | $ | 27,611 | ||||||
| Other comprehensive loss: | ||||||||||||||||
| Holding loss on marketable securities, available for sale | (62 | ) | (6 | ) | (185 | ) | (48 | ) | ||||||||
| Reclassification adjustment for loss/(gain) included in net (loss)/income | 2 | 1 | (2 | ) | (7 | ) | ||||||||||
| Total other comprehensive loss | (60 | ) | (5 | ) | (187 | ) | (55 | ) | ||||||||
| Comprehensive(loss)/income: | (3,176 | ) | 494 | (4,682 | ) | 27,556 | ||||||||||
| Comprehensive income attributable to noncontrolling interests | 0 | (54 | ) | 0 | (131 | ) | ||||||||||
| Comprehensive(loss)/income attributable to the Company’s shares | $ | (3,176 | ) | $ | 440 | $ | (4,682 | ) | $ | 27,425 | ||||||
See Notes to Consolidated Financial Statements.
2
Lightstone Value Plus Real Estate Investment TrustREIT V, Inc.
(Formerly Behringer Harvard Opportunity REIT II, Inc.)
Consolidated StatementStatements of Stockholders’ Equity
(dollars and shares in thousands)
(Unaudited)(unaudited)
| Convertible Stock | Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Interests | Equity | ||||||||||||||||||||||||||||
| BALANCE, March 31, 2021 | 1 | $ | - | 20,193 | $ | 2 | $ | 187,088 | $ | 90 | $ | (75,484 | ) | $ | (1,324 | ) | $ | 110,372 | ||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | 445 | 54 | 499 | |||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | - | - | (99 | ) | (99 | ) | |||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | - | - | - | (6 | ) | - | - | (6 | ) | |||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net income | - | - | - | - | - | 1 | - | - | 1 | |||||||||||||||||||||||||||
| BALANCE, June 30, 2021 | 1 | $ | - | 20,193 | $ | 2 | $ | 187,088 | $ | 85 | $ | (75,039 | ) | $ | (1,369 | ) | $ | 110,767 | ||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total 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 | - | - | - | - | - | - | 27,480 | 131 | 27,611 | |||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | - | - | (343 | ) | (343 | ) | |||||||||||||||||||||||||
| Acquisition of noncontrolling interest in a subsidiary | - | - | - | - | (2,128 | ) | - | - | 1,042 | (1,086 | ) | |||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | - | - | - | (48 | ) | - | - | (48 | ) | |||||||||||||||||||||||||
| Reclassification adjustment for gain on sale of marketable securities included in net income | - | - | - | - | - | (7 | ) | - | - | (7 | ) | |||||||||||||||||||||||||
| BALANCE, June 30, 2021 | 1 | $ | - | 20,193 | $ | 2 | $ | 187,088 | $ | 85 | $ | (75,039 | ) | $ | (1,369 | ) | $ | 110,767 | ||||||||||||||||||
| Convertible Stock | Common Stock | Accumulated | ||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||
| Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders' | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Interests | Equity | ||||||||||||||||||||||||||||
| BALANCE, December 31, 2016 | 1 | $ | - | 25,219 | $ | 3 | $ | 227,891 | $ | (495 | ) | $ | (114,666 | ) | $ | 5,906 | $ | 118,639 | ||||||||||||||||||
| Net income | - | - | - | - | - | - | 13,712 | 4,557 | 18,269 | |||||||||||||||||||||||||||
| Contributions from noncontrolling interest holders | - | - | - | - | - | - | 30 | 30 | ||||||||||||||||||||||||||||
| Distributions to noncontrolling interest holders | - | - | - | - | - | - | - | (5,467 | ) | (5,467 | ) | |||||||||||||||||||||||||
| Redemption and cancellation of shares | - | - | (461 | ) | - | (2,386 | ) | - | - | - | (2,386 | ) | ||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | - | 499 | - | - | 499 | |||||||||||||||||||||||||||
| BALANCE, September 30, 2017 | 1 | $ | - | 24,758 | $ | 3 | $ | 225,505 | $ | 4 | $ | (100,954 | ) | $ | 5,026 | $ | 129,584 | |||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||
| BALANCE, March 31, 2022 | 1 | $ | - | 20,104 | $ | 2 | $ | 170,764 | $ | (114 | ) | $ | (26,603 | ) | - | $ | 144,049 | |||||||||||||||||||
| Net loss | - | - | - | - | - | - | (3,116 | ) | (3,116 | ) | ||||||||||||||||||||||||||
| Redemption and cancellation of common stock | - | - | (20 | ) | - | (257 | ) | - | - | (257 | ) | |||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | - | - | - | (62 | ) | - | (62 | ) | ||||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net loss | - | - | - | - | - | 2 | - | - | 2 | |||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | 1 | $ | - | 20,084 | $ | 2 | $ | 170,507 | $ | (174 | ) | $ | (29,719 | ) | - | $ | 140,616 | |||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||||||
| BALANCE, December 31, 2021 | 1 | $ | - | 20,128 | $ | 2 | $ | 171,079 | $ | 13 | $ | (25,224 | ) | - | $ | 145,870 | ||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (4,495 | ) | (4,495 | ) | ||||||||||||||||||||||||||
| Redemption and cancellation of common stock | - | - | (44 | ) | - | (572 | ) | - | - | (572 | ) | |||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | - | - | - | (185 | ) | - | (185 | ) | ||||||||||||||||||||||||||
| Reclassification adjustment for gain on sale of marketable securities included in net loss | - | - | - | - | - | (2 | ) | - | - | (2 | ) | |||||||||||||||||||||||||
| BALANCE, June 30, 2022 | 1 | $ | - | 20,084 | $ | 2 | $ | 170,507 | $ | (174 | ) | $ | (29,719 | ) | - | $ | 140,616 | |||||||||||||||||||
See Notes to Consolidated Financial Statements.
3
Lightstone Value Plus Real Estate Investment TrustREIT V, Inc.
(Formerly Behringer Harvard Opportunity REIT II, Inc.)
Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)(unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 18,269 | $ | 7,131 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 7,499 | 8,396 | ||||||
| Amortization of deferred financing fees | 420 | 394 | ||||||
| Loss on early extinguishment of debt | - | 500 | ||||||
| Loss on derivatives | - | 2 | ||||||
| Gain on sale of real estate | (21,619 | ) | (11,462 | ) | ||||
| Mark to market adjustment on derivative financial instruments | (126 | ) | (168 | ) | ||||
| Other non-cash adjustments | 173 | (65 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease/(increase) in prepaid expenses and other assets | 443 | (137 | ) | |||||
| (Increase)/decrease in accounts receivable | (696 | ) | 890 | |||||
| Increase/(decrease) in accounts payable, accrued property tax and accrued and other liabilities | 498 | (1,232 | ) | |||||
| Decrease in due to related parties | (300 | ) | (123 | ) | ||||
| Net cash provided by operating activities | 4,561 | 4,126 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in unconsolidated joint venture | - | (176 | ) | |||||
| Net proceeds from sale of real estate and other assets | 24,060 | 68,520 | ||||||
| Additions of real estate and furniture, fixtures, and equipment | (1,533 | ) | (2,062 | ) | ||||
| Net cash provided by investing activities | 22,527 | 66,282 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Financing costs | (1,465 | ) | (135 | ) | ||||
| Proceeds from notes payable | 36,000 | - | ||||||
| Payments on notes payable | (39,601 | ) | (34,880 | ) | ||||
| Redemptions of common stock | (2,386 | ) | (1,166 | ) | ||||
| Distributions paid on common stock | - | (38,378 | ) | |||||
| Contributions from noncontrolling interest holders | 30 | 92 | ||||||
| Distributions to noncontrolling interest holders | (5,470 | ) | (813 | ) | ||||
| Net cash used in financing activities | (12,892 | ) | (75,280 | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 499 | 157 | ||||||
| Net change in cash, cash equivalents and restricted cash | 14,695 | (4,715 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of year | 73,212 | 81,396 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 87,907 | $ | 76,681 | ||||
| Supplemental cash flow information for the periods indicated is as follows: | ||||||||
| Cash paid for interest, net of amounts capitalized | $ | 5,000 | $ | 4,484 | ||||
| Income taxes paid, net | $ | - | $ | 175 | ||||
| Debt assumed by buyer in connection with disposition of investment property | $ | (36,000 | ) | $ | - | |||
| Capital expenditures for real estate in accrued liabilities | $ | 47 | $ | 139 | ||||
| Accrued distributions to noncontrolling interest | $ | 18 | $ | 21 | ||||
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss)/income | $ | (4,495 | ) | $ | 27,611 | |||
| Adjustments to reconcile net (loss)/income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 9,872 | 5,665 | ||||||
| Amortization of deferred financing fees | 711 | 308 | ||||||
| Gain on disposition of unconsolidated joint venture | 0 | (1,457 | ) | |||||
| Gain on sale of investment property | 0 | (27,825 | ) | |||||
| Mark to market adjustment on derivative financial instruments | (1,110 | ) | 0 | |||||
| Non-cash interest income | (324 | ) | (785 | ) | ||||
| Other non-cash adjustments | (2 | ) | 0 | |||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase)/decrease in prepaid expenses and other assets | (761 | ) | 2,542 | |||||
| Increase/(decrease) in accounts payable, accrued expenses and other liabilities | 515 | (2,037 | ) | |||||
| Net cash provided by operating activities | 4,406 | 4,022 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | (4,464 | ) | (2,235 | ) | ||||
| Purchases of marketable securities | (721 | ) | (795 | ) | ||||
| Proceeds from sale of marketable securities | 735 | 736 | ||||||
| Proceeds from repayment of note receivable | 8,821 | 0 | ||||||
| Acquisition of noncontrolling interest | 0 | (1,086 | ) | |||||
| Proceeds from sale of investment property, net of closing costs | 0 | 14,364 | ||||||
| Proceeds from disposition of unconsolidated joint venture | 0 | 1,457 | ||||||
| Net cash provided by investing activities | 4,371 | 12,441 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | 11,587 | 0 | ||||||
| Payments on notes payable | (867 | ) | (360 | ) | ||||
| Payment of loan fees and expenses | (13 | ) | 0 | |||||
| Redemption and cancellation of common stock | (572 | ) | 0 | |||||
| Distributions to noncontrolling interest holders | 0 | (343 | ) | |||||
| Net cash provided by/(used in) by financing activities | 10,135 | (703 | ) | |||||
| Net change in cash, cash equivalents and restricted cash | 18,912 | 15,760 | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | 45,239 | 31,451 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 64,151 | $ | 47,211 | ||||
| Supplemental cash flow information for the periods indicated is as follows: | ||||||||
| Cash paid for interest | $ | 5,667 | $ | 4,385 | ||||
| Debt assumed by buyer in connection with disposition of investment property | $ | 0 | $ | 35,700 | ||||
| Capital expenditures for investment property in accrued liabilities and accounts payable | $ | 156 | $ | 175 | ||||
| Holding loss on marketable securities, available for sale | $ | 187 | $ | 55 | ||||
| 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 | $ | 59,435 | $ | 25,074 | ||||
| Restricted cash | 4,716 | 22,137 | ||||||
| Total cash and restricted cash | $ | 64,151 | $ | 47,211 | ||||
See Notes to Consolidated Financial Statements.
4
Lightstone Value Plus Real Estate Investment TrustREIT 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)
| 1. | Business |
Business
Behringer Harvard OpportunityLightstone Value Plus REIT II,V, Inc., (“Lightstone REIT V”) which changed its name towas formerly known as Lightstone Value Plus Real Estate Investment Trust V, Inc. effective July 20, 2017 (which may be referred to as the “Company,” “we,” “us,” or “our”),before August 31, 2021, 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 wereLightstone REIT V, together with its subsidiaries is collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT V or the Company as required by the context in which any such pronoun is used.
The 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, we2022, the Company had seveneight wholly owned real estate investments six of which were consolidated through investments in joint ventures.(multi-family apartment complexes) 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, our2022, 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, our2022, 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 externally managed by an external advisor since the commencement of our initial public offering, and we have no employees. From January 4, 2008 through February 10, 2017,LSG Development Advisor LLC (the “Advisor”), 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 and engaged affiliates of the Lightstone Group LLC (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide which provides advisory services to us. The external advisorthe Company and the Company has no employees. Lightstone is majority owned by the chairman emeritus 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 thousand shares of ourits common stock and 1.0 thousand shares of ourits convertible stock to Behringerthe Company’s previous advisor on January 19, 2007. Behringer transferred itsThe 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, we2022, the Company had 24.8 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 previously targetedconditions and the commencement of a liquidity event within six years after the termination of our initial public offering, which occurred on July 3, 2011. On June 29, 2017, ourCompany’s board of directors elected to extend the targeted timeline an additional six years until June 30, 2023 based on theirdirectors’ assessment of ourthe Company’s investment objectives and liquidity options for ourthe Company’s stockholders. Currently, the Company’s board of directors has targeted June 30, 2028 for the commencement of a liquidity event. 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. WeFurthermore, the Company will seek stockholder approval prior to liquidating ourits entire portfolio.
5
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Noncontrolling Interests
Effective as of December 30, 2021, the Company wholly-owns all of its real estate investments and does not have any remaining noncontrolling interests. Prior to December 30, 2021, noncontrolling interests represented the noncontrolling ownership interest’s proportionate share of the equity in the Company’s consolidated real estate investments. Income and losses were allocated to noncontrolling interest holders based generally on their ownership percentage but in certain instances, if a property reached a defined return threshold, then it may have resulted in distributions to noncontrolling interests which were different from the standard pro-rata allocation percentage. Additionally, in certain instances, the joint venture agreements may have provided for liquidating distributions based on achieving certain return metrics.
Acquisitions of Noncontrolling Members’ Ownership Interests in Consolidated Real Estate Investments
On March 17, 2021, the Company acquired the noncontrolling member’s 7.5% ownership interest in the Lakes of Margate for $ million and as a result, owned 100% of the Lakes of Margate, which was subsequently sold (see Note 5).
On December 20, 2021, the Company acquired the noncontrolling member’s 15.0% membership interest in the River Club Properties for $ million and as a result, owned 100% of the River Club Properties, which were subsequently sold (see Note 5).
On December 30, 2021, the Company acquired the noncontrolling member’s 10.0% ownership interest in Parkside for $3.6 million and recorded the $ million difference between the contractual purchase price and the carrying value of the noncontrolling member’s interest to additional paid in capital. As a result, the Company now owns 100% of Parkside.
| 2. |
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, 2016,2021, which was filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2017.24, 2022. 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 TrustREIT 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, 2021 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 result in consolidating an entity that shouldCompany’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not be consolidatednecessarily indicative of results for the full year or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our consolidated financial statements.any other period.
6
Lightstone Value Plus Real Estate Investment TrustREIT 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 Estate
Accumulated depreciation and amortization related to our consolidated investments in real estate assets and intangibles were as follows:
| September 30, 2017 | Buildings and Improvements | Land and Improvements | Lease Intangibles | Acquired Below- Market Leases | ||||||||||||
| Cost | $ | 133,712 | $ | 33,549 | $ | 1,610 | $ | (137 | ) | |||||||
| Less: accumulated depreciation and amortization | (30,863 | ) | (3,161 | ) | (1,325 | ) | 82 | |||||||||
| Net | $ | 102,849 | $ | 30,388 | $ | 285 | $ | (55 | ) | |||||||
| December 31, 2016 | Buildings and Improvements | Land and Improvements | Lease Intangibles | Acquired Below- Market Leases | ||||||||||||
| Cost | $ | 164,087 | $ | 45,885 | $ | 1,599 | $ | (137 | ) | |||||||
| Less: accumulated depreciation and amortization | (31,728 | ) | (3,175 | ) | (1,247 | ) | 72 | |||||||||
| Net | $ | 132,359 | $ | 42,710 | $ | 352 | $ | (65 | ) | |||||||
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
The Company had no potentially dilutive securities outstanding during the assetsperiods presented. Accordingly, basic and obligationsdiluted earnings per share is calculated by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during 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.applicable period.
Restricted cash
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. Restricted cash may also include certain funds temporarily placed in escrowsescrow with qualified intermediaries in order to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue CodeCode.
Interest Rate Cap Contracts
The Company utilizes derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Changes in fair value of 1986, as amended.
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 amountsthose instruments are recorded in thousands, except per share/unit data and where indicated in millions)
We early adopted the new Financial Accounting Standards Board (“FASB”) guidance on December 31, 2016, which changed the presentation of ourconsolidated statements of cash flows 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:operations.
| September 30, 2016 | ||||
| Cash and cash equivalents | $ | 69,687 | ||
| Restricted cash | 6,994 | |||
| Total cash, cash equivalents and restricted cash | $ | 76,681 | ||
Investment Impairment
For all of our real estate and real estate-related investments, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. Examples of the types of events and circumstances that would cause management to assess our assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies 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 expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. These projected cash flows are prepared internally by the Advisor 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 assets classified as held for sale in the future if the carrying amount of the asset upon classification as held for sale exceeds the estimated fair value, less costs to sell.
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)
(Dollar and share amounts in thousands, except per share/unit data and where indicated in millions)
We believe 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 cost 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 for as a reduction to notes payable, and are amortized to interest expense using a straight-line method that approximates the effective interest method over the life of the related debt. Deferred financing fees, net were $0.5 million 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 amounts in thousands, except per share/unit data and where indicated in millions)
Income Taxes
We haveThe Company has elected to be taxed as a REIT under Sections 856 through 860 ofcommencing with the Internal Revenue Code of 1986, as amended (the “Code”), and have qualified as a REIT since thetaxable year ended December 31, 2008. To qualifyIf the Company qualifies as a REIT, weit generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that weit annually distribute to its stockholders at least 90% of ourits REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to our stockholders. As a REIT, we generally will not be subjectthe deduction for dividends paid and excluding any net capital gain. If the Company fails to federal income tax at the corporate level. We are organized and operate in such a manner as to qualifyremain qualified for taxation as a REIT underin any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the Coderegular corporate rate, and intendit may be precluded from qualifying for treatment as a REIT for the four-year period following its failure 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 localSuch an event could materially adversely affect the Company’s net income and margin taxes. We currently have no taxable income associated with a TRS. Our operating partnerships are flow-through entities and are not subjectnet cash available for distribution to federal income taxes at the entity level.stockholders.
During 2015, wethe Company recorded an aggregate provision for income tax of approximately $2.7$2.7 million representing estimated foreign income tax due as a result of the sale of two foreign investments, Alte Jakobstraße (“AJS”) and Holstenplatz. During the thirdfirst quarter of 2016, we2022, the Company recorded an income tax benefit of less than $0.1$0.8 million representing the difference in the actual taxes due and the originally estimated taxes payable on the salea partial refund 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 paid.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of approximately $0.8 millionvariants to the virus that may cause additional strains of COVID-19, and (ii) the reversaldevelopment, administration and ultimate effectiveness of our previously estimated taxes payablevaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on these sales of $0.8 million.
We have reviewed our tax positions under GAAP guidance that clarify the relevant criteriaU.S. and approachglobal economies 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.foreseeable future.
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.
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. For the three and nine months ended September 30, 2017, the foreign currency translation adjustment was a gain of $0.2 million and $0.5 million, respectively. For the three and nine months ended September 30, 2016, the foreign currency translation adjustment was a gain of less than $0.1 million.
Concentration of Credit Risk
As of September 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 monitor 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.
7
Lightstone Value Plus Real Estate Investment TrustREIT 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)
Geographic and Asset Type Concentration
Our investments may at times be concentratedAs of June 30, 2022, the Company’s consolidated portfolio of properties consisted of eight multi-family apartment complexes, all of which are located in certain asset types that arethe U.S. 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 since the onset of the COVID-19 pandemic. Additionally, the Company’s note receivable (the “500 West 22nd Street Mezzanine Loan”) is collateralized by a substantially completed 10-unit condominium development project located in New York City (the “Condominium Project”), which is subject to higher risk of foreclosure, or secured by assets concentrated in a limited number of geographic locations. Forrisks related to 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 forCOVID-19 pandemic. To date, both 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 incomeCondominium Project 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.Company’s 500 West 22nd Street Mezzanine Loan have not been significantly impacted by the COVID-19 pandemic.
Noncontrolling Interest
Noncontrolling interest 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 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”).
Earnings per Share
The Company had no potentially dilutive securities outstanding duringcontinues to closely monitor the periods presented. Accordingly, earnings per share is calculated by dividing net income (loss)overall extent as to which its business may be affected by the weighted-average numberongoing COVID-19 pandemic which will largely depend on current and future developments, all of shares of common stock outstanding duringwhich are highly uncertain and cannot be reasonably predicted.
If the applicable period.Company’s properties and its real estate-related investments are negatively impacted by the ongoing COVID-19 pandemic 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 (iii) the borrower is unable to pay scheduled debt service on the 500 West 22nd Street Mezzanine Loan; the Company’s business and financial results could be materially and adversely impacted.
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 updatesnew 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 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.inform credit loss estimates. The new guidance is effective January 1, 2018 and allows full or modified retrospective application. We do not expect thefor fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of ASU 2016-10 and ASU 2016-12 tothis standard will not have a material effect on ourthe Company’s consolidated financial statements; however, weposition, results of operations or cash flows.
The Company has reviewed and determined that other recently issued accounting pronouncements will continuenot have a material impact on its financial position, results of operations and cash flows, or do not apply to evaluate this assessment untilits current operations.
| 3. | Note Receivable |
500 West 22nd Street Mezzanine Loan
On February 28, 2019, the guidance becomes effective.Company, as the lender, and an unrelated third party (the “500 West 22nd Street Mezzanine Loan Borrower”), as the borrower, entered into the 500 West 22nd Street Mezzanine Loan, a loan promissory note, pursuant to which the Company funded $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 and subsequently, through a series of draws, the remaining $4.0 million of the 500 West 22nd Street Mezzanine Loan was fully funded by the end of the first quarter of 2020.
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, 2022) and had an initial maturity date of August 31, 2021, which has been extended to September 1, 2022 due to the exercise of two six-month extension options, and is collateralized by the ownership interests of the 500 West 22nd Street Mezzanine Loan Borrower. The 500 West 22nd Street Mezzanine Loan provides for monthly interest-only payments at a rate of 8% with the additional interest above the 8% threshold added to the outstanding principal balance and due at maturity.
The 500 West 22nd Street Mezzanine Loan Borrower has developed and constructed the Condominium Project located at 500 West 22nd Street, New York, New York, which is substantially complete. During the six months ended June 30, 2022, the 500 West 22nd Street Mezzanine Loan Borrower repaid $8.8 million (of which $7.2 million was paid in the second quarter) of the 500 West 22nd Street Mezzanine Loan with proceeds from the sale of condominium units.
As of June 30, 2022, the remaining outstanding principal balance of the 500 West 22nd Street Mezzanine Loan was $5.4 million, including $2.3 million of additional interest due at maturity. The 500 West 22nd Street Mezzanine Loan is classified as note receivable, net on the consolidated balance sheet. During the three and six months ended June 30, 2022, the Company recorded $0.3 million and $0.8 million, respectively, of interest income related to the note receivable and during the three and six months ended June 30, 2021, the Company recorded $0.5 million and $0.9 million, respectively, of interest income related to the note receivable.
8
Lightstone Value Plus Real Estate Investment TrustREIT 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)
In February 2016, the FASB issued an update (“ASU 2016-02”) to ASC Topic 842, Leases. ASU 2016-02 supersedes the existing lease accounting model, and modifies both lessee and lessor accounting. The new guidance will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing leases, with classification affecting the pattern of expense recognition in the statement of earnings. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. Under this new pronouncement, lessor accounting will be largely unchanged from existing GAAP. The new standard will be effective January 1, 2019, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements when adopted.
In June 2016, the FASB issued an update (“ASU 2016-13”) to ASC Topic 326, Credit Losses. This amended guidance requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This is different from the current guidance as this will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. Financial assets that are measured at amortized cost will be required to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. Generally, the pronouncement requires a modified retrospective method of adoption. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements when adopted.
In January 2017, the FASB issued an update (“ASU 2017-01”) to ASC Topic 805, Business Combinations, Clarifying the Definition of a Business. The guidance clarifies the definition of a business and assists in the evaluation of whether a transaction will be accounted for as an acquisition of an asset or as a business combination. The guidance provides a test to determine when a set of assets and activities acquired is not a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Under the updated guidance, an acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and associated transaction costs will be capitalized rather than expensed as incurred. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted, including for interim or annual periods for which financial statements have not yet been issued. Upon adoption of this guidance, we anticipate future acquisitions of real estate assets, if any, will likely qualify as an asset acquisition. Therefore, any future transaction costs associated with an asset acquisition will be capitalized and accounted for in accordance with the guidance in ASU 2017-01.
Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.
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)
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Recurring Fair Value Measurements
We may use interest rate swaps and caps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, implied volatilities, and foreign currency exchange rates.
As of September 30, 2017, we have no derivative financial instruments.
Nonrecurring Fair Value Measurements
There were no impairment charges recorded during the nine months ended September 30, 2017 and 2016.
WeCompany 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.
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)
As of SeptemberJune 30, 20172022 and December 31, 2016,2021, management estimated that the carrying value of cash and cash equivalents, restricted cash, accountsnote receivable, prepaid expenses and other assets and accounts payable, accrued expenses and other liabilities payables/receivables from related parties, and distributions payable to noncontrolling interests were at amounts that reasonably approximated their fair value based on their highly-liquid nature andand/or short-term maturities.
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 SeptemberJune 30, 20172022 and December 31, 2016.
2021. Carrying amounts of our notes payable and the related estimated fair value as of September 30, 2017 and December 31, 2016 areis summarized as follows:
| As of September 30, 2017 | As of December 31, 2016 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
| Notes payable | $ | 103,392 | $ | 107,582 | $ | 143,119 | $ | 146,790 | ||||||||
| Schedule of Notes payable and the related estimated fair value | ||||||||||||||||
| As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
| Notes payable | $ | 293,095 | $ | 283,769 | $ | 282,375 | $ | 287,194 | ||||||||
| Real Estate |
As of September 30, 2017, we consolidated six real estate assets in our consolidated balance sheet. The following table presents certain information about ourthe Company’s wholly owned and consolidated investmentsmultifamily real estate properties as of SeptemberJune 30, 2017:2022:
|
| |||||||||
| Arbors Harbor Town | Memphis, Tennessee | December 20, 2011 | ||||||||
| Sugar Land, Texas | August 8, 2013 | |||||||||
| Flats at Fishers | Fishers, Indiana | |||||||||
| Axis at Westmont | Westmont, Illinois | November 27, 2018 | ||||||||
| Valley Ranch Apartments | Ann Arbor, Michigan | February 14, 2019 | ||||||||
| Autumn Breeze Apartments | Noblesville, Indiana | March 17, 2020 | ||||||||
| BayVue Apartments | Tampa, Florida | July 7, 2021 | ||||||||
| Citadel Apartments | Houston, Texas | October 6, 2021 | ||||||||
Acquisition Activities
Courtyard Kauai Coconut Beach Hotel
Acquisition of BayVue Apartments
On June 19, 2017, we, through our indirect 80%-owned subsidiaries, Kauai Coconut Beach, LLC and Kauai Coconut Beach Operator, LLC, (collectively,July 7, 2021, the “Sellers”) entered into an agreement (the “Courtyard Kauai Agreement”) to sellCompany completed the Courtyard Kauai Coconut Beach Hotel,acquisition of a 311-room hotel368-unit multifamily property located in Kapaa, Hawaii, to KHS, LLC,Tampa, Florida (the “Buyer”“BayVue Apartments”), from an unaffiliatedunrelated third party for a contractual salespurchase price of $62.0 million.
On August 15, 2017, the Sellers completed the sale$59.5 million, excluding closing and other acquisition related costs. The acquisition was funded with $44.3 million of the Courtyard Kauai Coconut Beach Hotel to the Buyerinitial proceeds from a mortgage financing (see Note 7 for $62.0additional information) and $15.2 million pursuant to the terms of the Courtyard Kauai Agreement.cash on hand, including escrowed funds released by a qualified intermediary. In connection with the transaction,acquisition, the Buyer assumedCompany paid the existing outstanding mortgage indebtednessAdvisor an aggregate of $36.0$1.0 million secured by the Courtyard Kauai Coconut Beach Hotel. The net proceeds from the disposition of the Courtyard Kauai Coconut Beach Hotel were approximately $24.1 million, after the payment of closing costs, expenses, pro rationsin acquisition fees and other working capital adjustments and a payment of a payment of approximately $1.7 million to the minority owner of the Courtyard Kauai Coconut Beach Hotel. In connection with the sale of the Courtyard Kauai Coconut Beach Hotel, we recognized a gain on sale of real estate of $20.9 million on our consolidated statements of operations during the third quarter of 2017.acquisition expense reimbursements.
9
Lightstone Value Plus Real Estate Investment TrustREIT 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)
Acquisition of Citadel Apartments
On October 6, 2021, the Company acquired a 293-unit multifamily property located in Houston, Texas (the “Citadel Apartments”), from an unrelated third party for a contractual purchase price of $66.0 million, excluding closing and other acquisition related costs. The acquisition was funded with $38.0 million of initial proceeds from mortgage financings (see Note 7 for additional information) and $28.0 million of cash on hand. In connection with the saleacquisition, the Company paid the Advisor an aggregate of the Courtyard Kauai Coconut Beach Hotel, certain funds were placed$1.2 million in escrow with a qualified intermediary in order to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended. acquisition fees and acquisition expense reimbursements.
Dispositions Activities
The balance of the escrow account was approximately $27.0 million as of September 30, 2017 and is included in restricted cash on the consolidated balance sheet.
The disposition of the Courtyard Kauai Coconut Beach Hotel did not qualify to be reported as discontinued operations since the dispositionfollowing dispositions did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, theresults and therefore did not qualify to be reported as discontinued operations and their operating results of the Courtyard Kauai Coconut Beach Hotel are reflected in the Company’s results from continuing operations in the consolidated statements of operations for all periods presented through itstheir respective datedates of disposition.disposition:
We provided mezzanine financing totaling $15.3Disposition of Lakes of Margate
On March 17, 2021, the Company completed the disposition of the Lakes of Margate for a contractual sales price of $50.8 million to an unaffiliated third-party entityunrelated third party (the “Borrower”) that owns an apartment complex in Denver, Colorado (the “Huron”“Lakes of Margate Buyer”). The Borrower also has a senior constructionAt closing, the Lakes of Margate Buyer paid $15.1 million and assumed the existing mortgage loan with a third-party construction lender (the “Senior Lender”) in an aggregate original principal amount of $40 million. The senior construction loan is guaranteedsecured by the ownersLakes of the developer. We also have a personal guaranty from the owners of the developer guaranteeing completion of the project and payment of cost overruns. Our mezzanine loan is secured by all of the membership interests of the Borrower and is subordinate to the senior construction loan. Our advances of $15.3 million initially had annual stated interest rates ranging from 10% to 18%. We evaluated this ADC Arrangement and determined that the characteristics are similar to a jointly-owned investment or partnership. Accordingly, the investment is accounted for asMargate Loan with an unconsolidated joint venture under the equity method of accounting instead of loan accounting since we will participate in the residual interests through the sale or refinancing of the property.
Both the senior loan and our mezzanine loan were in technical default at December 31, 2016 due to a delay in completion of the project. The project was subsequently completed in January 2017. On March 23, 2017, the Senior Lender executed a loan amendment extending the maturity date of the loan to March 24, 2018. The Senior Lender loan amendment also increased the interest rate 75 basis points to 30-day LIBOR plus 375 basis points and added provisions to require the maintenance of certain prescribed minimum occupancy and rental rates at future dates. On May 8, 2017, we amended the mezzanine loan agreement to mirror the maturity date of the senior loan and changed our interest rate to 11% for the entire balance of the loan. The amended mezzanine loan agreement was effective as of March 1, 2017. As of September 30, 2017, the outstanding principal balance underof $35.7 million. Additionally, on March 17, 2021, the mezzanine loan was $15.3 million. The Borrower funded all cost overruns.
We consideredCompany paid $1.1 million for the impact7.5% membership interest held in the Lakes of these events on our accounting treatmentMargate by the minority owner and determinedrecorded the ADC Arrangement should still continue to be accounted for as an unconsolidated joint venture under$2.1 million difference between the equity method of accounting. We will continue to monitor this situationcontractual purchase price and assess any impact these or future events might have on our ability to ultimately realize the carrying value of our investment. The ADC Arrangement is reassessedthe noncontrolling member’s interest to additional paid in capital. As a result, at each reporting period.
the time of the completion of the sale of the Lakes at Margate it was wholly owned by the Company. In connection with ourthe 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.
Disposition of the River Club Properties
On December 22, 2021, the Company completed the disposition of the River Club Apartments and the Townhomes at River Club, two student housing complexes with a total of 1,134 beds (collectively, the “River Club Properties”) located in Athens, Georgia, for a contractual sales price of $77.3 million to an unrelated third party. In connection with the transaction, the Company repaid in full the existing outstanding mortgage indebtedness of $30.4 million secured by the River Club Properties. Additionally, on December 20, 2021, the Company paid $10.2 million for the 15.0% membership interest held in the Huron, we capitalizedRiver Club Properties by the minority owner and recorded the $11.7 million difference between the contractual purchase price and the carrying value of the noncontrolling member’s interest to additional paid in capital. As a result, at the time of $176the completion of the sale of the River Club Properties it was wholly owned by the Company. In connection with the disposition of the River Club Properties, the Company recognized a gain on the sale of investment property of $55.0 million during the nine months ended September 30, 2016. There was no interest capitalized on our investment in the Huron during the three months ended September 30, 2016 or during the 2017 periods. For the three and nine months ended September 30, 2017 and 2016, we recorded no equity in earnings (losses)fourth quarter of unconsolidated joint venture related to our investment in the Huron. The Company’s maximum exposure to losses associated with its unconsolidated joint venture is limited to its carrying value in this investment.2021.
The following table sets forth our ownership interest in the Huron:
| Ownership Interest | Carrying Amount | |||||||||||||
| Property Name | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||
| The Huron | N/A | N/A | $ | 14,658 | $ | 14,658 | ||||||||
10
Lightstone Value Plus Real Estate Investment TrustREIT 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)
Summarized balance sheet information for the unconsolidated joint venture as of September 30, 2017 and December 31, 2016, shown at 100%, is as follows:
| September 30, 2017 | December 31, 2016 | |||||||
| Total assets | $ | 69,769 | $ | 72,272 | ||||
| Total debt, net | $ | 61,745 | $ | 56,638 | ||||
| Total equity | $ | 8,024 | $ | 11,957 | ||||
Summarized statement of operations information for the unconsolidated joint venture for the periods indicated, shown at 100%, is as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Total revenues | $ | 1,962 | $ | 197 | $ | 2,069 | $ | 251 | ||||||||
| Net loss | (2,000 | ) | (1,346 | ) | (6,835 | ) | (2,354 | ) | ||||||||
Effective January 1, 2016, we adoptedMarketable Securities
The following is a summary of the guidance in ASU 2015-02.Company’s available for sale securities as of the dates indicated:
| Schedule of available-for-sale securities reconciliation | ||||||||||||||||
| As of June 30, 2022 | ||||||||||||||||
| Debt securities: | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Corporate and Government Bonds | $ | 3,620 | $ | 3 | $ | (177 | ) | $ | 3,446 | |||||||
| As of December 31, 2021 | ||||||||||||||||
| Debt securities: | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Corporate and Government Bonds | $ | 3,634 | $ | 47 | $ | (36 | ) | $ | 3,645 | |||||||
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 a result,of June 30, 2022, the Operating Partnership (see Note 1) and eachCompany did not recognize any impairment charges.
The following table summarizes the estimated fair value of our less than wholly-owned real estate partnerships (22 Exchange, LLC, Gardens Medical Pavilion, LLC, SL Parkside Apartments, LLC, and the ADC Arrangement associatedinvestments in marketable debt securities with the Huron) have been deemed to have the characteristics of a VIE. However, we were not required to consolidate any previously unconsolidated entities or deconsolidate any previously consolidated entities as a result of the change in classification. Accordingly, there has been no change to the amounts reported in our consolidated balance sheets and statements of cash flows or amounts recognized in our consolidated statements of operations.
Consolidated VIEs
The Company consolidates the Operating Partnership, 22 Exchange, LLC, Gardens Medical Pavilion, LLC through BH-AW-Florida MOB Venture, LLC, and SL Parkside Apartments, LLC, which are variable interest entities, or VIEs, for which we are the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership, or legal entities such as an LLC, are considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
Unconsolidated VIEs
Included in the Company’s joint venture investments as of September 30, 2017 is the ADC Arrangement associated with the Huron, which isstated contractual maturity dates, accounted for as an unconsolidated joint ventureavailable-for-sale securities and is a VIE. Refer to Note 8 for further details onclassified by the ADC Arrangement. This arrangement was established to provide mezzanine financing to an unaffiliated third party that owns the Huron, an apartment complex in Denver, Colorado. Based on our reevaluation under ASU 2015-02, we determined that we are not the primary beneficiary of this VIE based on the rightscontractual maturity date of the general partner. The arrangement does not allow for substantive kick-out rights over the general partner and we do not have the power to direct the activities of the Huron that most significantly affect the entity’s economic performance. Accordingly, we have determined it is appropriate, consistent with past accounting, that the Huron ADC Arrangement will continue to be accounted for under the equity method.securities:
| Summary of the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates | ||||
| As of June 30, 2022 | ||||
| Due in 1 year | $ | 621 | ||
| Due in 1 year through 5 years | 2,769 | |||
| Due in 5 years through 10 years | 56 | |||
| Due after 10 years | 0 | |||
| Total | $ | 3,446 | ||
11
Lightstone Value Plus Real Estate Investment TrustREIT 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)
Derivative Financial Instruments
The Company has entered into two interest rate cap contracts with unrelated financial institutions in order to reduce the effect of interest rate fluctuations or risk of certain real estate investment’s interest expense on its variable rate debt. The Company is exposed to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss due to non-performance to be minimal.
The Company is accounting for the interest rate cap contracts as economic hedges, marking these contracts to market, taking into account present interest rates compared to the contracted fixed rate over the life of the contract and recording the unrealized gain or loss on the interest rate cap contracts in the consolidated statements of operations.
For the three and six months ended June 30, 2022, the Company recorded an unrealized gain of $0.5 million and $1.1 million, respectively, in the consolidated statements of operations representing the change in the fair value of these economic hedges during such periods.
The interest rate cap contracts have notional amounts of $52.2 million and $49.0 million, respectively, mature on July 15, 2023 and October 11, 2023, respectively, and effectively cap LIBOR at 2.50% and 2.00%, respectively. The aggregate fair value of the interest rate cap contracts was $1.2 million as of June 30, 2022 and is included in prepaid expenses and other assets on the consolidated balance sheets. See Note 7 for additional information.
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.
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 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 following table sets forth information on our notes payable asfair value of September 30, 2017 and December 31, 2016:
| Amount Due | Notes Payable as of | |||||||||||||||||
| Description | Interest Rate | Maturity Date | at Maturity | September 30, 2017 | December 31, 2016 | |||||||||||||
| Courtyard Kauai Coconut Beach Hotel | Repaid in full on 5/8/2017 (See note below) | $ | - | $ | - | $ | 38,000 | |||||||||||
| Gardens Medical Pavilion | 4.90% | 1/1/2018 | 12,480 | 12,587 | 12,899 | |||||||||||||
| River Club and the Townhomes at River Club | 5.26% | 5/1/2018 | 23,368 | 23,615 | 23,917 | |||||||||||||
| Lakes of Margate | 5.49% and 5.92% | 1/1/2020 | 13,384 | 14,042 | 14,243 | |||||||||||||
| Arbors Harbor Town | 3.99% | 1/1/2019 | 23,632 | 24,280 | 24,653 | |||||||||||||
| 22 Exchange | 3.93% | 5/5/2023 | 16,875 | 19,051 | 19,307 | |||||||||||||
| Parkside(1) | 5% | 6/1/2018 | 9,560 | 9,817 | 10,100 | |||||||||||||
| Total debt | $ | 99,299 | 103,392 | 143,119 | ||||||||||||||
| Deferred financing fees | (490 | ) | (787 | ) | ||||||||||||||
| Total notes payable, net | $ | 102,902 | $ | 142,332 | ||||||||||||||
(1) Includes approximately $0.1 millionthe Company’s investments in debt securities are measured using quoted prices for these investments; however, the markets for these assets are not active. The fair value of unamortized premium related to debt we assumed at acquisition.
the Company’s interest rate cap contracts are measured using other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. As of SeptemberJune 30, 2017, our outstanding notes payable were $102.9 million, net2022, all of deferred financing fees of $0.5 million,the Company’s debt securities and had a weighted-average interest rate of 5.0%. For loans in placecap contracts were classified as of September 30, 2017, we have guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forth inLevel 2 assets and there were no transfers between the guaranties in favor oflevel classifications during the unaffiliated lenders with respect to the 22 Exchange and Parkside notes payable.
We are subject to various customary financial covenants, including, maintaining minimum debt service coverage ratios, loan to value ratios and liquidity. We did not meet the debt service coverage requirements for our 22 Exchange loan as of March 31, 2017,six months ended June 30, 2017 and September 30, 2017. As a result, we expect the lender to begin sweeping the cash from operations; however, the loan is not in default.2022.
As of September 30, 2017, the Company had debt of approximately $12.6 million associated with Gardens Medical Pavilion, approximately $23.6 million associated with River Club and Townhomes at River Club, and $9.8 million associated with Parkside maturing in the next twelve months.
If we do not dispose of Gardens Medical Pavilion, River Club and Townhomes at River Club or Parkside by their maturity dates, we expect to repay the outstanding balances with available cash or refinance all or a portion of the balances outstanding.
The following table summarizes our contractual obligations for principal payments, based on initial scheduled maturity dates and does not reflect the exercise of any extension options, as of September 30, 2017:
12
Lightstone Value Plus Real Estate Investment TrustREIT 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)
| Year | Amount Due | |||
| October 1, 2017 - December 31, 2017 | $ | 550 | ||
| 2018 | 46,808 | |||
| 2019 | 24,308 | |||
| 2020 | 13,771 | |||
| 2021 | 404 | |||
| Thereafter | 17,441 | |||
| Total contractual obligations for principal payments | 103,282 | |||
| Unamortized premium | 110 | |||
| Total notes payable | 103,392 | |||
| Less: Deferred financing fees, net | (490 | ) | ||
| Notes payable, net | $ | 102,902 | ||
Courtyard Kauai Coconut Beach Hotel Debt
Our debt secured by Courtyard Kauai Coconut Beach Hotel, with an outstanding balance of $38 million as of December 31, 2016, was scheduled to mature on May 9, 2017. On May 8, 2017, we, through our 80% ownership interest in a joint venture between our indirect wholly owned subsidiary and JMI Realty, LLC, an unaffiliated third party (the “Kauai Joint Venture���), entered into a new mortgage facility of up to $44 million (the “Courtyard Kauai Loan”) with TH Commercial Investment Corp. Initial borrowings of $36 million were advanced under the Courtyard Kauai Loan and those funds plus additional cash were used to repay the then outstanding balance under the previous loan with Wells Fargo Bank. The Courtyard Kauai Loan bore interest at 30-day LIBOR plus 4.7% and was scheduled to mature in three years with two one-year extensions available. We had also guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forth in the guaranties in favor of the lender.
On August 15, 2017, the Courtyard Kauai Loan was assumed by the Buyer in connection with our sale of the Courtyard Kauai Coconut Beach Hotel. The outstanding balance as of the date of sale was $36.0 million. See Note 7 for additional information.
Future minimum base rental paymentsNotes payable consists of our office property, Gardens Medical Pavilion, and the retail space at 22 Exchange due to us under non-cancelable leases in effect as of September 30, 2017 are as follows:following:
| Year | Amount Due | |||||
| Remainder of 2017 | $ | 394 | ||||
| 2018 | 1,362 | |||||
| 2019 | 1,096 | |||||
| 2020 | 995 | |||||
| 2021 | 868 | |||||
| Thereafter | 2,411 | |||||
| Total | $ | 7,126 | ||||
| Schedule of information on notes payable | |||||||||||||||||||||
| Property | Interest Rate | Weighted Average Interest Rate as of June 30, 2022 | Maturity Date | Amount Due at Maturity | As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||
| Arbors Harbor Town | 4.53% | 4.53% | January 1, 2026 | $ | 29,000 | $ | 29,000 | $ | 29,000 | ||||||||||||
| Arbors Harbor Town Supplemental | 3.52% | 3.52% | January 1, 2026 | 5,379 | 5,787 | 5,842 | |||||||||||||||
| Parkside | 4.45% | 4.45% | June 1, 2025 | 15,782 | 16,810 | 16,974 | |||||||||||||||
| Axis at Westmont | 4.39% | 4.39% | February 1, 2026 | 34,343 | 36,792 | 37,100 | |||||||||||||||
| 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 | 28,333 | 28,592 | |||||||||||||||
| Flats at Fishers Supplemental | 3.85% | 3.85% | July 1, 2026 | 8,366 | 9,069 | 9,150 | |||||||||||||||
| Autumn Breeze Apartments | 3.39% | 3.39% | April 1, 2030 | 25,518 | 29,920 | 29,920 | |||||||||||||||
| BayVue Apartments | LIBOR + 3.10% (floor 3.10%) | 3.52% | July 9, 2024 | 44,970 | 44,970 | 44,383 | |||||||||||||||
| Citadel Apartments Senior | LIBOR + 1.50% (floor 1.60%) | 2.25% | October 11, 2024 | 39,200 | 39,200 | 30,400 | |||||||||||||||
| Citadel Apartments Junior | LIBOR + 8.75% (floor 8.85%) | 9.11% | October 11, 2024 | 9,800 | 9,800 | 7,600 | |||||||||||||||
| Total notes payable | 3.92% | $ | 281,862 | 293,095 | 282,375 | ||||||||||||||||
| Less: Deferred financing costs | (4,098 | ) | (4,777 | ) | |||||||||||||||||
| Total notes payable, net | $ | 288,997 | $ | 277,598 | |||||||||||||||||
The schedule above does not include rental payments due to us from our multifamily and student housing properties, as leases associated with these properties typically are for periods of one year or less.
13
Lightstone Value Plus Real Estate Investment TrustREIT 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)
Citadel Apartments
On October 6, 2021, the Company entered into a non-recourse mortgage loan facility for up to $39.2 million (the “Citadel Apartments Senior Mortgage”). At closing, $30.4 million of proceeds were initially advanced under the Citadel Apartments Senior Mortgage. The Citadel Apartments Senior Mortgage requires monthly interest-only payments through its maturity date and bears interest at LIBOR+1.50% subject to a 1.60% floor. Simultaneously, on October 6, 2021, the Company also entered into a non-recourse mortgage loan facility for up to $9.8 million (the “Citadel Apartments Junior Mortgage” and together with the Citadel Apartments Senior Mortgage, the “Citadel Apartments Mortgages”). At closing, $7.6 million of proceeds were initially advanced under the Citadel Apartments Junior Mortgage. The Citadel Apartments Junior Mortgage requires monthly interest-only payments through its maturity date and bears interest at LIBOR+8.75%, subject to a 8.85% floor.
The Citadel Apartments Mortgages initially mature on October 11, 2024, with two one-year extension options, subject to the satisfaction of certain conditions, and are collateralized by the Citadel Apartments, while the Citadel Apartments Junior Mortgage is subordinate to the Citadel Apartments Senior Mortgage. In connection with the acquisition of the Citadel Apartments, an aggregate $38.0 million was initially funded under the Citadel Apartments Mortgages and the Company paid the balance of the purchase price of $28.0 million with cash. In connection with the Citadel Apartments Mortgages, the Company paid the Advisor an aggregate of $0.5 million in debt financing fees. All of the remaining availability of $11.0 million under the Citadel Apartment Mortgages was subsequently advanced to the Company in January 2022 and as of June 30, 2022, the aggregate outstanding principal balance under the Citadel Apartment Mortgages was $49.0 million.
In connection with the Citadel Apartment Mortgages, the Company has entered into an interest rate cap agreement with a notional amount of $49.0 million pursuant to which the LIBOR rate is capped at 2.00% through October 11, 2023.
BayVue Apartments
On July 7, 2021, the Company entered into a non-recourse mortgage loan facility for up to $52.2 million (the “BayVue Apartments Mortgage”) scheduled to initially mature on July 9, 2024, with two, one-year extension options, subject to the satisfaction of certain conditions. The BayVue Apartments Mortgage requires monthly interest-only payments through its maturity date and bears interest at LIBOR+3.10% subject to a 3.10% floor. The BayVue Apartments Mortgage is collateralized by the BayVue Apartments. In connection with the BayVue Apartments Mortgage, the Company paid the Advisor $0.3 million in debt financing fees. As of June 30, 2022, the outstanding principal balance and remaining availability under the BayVue Apartments Mortgage was $45.0 million and $7.2 million, respectively. The remaining availability may be drawn for certain capital improvements to the property pursuant to the loan agreement.
In connection with the BayVue Apartments Mortgage, the Company has entered into an interest rate cap agreement with a notional amount of $52.2 million pursuant to which the LIBOR rate is capped at 2.50% through July 15, 2023.
The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of June 30, 2022.
| Schedule of contractual obligations for principal payments | ||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||
| Principal maturities | $ | 874 | $ | 2,191 | $ | 96,431 | $ | 18,138 | $ | 147,729 | $ | 27,732 | $ | 293,095 | ||||||||||||||
| Less: deferred financing costs | (4,098 | ) | ||||||||||||||||||||||||||
| Total notes payable, net | $ | 288,997 | ||||||||||||||||||||||||||
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
We may be exposedShare 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 risk associated with variabilitysignificant conditions and limitations of interest rates that might impact our cash flows and the resultsprogram. The Company’s board of operations. The hedging strategydirectors can amend the provisions of entering into interest rate caps and swaps, therefore, is to eliminate or reduce,the SRP at any time without the approval of the stockholders.
On December 13, 2019, the Company’s board of directors approved the suspension of the SRP. Pursuant to the extent possible,terms of the volatilitySRP, while the SRP is suspended, the Company will not accept any requests for redemption.
Effective March 25, 2021, the Company’s board of cash flows.
Asdirectors 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 was 100% of the estimated NAV per Share as of September 30, 2017, we did2020. 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 haveredeem 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 derivative instrumentssuch liquidity.
In accordance with the Company’s SRP, the per share redemption price automatically adjusted to $12.91 effective November 11, 2021 as a result of the determination and were not engage in any hedging activities.approval by the Company’s board of directors of the updated estimated NAV per Share.
Our derivative financial instruments had a nominal effect onFor the consolidated statements of operations for the three and ninesix months ended SeptemberJune 30, 20172022 the Company repurchased 44,275 shares of common stock, pursuant to its SRP at an average price per share of $ per share.
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 2016.
excluding any net capital gain. In order to continue to qualify for REIT status, the Company may be required to make distributions in excess of cash available. Distributions are authorized at the discretion of ourthe Company’s board of directors based on itstheir analysis of ourthe 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 ourthe Company’s portfolio, capital expenditure needs, general financial and market conditions, proceeds from asset sales, and other factors that ourthe Company’s board of directors deems relevant. Our
The Company’s board of director’s decisionsdirectors’ decision will be substantially influenced by thetheir obligation to ensure that we maintain ourthe Company maintains its federal tax status as a REIT. WeThe Company cannot provide assurance that weit will pay distributions at any particular level, or at all.
Advisor
Our external advisor and certain ofThe Company did not make any distributions to its affiliates may receive fees and compensation in connection withstockholders during the management and sale of our assets based on an advisory management agreement, as amended and restated.
From January 4, 2008 through February 10, 2017, we were party to successive advisory management agreements, each with a term of one year or less, with the Behringer Advisor. The most recently executed advisory management agreement was the Fifth Amended and Restated Advisory Management Agreement (the “Fifth Advisory Agreement”) entered into on July 25, 2016 and effective as of June 6, 2016. On February 10, 2017, we entered into a Termination of Advisory Management Agreement with the Behringer Advisor and (solely with respect to certain sections) Behringer (the “Advisory Termination Agreement”) pursuant to which the Fifth Advisory Agreement was terminated as of the close of business on February 10, 2017.
Concurrently with our entry into the Advisory Termination Agreement, we engaged the Advisor to provide us with advisory services pursuant to two separate advisory management agreements (collectively, the “Lightstone Advisory Agreement”). With the exception of the Administrative Services Fee, the fees earned by and expenses reimbursed to the Advisor pursuant to the Lightstone Advisory Agreement are identical to the fees earned by and expenses reimbursed to the Behringer Advisor pursuant to the Fifth Advisory Agreement. The following discussion describes the fees and expenses payable to our external advisor and its respective affiliates under both the Fifth Advisory Agreement and the Lightstone Advisory Agreement.
We pay our external advisor acquisition and advisory fees of 1.5% of the amount paid in respect of the purchase, development, construction, or improvement of each asset we acquire, including any debt attributable to those assets. In addition, we pay acquisition and advisory fees of 1.5% of the funds advanced in respect of a loan investment. We incurred no acquisition and advisory fees payable to our external advisor for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016 because we had no acquisitions during these periods.2021.
15
Lightstone Value Plus Real Estate Investment TrustREIT 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)
| 9. | Related Party Transactions |
We also pay our external advisor an acquisition expense reimbursement in
The Company has agreements with the amount of (i) 0.25% of the funds paid for purchasing an asset, including any debt attributable to the asset, plus 0.25% of the funds budgeted for development, construction, or improvement in the case of assets that we acquire and intend to develop, construct, or improve or (ii) 0.25% of the funds advanced in respect of a loan investment. We also pay third parties, or reimburse our external advisor or its affiliates, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses, and other closing costs.
Our external advisorAdvisor and its affiliates are also responsibleto pay certain fees in exchange for paying all ofservices performed by these entities and other related parties. These agreements have a one-year term and currently extend through June 30, 2023. The Company is dependent on the investment-related expenses that we or the external advisor or its affiliates incur that are due to third parties or related to the additional services provided by our external advisor as described above with respect to investments we do not make, other than certain non-refundable payments made in connection with any acquisition. For the three and nine months ended September 30, 2017 and 2016, we incurred no acquisition expense reimbursements.
We pay our external advisor a debt financing fee of 0.5% of the amount available under any loan or line of credit made available to us and pay directly all third-party costs associated with obtaining the debt financing. During the second quarter of 2017, we incurred a debt financing fee of $0.2 million related to the Courtyard Kauai Loan. We incurred no debt financing fees for the three and nine months ended September 30, 2016.
We pay our external advisor a development fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project if such affiliate provides the development services and if a majority of our independent directors determines that such development fee is fair and reasonable to us. We incurred no development fees for the three and nine months ended September 30, 2017 and 2016.
We pay our external advisor a monthly asset management fee of one-twelfth of 0.7% of the value of each asset. The value of our assets will be the value as determined in connection with the establishment and publication of an estimated value per share unless the asset was acquired after our publication of an estimated value per share (in which case the value of the asset will be the contractual purchase price of the asset). For the three and nine months ended September 30, 2017, we expensed $0.4 million and $1.4 million, respectively, of asset management fees payable to our external advisor compared to $0.5 million and $1.6 million for the same periods in 2016, respectively.
Our external advisor is responsible for paying all of the expenses it incurs associated with persons employed by the external advisor to the extent that they provide services to us for which our external advisor receives an acquisition, asset management, or debt financing fee, including wages and benefits of the applicable personnel. Instead of reimbursing our external advisor for specific expenses paid or incurred in connection with providing services to us, we pay our external advisor an administrative services fee (also referred to as an administrative services reimbursement under the Lightstone Advisory Agreement) based on a budget of expenses prepared by the external advisor. The administrative services fee is intended to reimburse for all costs associated with providing services to us. For the calendar year ending December 31, 2017, the administrative services fee is $1.325 million annually, pro-rated for the first six months of the year and $1.30 million annually, pro-rated for the second six months of the year. Under the Fifth Advisory Agreement, for the calendar year ended December 31, 2016, the administrative services fee was the lesser of (i) $1.325 million per calendar year, and (ii) the actual costs of providing administrative services to us under the Fifth Advisory Agreement, payable in four equal quarterly installments within 45 days of the end of each calendar quarter. In addition, under the advisory management agreements, we are to reimburse the external advisor for certain due diligence services provided in connection with asset acquisitions and dispositions and debt financings separately from the administrative services fee. For the three and nine months ended September 30, 2017, we incurred and expensed such costs for administrative services and due diligence services of approximately $0.5 million and $1.2 million, respectively, compared to approximately $0.9 million and $1.2 million for the same periods in 2016, respectively. These amounts include less than $0.1 million related to certain due diligence services provided during the respective periods.
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)
Notwithstanding the fees and cost reimbursements payable to our external advisor pursuant to our advisory management agreement, under our charter we may not reimburse the external advisor for any amount by which our operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (i) 2% of our average invested assets, or (ii) 25% of our net income determined without reduction for any additions to reserves for depreciation, bad debts, or other similar non-cash reserves and excluding any gain from the sale of our assets for that period unless a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the four fiscal quarters ended September 30, 2017, our total operating expenses (including the asset management fee) exceeded the limit on total operating expenses; however, our independent directors determined the excess expenses were justified because of our transition to the new external advisor.
Property Manager
From January 4, 2008 through February 10, 2017, we were party to a property management and leasing agreement (as amended and restated, the “Behringer Property Management Agreement”) between us, our operating partnership, Behringer Harvard Opportunity Management Services, LLC, and Behringer Harvard Real Estate Services, LLC (collectively, the “Behringer Manager”). On February 10, 2017, we entered into a Termination of Property Management and Leasing Agreement with the Behringer Manager and (solely with respect to certain sections) Behringer (the “Property Management Termination Agreement”) pursuant to which the Behringer Property Management Agreement was terminated as of the close of business on February 10, 2017.
Concurrently with our entry into the Property Management Termination Agreement, we engaged LSG-BH II Property Manager LLC (the “Lightstone Manager”) pursuant to a property management and leasing agreement (the “Lightstone Property Management Agreement”). The fees earned by and expenses reimbursed to the Lightstone Manager pursuant to the Lightstone Property Management Agreement are identical to the fees earned by and expenses reimbursed to the Behringer Manager pursuant to the Behringer Property Management Agreement. The following discussion describes the fees and expenses payable to our affiliated property managerAdvisor and its respective affiliates under both the Behringer Property Management Agreement (in effect from August 13, 2008 through February 10, 2017) and the Lightstone Property Management Agreement (in effect as of February 10, 2017).
We pay our property manager and affiliate of our external advisor, fees for the management, leasing, and construction supervision of our properties which is 4.0% of gross revenues of the properties managed by our property manager. We pay our property manager an oversight fee equal to 0.5% of the gross revenues of the property managed for any property for which we contract directly with a third-party property manager. In no event will our property manager or its affiliates receive both a property management fee and an oversight fee with respect to any particular property. In the event we own a property through a joint venture that does not pay our property manager directly for its services, we will pay our property manager a management fee or oversight fee, as applicable, based only on our economic interest in the property. For the three and nine months ended September 30, 2017, we incurred and expensed property management fees or oversight fees to the related-party property manager of less than $0.1 million and $0.1 million, respectively, compared to $0.1 million and $0.4 million in the same periods in 2016, respectively.
We pay our property manager a construction management fee in an amount not to exceed 5% of all hard construction costs incurred in connection with, but not limited to capital repairs and improvements, major building reconstruction and tenant improvements, if such affiliate supervises construction performed by or on behalf of us or our affiliates. We incurred no construction management fees for the three and nine months ended September 30, 2017 and 2016.
As of September 30, 2017 and December 31, 2016, we had a payable to our external advisor and its affiliates of $0.1 million and $0.4 million, respectively. These balances consist of accrued fees, including asset management fees, administrative service expenses, property management fees, and other miscellaneous costs payable to our external advisor and property manager.
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)
We are dependent on our external advisor and our property manager for certain services that are essential to us,it, including asset acquisition and disposition decisions, property management and leasing services, financing services, and other general administrative responsibilities. In the event that these companies wereentities are unable to provide usthe Company with their respective services, wethe Company would be required to obtain such services from other sources.
The following table represents the fees incurred associated with the payments to the Company’s Advisor and its affiliates for the periods indicated:
| Schedule of Related Party Transactions | ||||||||||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Property management fees (property operating expenses) | $ | 124 | $ | 110 | $ | 242 | $ | 228 | ||||||||
| Administrative services reimbursement (general and administrative costs) | 346 | 332 | 693 | 665 | ||||||||||||
| Asset management fees (general and administrative costs) | 861 | 626 | 1,729 | 1,321 | ||||||||||||
| Total | $ | 1,331 | $ | 1,068 | $ | 2,664 | $ | 2,214 | ||||||||
Legal Proceedings
Share Redemption Program
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
On November 8, 2017, our board of directors approved redemptions for the third quarter of 2017 totaling 239 thousand shares with an aggregate redemption payment of approximately $1.2 million. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for a full description
As of the price atdate hereof, the Company is not a party to any material pending legal proceedings of which we redeem shares under our share redemption program.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.
16
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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 REIT V, Inc. and our subsidiaries (which may be referred to herein as the Company,“Company,” “we,” “us” or “our”), which was formerly known as Lightstone Value Plus Real Estate Investment Trust V, Inc. before August 31, 2021, 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 anticipatedany future cash distributions to our stockholders, the estimated net asset value per share value 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 listed and described herein and under “Item 1A, Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2017 and 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 inflation, competition, 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, availability of materials, 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; | |
| ● | the ability of our tenants to pay their rent; | |
| ● | the ability of our borrowers to make scheduled debt service; | |
| ● | 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 other real estate-related investments such as 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. Currently,As of June 30, 2022, our investments include multifamily and student housing communities, an office building,included eight wholly owned multi-family apartment complexes and a mezzanine loan.note receivable (the “500 West 22nd Street Mezzanine Loan”). All of our current investments are located in the United States.
Our common stock is notU.S. We currently listed on a national securities exchange. The timing of a liquidity event for our stockholders will depend upon then prevailing market conditions. We previously targeted the commencement of 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, 2023 based on their assessment of our investment objectives and liquidity options for our stockholders. However, we can provide no assurances as to the actual timing of the commencement of a liquidity event for our stockholders or the ultimate liquidation of the Company. We will seek stockholder approval prior to liquidating our entire portfolio.
Liquidity and Capital Resources
We had unrestricted cash and cash equivalents of $53.2 million as of September 30, 2017. Our principal demands for funds going forward will be for the payment of (a) operating expenses, (b) interest and principal on our outstanding indebtedness, (c) share redemptions and (d) distributions, if any, authorized by our board of directors. Generally, we expect to meet cash needs for the payment of operating expenses, interest on our outstanding indebtedness and share redemptions with our cash flow from operations and to fund authorized distributions (if any) from available cash flow from operations and/or proceeds received from asset sales. To the extent that our cash flow from operations is not sufficient to cover our operating expenses, interest on our outstanding indebtedness, or share redemptions, we expect to use cash generated from borrowings and asset sales to fund such needs.
We 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, competition, inflation and recession.
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COVID-19 Pandemic
On January 5, 2016, we paidMarch 11, 2020, the World Health Organization declared COVID-19 a special cash distributionglobal pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of $38.4 million, or $1.50 per sharevariants to the virus that may cause additional strains of common stock, which was funded from proceeds received from asset sales.COVID-19, and the development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
The debt secured by Courtyard Kauai Coconut Beach Hotel, with an outstanding balanceAs of $38 million was scheduled to mature on May 9, 2017. On May 8, 2017, we, throughJune 30, 2022, our 80% ownership interest in a joint venture between our indirectconsolidated portfolio of properties consisted of eight wholly owned subsidiary and JMI Realty, LLC, an unaffiliated third party (the “Kauai Joint Venture”), entered into a new mortgage facilitymulti-family apartment complexes, all of up to $44 million (the “Courtyard Kauai Loan”) with TH Commercial Investment Corp. Initial borrowings of $36 million were advanced under the Courtyard Kauai Loan and those funds plus additional cash were used to repay the then outstanding balance under the previous loan with Wells Fargo Bank. The Courtyard Kauai Loan bore interest at 30-day LIBOR plus 4.7% and was scheduled to mature in three years with two one-year extensions available. We also had guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forthwhich are located in the guaranties in favorU.S. Our multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental rates and rental collection have remained stable since the onset of the lender.
On August 15, 2017,COVID-19 pandemic. Additionally, our 500 West 22nd Street Mezzanine Loan is collateralized by a condominium development project located in New York City (the “Condominium Project”), which is subject to risks related to the Courtyard KauaiCOVID-19 pandemic. To date, both the Condominium Project and our 500 West 22nd Street Mezzanine Loan was assumedhave not been significantly impacted by the buyerCOVID-19 pandemic.
We continue to closely monitor the overall extent as to which our business may be affected by the ongoing COVID-19 pandemic which will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
If our properties and real estate-related investments are negatively impacted by the ongoing COVID-19 pandemic in connection withfuture 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 (iii) the borrower is unable to pay scheduled debt service on the 500 West 22nd Street Mezzanine Loan; our business and financial results could be materially and adversely impacted.
Liquidity and Capital Resources
We had cash and cash equivalents of $59.4 million, marketable securities, available for sale of the Courtyard Kauai Coconut Beach Hotel. The outstanding balance as$3.4 million and restricted cash of the date of sale was $36.0 million. In connection with the sale of the Kauai Coconut Beach Hotel, certain funds were placed in escrow with a qualified intermediary in order to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended. The balance of the escrow account was approximately $27.0$4.7 million as of SeptemberJune 30 2017, 2022. Our principal demands for funds going forward are expected to be for the payment of (a) operating expenses, including capital expenditures, and is included(b) scheduled debt service 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 and cash equivalents on hand along with our cash flow from operations, the release of certain funds held in restricted cash, the remaining availability on certain of our mortgage loans and the consolidated balance sheet. See Note 7 for additional information.
Asrepayment of September 30, 2017, the Company had debt of approximately $12.6 million associated with Gardens Medical Pavilion, approximately $23.6 million associated with River Club and Townhomes at River Club, and $9.8 million associated with Parkside maturing in the next twelve months.
If we do not dispose of Gardens Medical Pavilion, River Club and Townhomes at River Club or Parkside by their maturity dates, we expect to repay theour outstanding balances with available cash or refinance all or a portion of the balances outstanding. In addition to our debt obligations, we consider other factors in evaluating our liquidity. For example,note receivable. However, to the extent that these sources are not sufficient to cover our portfolio is concentrated in certain geographic regions and types of assets, downturns relating generally to such regions and assetscash needs, we may result in tenants defaulting on their lease obligations at a number of our properties within a short time period. Such defaults could negatively affect our liquidity and adversely affect our abilityalso use proceeds from additional borrowings and/or selective asset sales to fund our ongoing operations. 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 were from our hotel, multifamily and student housing investments, respectively.such needs.
We may, but are not required to, establish capital reserves from cash flow generated by operating properties and other investments, or net sales proceeds from the sale of our properties and other investments. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may establish its own criteria for escrow of capital reserves.
We have borrowed 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.
Commercial real estate debt markets may experience volatilityAcquisition and uncertainty asDisposition Activities
Disposition of the Lakes of Margate
On March 17, 2021, we completed the disposition of a result280-unit multifamily property located in Margate, Florida (the “Lakes of certain related factors, includingMargate”) for a contractual sales price of $50.8 million to an unrelated third party. In connection with the tighteningdisposition of underwriting standards by lenders and credit rating agencies, macro-economic issues related to fiscal, tax and regulatory policies, and global financial issues. Should the overall costLakes of borrowings increase, either by increases in the index rates or by increases in lender spreads,Margate, we will need to factor such increases into the economics of our developments and investments. This may result in our investment operations generating lower overall economic returns andrecognized a reduced level of cash flow, which could potentially impact our ability to make distributions to our stockholders. In addition, disruptions in the debt markets may reduce the amount of capital that is available to finance real estate, which in turn could: (i) lead to a decline in real estate values generally; (ii) slow real estate transaction activity; (iii) reduce the loan to value ratio upon which lenders are willing to extend debt; and (iv) result in difficulty in refinancing debt as it becomes due, all of which may reasonably be expected to have a material adverse impactgain on the valuesale of investment property of $27.8 million during the first quarter of 2021.
Acquisition of the BayVue Apartments
On July 7, 2021, we completed the acquisition of a 368-unit multifamily property located in Tampa, Florida (the “BayVue Apartments”) from an unrelated third party, for a contractual purchase price of $59.5 million, excluding closing and other related transaction costs.
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Acquisition of the Citadel Apartments
On October 6, 2021, we acquired a 293-unit multifamily property located in Houston, Texas (the “Citadel Apartments”), from an unrelated third party, for a contractual purchase price of $66.0 million, excluding closing and other acquisition related costs.
Disposition of the River Club Properties
On December 22, 2021, we completed the disposition of the River Club Apartments and the Townhomes at River Club, two student housing complexes with a total of 1,134 beds (collectively, the “River Club Properties”) located in Athens, Georgia, for a contractual sales price of $77.3 million to an unrelated third party. In connection with the disposition of the River Club Properties, we recognized a gain on the sale of investment property of $55.0 million during the fourth quarter of 2021.
Results of Operations
As of June 30, 2022, we had eight wholly owned real estate investments (multi-family apartment complexes) and the revenues, income or cash flow from the operations ofone real properties and mortgage loans.estate-related investment (mezzanine loan).
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 financing for property development or refinance our existing real estate assets, depending on multiple factors.
As of September 30, 2017, our outstanding notes payable were $102.9 million, net of deferred financing fees of $0.5 million, and had a weighted average interest rate of 5.0%. As of December 31, 2016, the Company had notes payable of $142.3 million, net of deferred financing fees of $0.8 million, with a weighted average interest rate of 3.9%. For loans in place as of September 30, 2017, we have guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forth in the guaranties in favor of the unaffiliated lenders with respect to the 22 Exchange and Parkside notes payable.
We are subject to various customary financial covenants, including, maintaining minimum debt service coverage ratios, loan to value ratios and liquidity. We did not meet the debt service coverage requirements for our 22 Exchange loan as of March 31, 2017, June 30, 2017 and September 30, 2017. As a result, we expect the lender to begin sweeping the cash from operations; however, the loan is not in default.
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, 2017. The table information is based on initial scheduled maturity dates and does not reflect the exercise of any extension options (dollars in thousands):
| Remainder of | ||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||||
| Principal maturities(1) | $ | 550 | $ | 46,808 | $ | 24,308 | $ | 13,771 | $ | 404 | $ | 17,441 | $ | 103,282 | ||||||||||||||
| Interest payments | 1,219 | 3,306 | 1,581 | 786 | 704 | 967 | 8,563 | |||||||||||||||||||||
| Total | $ | 1,769 | $ | 50,114 | $ | 25,889 | $ | 14,557 | $ | 1,108 | $ | 18,408 | $ | 111,845 | ||||||||||||||
(1) Does not include approximately $0.1 million of unamortized premium related to debt we assumed on our acquisition of Parkside.
Results of Operations
As of September 30, 2017, we had seven real estate investments, six of which were consolidated through investments in joint ventures. As of September 30, 2016, we had eight real estate investments, seven of which were consolidated, (one wholly owned and six properties consolidated through investments in joint ventures). We sold the Courtyard Kauai Coconut Beach Hotel on August 15, 2017 and Lakewood Flats on August 16, 2016.
Our results of operations for the respective periods presented reflect decreases in most categories principally resulting from our dispositions of Courtyard Kauai Coconut Beach Hotel in August 2017 (the “2017 Disposition”) and Lakewood Flats in August 2016 (the “2016 Disposition” and together with the 2017 Disposition, the “Dispositions”). Properties owned by us during the entire periods presented are referred to as our “Same Store” properties.
The disposition of the Courtyard Kauai Coconut Beach Hotel did not qualify to be reported as discontinued operations since the disposition 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 Courtyard Kauai Coconut Beach Hotel are reflected in the Company’s results from continuing operations for all periods presented through its respective date of disposition.
Three months ended September 30, 2017 as compared to the three months ended September 30, 2016.
The following table provides summary information about our results of operations for the three months ended September 30, 2017 and 2016 (dollars in thousands):
| Three Months Ended September 30, | Change | Change due to | Change due to | |||||||||||||||||||||
| Description | 2017 | 2016 | Amount | Percentage | Disposition(1) | Same Store(2) | ||||||||||||||||||
| Rental revenues | $ | 6,122 | $ | 6,740 | $ | (618 | ) | $ | (9 | )% | $ | (843 | ) | $ | 225 | |||||||||
| Hotel revenues | 2,653 | 4,653 | (2,000 | ) | (43.0 | )% | (2,000 | ) | - | |||||||||||||||
| Property operating expenses | 2,697 | 2,635 | 62 | 2.4 | % | (202 | ) | 264 | ||||||||||||||||
| Hotel operating expenses | 1,921 | 3,509 | (1,588 | ) | (45.3 | )% | (1,588 | ) | - | |||||||||||||||
| Interest expense, net | 1,601 | 1,561 | 40 | 2.6 | % | 60 | (20 | ) | ||||||||||||||||
| Real estate taxes | 1,090 | 1,197 | (107 | ) | (8.9 | )% | (241 | ) | 134 | |||||||||||||||
| Property management fees | 285 | 374 | (89 | ) | (23.8 | )% | (80 | ) | (9 | ) | ||||||||||||||
| Asset management fees(3) | 426 | 554 | (128 | ) | (23.1 | )% | (39 | ) | (89 | ) | ||||||||||||||
| General and administrative | 863 | 705 | 158 | 22.4 | % | - | 158 | |||||||||||||||||
| Depreciation and amortization | 2,353 | 2,616 | (263 | ) | (10.1 | )% | (355 | ) | 92 | |||||||||||||||
The following table reflects total rental and hotel revenues and total property and hotel operating expenses for the three months ended September 30, 2017 and 2016 for: (i) our Same Store properties and (ii) the Dispositions (dollars in thousands):
| Three Months Ended September 30, | ||||||||||||
| Description | 2017 | 2016 | Change | |||||||||
| Revenues: | ||||||||||||
| Same store | $ | 6,122 | $ | 5,897 | $ | 225 | ||||||
| Disposition | 2,653 | 5,496 | (2,843 | ) | ||||||||
| Total revenues | $ | 8,775 | $ | 11,393 | $ | (2,618 | ) | |||||
| Property and hotel operating expenses: | ||||||||||||
| Same store | $ | 2,697 | $ | 2,433 | $ | 264 | ||||||
| Disposition | 1,921 | 3,711 | (1,790 | ) | ||||||||
| Total property and hotel operating expenses | $ | 4,618 | $ | 6,144 | $ | (1,526 | ) | |||||
The tables below reflect occupancy and effective monthly rental rates for our Same Store operating properties:properties owned as of the dates indicated:
| Occupancy (%) | Effective Monthly Rent per Square Foot/Unit/Bed ($)(1) | |||||||||||||||||
| As of September 30, | As of September 30, | |||||||||||||||||
| Property | 2017 | 2016 | 2017 | 2016 | ||||||||||||||
| Gardens Medical Pavilion | 74 | % | 66 | % | $ | 2.26 | $ | 2.08 | per sq. ft. | |||||||||
| River Club and the Townhomes at River Club | 96 | % | 99 | % | 413.91 | 408.06 | per bed | |||||||||||
| Lakes of Margate | 89 | % | 95 | % | 1,283.22 | 1,256.74 | per unit | |||||||||||
| Arbors Harbor Town | 94 | % | 94 | % | 1,241.43 | 1,208.90 | per unit | |||||||||||
| 22 Exchange | 80 | % | 90 | % | 571.49 | 499.45 | per bed | |||||||||||
| Parkside | 95 | % | 93 | % | 1,143.29 | 1,125.63 | per unit | |||||||||||
| Occupancy | Effective Monthly Rent per Unit(1) | |||||||||||||||
| As of June 30, | As of June 30, | |||||||||||||||
| Property | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Arbors Harbor Town | 94 | % | 94 | % | $ | 1,551 | $ | 1,404 | ||||||||
| Parkside | 96 | % | 97 | % | $ | 1,338 | $ | 1,208 | ||||||||
| Flats at Fishers | 99 | % | 97 | % | $ | 1,386 | $ | 1,244 | ||||||||
| Axis at Westmont | 96 | % | 96 | % | $ | 1,363 | $ | 1,205 | ||||||||
| Valley Ranch Apartments | 95 | % | 95 | % | $ | 1,641 | $ | 1,495 | ||||||||
| Autumn Breeze Apartments | 99 | % | 94 | % | $ | 1,245 | $ | 1,123 | ||||||||
| BayVue Apartments (2) | 95 | % | N/A | $ | 1,279 | N/A | ||||||||||
| Citadel Apartments (3) | 96 | % | N/A | $ | 1,598 | N/A | ||||||||||
| (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 BayVue Apartments were acquired on July 7, 2021. |
| (3) | The Citadel Apartments were acquired on October 6, 2021. |
On July 7, 2021 we acquired the BayVue Apartments and on October 6, 2021 we acquired the Citadel Apartments (collectively, the “2021 Acquisitions”). On March 17, 2021 we disposed of the Lakes of Margate and on December 22, 2021 we disposed of the River Club Properties (collectively, the “2021 Dispositions”).
The 2021 Dispositions did not qualify to be reported as discontinued operations since they did not represent a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of the 2021 Dispositions are reflected in our results from continuing operations for all periods presented through their dates of disposition.
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Revenues. Rental revenues forThree months ended June 30, 2022 as compared to the three months ended SeptemberJune 30, 2017 were $6.1 million, a decrease of $0.6 million, compared to $6.7 million the same period in 2016. Excluding the effect of the 2016 Disposition, our rental revenues increased slightly by $0.2 million for our Same Store properties.2021.
Hotel revenues for the three months ended September 30, 2017 were $2.7 million, a decrease of $2.0 million, compared to $4.7 million for the same period in 2016. The change in our hotel revenues was attributable to the 2017 Disposition.
Property Operating Expenses. Property operating expenses for the three months ended September 30, 2017 were $2.7 million, an increase of $0.1 million, compared to $2.6 million for the same period in 2016. Excluding the effect of the 2016 Disposition, our property operating expenses increased by $0.3 million for our Same Store properties.
Hotel Operating Expenses. Hotel operating expenses for the three months ended September 30, 2017 were $1.9 million, a decrease of $1.6 million, compared to $3.5 million for the same period in 2016. The decrease in hotel operating expenses was due to the aforementioned disposition of the Courtyard Kauai Coconut Beach Hotel on August 15, 2017.
Interest Expense, net. Interest expense for the three months ended September 30, 2017 and 2016 was unchanged at $1.6 million.
Real Estate Taxes. Real estate taxes for the three months ended September 30, 2017 were $1.1 million, a slight decrease of $0.1 million, compared to $1.2 million for the same period in 2016.
Property Management Fees. Property management fees, which are based on revenues, were $0.3 million for the three months ended September 30, 2017 and $0.4 million for the three months ended September 30, 2016, and were comprised of property management fees paid to unaffiliated third parties and our property manager.
Asset Management Fees. Asset management fees for the three months ended September 30, 2017 and 2016 were $0.4 million and $0.6 million, respectively, and were comprised of asset management fees paid to our external advisor and third parties with respect to our investments. Asset management fees for the three months ended September 30, 2016 include fees related to the Dispositions of less than $0.1 million.
General and Administrative Expenses. General and administrative expenses, which increased slightly by $0.2 million during the three months ended September 30, 2017 compared to the same period in 2016, consists of audit fees, legal fees, board of directors’ fees, and other administrative expenses.
Depreciation and Amortization. Depreciation and amortization decreased by $0.3 million during the three months ended September 30, 2017 compared to the same period in 2016. Excluding the effect of the Dispositions, our depreciation and amortization increased slightly by $0.1 million for our Same Store properties.
Gain on Sale of Real Estate. On August 15, 2017, we sold the Courtyard Kauai Coconut Beach Hotel for a contractual sales price of approximately $62.0 million, resulting in a third quarter gain on sale of real estate of $20.9 million. Additionally, we recognized a $0.4 million gain on sale of real estate during the nine months ended September 30, 2017 related to escrow reimbursements received from the Lakewood Flats outstanding insurance claim. On August 16, 2016, we sold Lakewood Flats for a contract sales price of approximately $68.8 million, resulting in a gain on sale of real estate of $11.5 million and a deferred gain of approximately $1.2 million. The deferred gain represented the amount of monies held in escrow to be reimbursed upon completion of the property’s outstanding insurance claim. The remaining deferred gain escrow balance as of September 30, 2017 was approximately $0.6 million.
Nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.
The following table provides summary information about our results of operations for the nine months ended September 30, 2017 and 2016 (dollars in thousands):
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||
| Description | 2017 | 2016 | Amount | Percentage | Change due to Disposition(1) | Change due to Same Store(2) | ||||||||||||||||||
| Rental revenues | $ | 18,345 | $ | 21,590 | $ | (3,245 | ) | (15 | )% | $ | (4,084 | ) | $ | 839 | ||||||||||
| Hotel revenues | 13,207 | 13,946 | (739 | ) | (5.3 | )% | (739 | ) | - | |||||||||||||||
| Property operating expenses | 6,758 | 7,128 | (370 | ) | (5.2 | )% | (867 | ) | 497 | |||||||||||||||
| Hotel operating expenses | 9,167 | 10,219 | (1,052 | ) | (10.3 | )% | (1,052 | ) | - | |||||||||||||||
| Interest expense, net | 4,843 | 4,692 | 151 | 3.2 | % | 45 | 106 | |||||||||||||||||
| Real estate taxes | 3,315 | 4,113 | (798 | ) | (19.4 | )% | (997 | ) | 199 | |||||||||||||||
| Property management fees | 1,043 | 1,164 | (121 | ) | (10.4 | )% | (144 | ) | 23 | |||||||||||||||
| Asset management fees(3) | 1,445 | 1,773 | (328 | ) | (18.5 | )% | (14 | ) | (314 | ) | ||||||||||||||
| General and administrative | 2,624 | 2,246 | 378 | 16.8 | % | - | 378 | |||||||||||||||||
| Depreciation and amortization | 7,499 | 8,396 | (897 | ) | (10.7 | )% | (950 | ) | 53 | |||||||||||||||
| Three Months Ended June 30, | Increase/ | Percentage | Change due to | Change due to | Change due to | |||||||||||||||||||||||
| 2022 | 2021 | (Decrease) | Change | Acquisitions(1) | Dispositions(2) | Same Store(3) | ||||||||||||||||||||||
| Rental revenues | $ | 11,612 | $ | 9,390 | $ | 2,222 | 24.0 | % | $ | 2,943 | $ | (1,613 | ) | $ | 892 | |||||||||||||
| Property operating expenses | 4,030 | 3,062 | 968 | 32.0 | % | 1,183 | (555 | ) | 340 | |||||||||||||||||||
| Real estate taxes | 1,646 | 1,358 | 288 | 21.0 | % | 537 | (140 | ) | (109 | ) | ||||||||||||||||||
| General and administrative | 1,899 | 1,568 | 331 | 21.0 | % | 32 | (10 | ) | 309 | |||||||||||||||||||
| Depreciation and amortization | 4,953 | 2,755 | 2,198 | 80.0 | % | 2,490 | (388 | ) | 96 | |||||||||||||||||||
| Interest expense | 3,307 | 2,215 | 1,092 | 49.0 | % | 1,109 | 160 | (177 | ) | |||||||||||||||||||
Notes:
| (1) | Represents the |
| (2) | Represents the effect on our operating results for the periods indicated resulting from the disposition of the River Club Properties on December 22, 2021. |
| (3) | Represents the change for the |
The following table reflects total rental and hotel revenues and total property and hotel operating expenses for the ninethree months ended SeptemberJune 30, 20172022 and 20162021 for: (i) our Same Store properties, (ii) the 2021 Acquisitions and (ii) our Dispositions(iii) the disposition of the River Club Properties on December 22, 2021 (dollars in thousands):
| Three Months Ended June 30, | ||||||||||||
| Description | 2022 | 2021 | Change | |||||||||
| Rental Revenues: | ||||||||||||
| Same Store | $ | 8,669 | $ | 7,777 | $ | 892 | ||||||
| 2021 Acquisitions | 2,943 | - | 2,943 | |||||||||
| Disposition - River Club Properties | - | 1,613 | (1,613 | ) | ||||||||
| Total rental revenues | $ | 11,612 | $ | 9,390 | $ | 2,222 | ||||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 2,844 | $ | 2,504 | $ | 340 | ||||||
| 2021 Acquisitions | 1,183 | - | 1,183 | |||||||||
| Disposition - River Club Properties | 3 | 558 | (555 | ) | ||||||||
| Total property expenses | $ | 4,030 | $ | 3,062 | $ | 968 | ||||||
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| Nine Months Ended September 30, | ||||||||||||
| Description | 2017 | 2016 | Change | |||||||||
| Revenues: | ||||||||||||
| Same store | $ | 18,345 | $ | 17,506 | $ | 839 | ||||||
| Disposition | 13,207 | 18,030 | (4,823 | ) | ||||||||
| Total revenues | $ | 31,552 | $ | 35,536 | $ | (3,984 | ) | |||||
| Property and hotel operating expenses: | ||||||||||||
| Same store | $ | 6,758 | $ | 6,261 | $ | 497 | ||||||
| Disposition | 9,167 | 11,086 | (1,919 | ) | ||||||||
| Total property and hotel operating expenses | $ | 15,925 | $ | 17,347 | $ | (1,422 | ) | |||||
The tables below reflect occupancy and effective monthly rental rates for our Same Store operating properties:
| Occupancy (%) | Effective Monthly Rent per Square Foot/Unit/Bed ($)(1) | |||||||||||||||||
| As of September 30, | As of September 30, | |||||||||||||||||
| Property | 2017 | 2016 | 2017 | 2016 | ||||||||||||||
| Gardens Medical Pavilion | 74 | % | 66 | % | $ | 2.26 | $ | 2.08 | per sq. ft. | |||||||||
| River Club and the Townhomes at River Club | 96 | % | 99 | % | 413.91 | 408.06 | per bed | |||||||||||
| Lakes of Margate | 89 | % | 95 | % | 1,283.22 | 1,256.74 | per unit | |||||||||||
| Arbors Harbor Town | 94 | % | 94 | % | 1,241.43 | 1,208.90 | per unit | |||||||||||
| 22 Exchange | 80 | % | 90 | % | 571.49 | 499.45 | per bed | |||||||||||
| Parkside | 95 | % | 93 | % | 1,143.29 | 1,125.63 | per unit | |||||||||||
Revenues.Revenues Rental revenues for the ninethree months ended SeptemberJune 30, 20172022 were $18.3$11.6 million, a decreasean increase of $3.3$2.2 million, compared to $21.6$9.4 million for the same period in 2016.2021. Excluding the effect of the Dispositions,our acquisition and disposition activities, our rental revenues increased by $0.8$0.9 million for our Same Store properties.properties during the 2022 period as a result of higher occupancy and average monthly rent per unit.
Hotel revenuesProperty Operating Expenses Property operating expenses for the ninethree months ended SeptemberJune 30, 20172022 were $13.2$4.0 million, a decreasean increase of $0.7$0.9 million, compared to $13.9$3.1 million for the same period in 2016.2021. Excluding the effect of our acquisition and disposition activities, our property operating expenses, increased by $0.3 million for our Same Store properties, which was primarily attributable to a community association special assessment of $0.3 million for Arbors Harbor Town during the second quarter of 2022.
Real Estate Taxes Real estate taxes for the three months ended June 30, 2022 were $1.6 million, an increase of $0.2 million, compared to $1.4 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, real estate taxes decreased slightly by $0.1 million for our Same Store properties.
General and Administrative Expenses General and administrative expenses for the three months ended June 30, 2022 were $1.9 million, an increase of $0.3 million, compared to $1.6 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our general and administrative expenses increased by $0.3 million for our Same Store properties. The increase is principally attributable to higher asset management fees during the 2022 period resulting from our acquisition and investment activities.
Depreciation and Amortization Depreciation and amortization expense for the three months ended June 30, 2022 was $5.0 million, an increase of $2.2 million, compared to $2.8 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, depreciation and amortization expenses increased slightly by $0.1 million for our Same Store properties.
Interest Expense Interest expense for the three months ended June 30, 2022 was $3.3 million, an increase of $1.1 million, compared to $2.2 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, interest expense decreased by $0.2 million for our Same Store properties.
Mark to Market Adjustment on Derivative Financial Instruments During the three months ended June 30, 2022, we recorded positive mark to market adjustments on our derivative financial instruments of $0.5 million. These mark to market adjustments represented the change in the fair value of our hotel revenues was attributableinterest rate cap contracts during the period.
Six months ended June 30, 2022 as compared to the 2017 Disposition.six months ended June 30, 2021.
The following table provides summary information about our results of operations (dollars in thousands):
| Six Months Ended June 30, | Increase/ | Percentage | Change due to | Change due to | Change due to | |||||||||||||||||||||||
| 2022 | 2021 | (Decrease) | Change | Acquisitions(4) | Dispositions(5) | Same Store(6) | ||||||||||||||||||||||
| Rental revenues | $ | 22,818 | $ | 19,677 | $ | 3,141 | 16.0 | % | $ | 5,800 | $ | (4,288 | ) | $ | 1,629 | |||||||||||||
| Property operating expenses | 7,277 | 6,239 | 1,038 | 17.0 | % | 2,110 | (1,550 | ) | 478 | |||||||||||||||||||
| Real estate taxes | 3,374 | 2,829 | 545 | 19.0 | % | 1,074 | (444 | ) | (85 | ) | ||||||||||||||||||
| General and administrative | 3,717 | 3,221 | 496 | 15.0 | % | 67 | (77 | ) | 506 | |||||||||||||||||||
| Depreciation and amortization | 9,872 | 5,665 | 4,207 | 74.0 | % | 4,965 | (776 | ) | 18 | |||||||||||||||||||
| Interest expense | 6,421 | 4,668 | 1,753 | 38.0 | % | 2,042 | 72 | (361 | ) | |||||||||||||||||||
Notes:
| (4) | Represents the effect on our operating results for the periods indicated resulting from the 2021 Acquisitions. |
| (5) | Represents the effect on our operating results for the periods indicated resulting from the 2021 Dispositions. |
| (6) | Represents the change for the six months ended June 30, 2022 compared to the same period in 2021 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 six months ended June 30, 2022 and 2021 include Arbors Harbor Town, Parkside, Flats at Fishers, Axis at Westmont, the Valley Ranch Apartments and the Autumn Breeze Apartments. |
The following table reflects total rental revenues and total property operating expenses for the six months ended June 30, 2022 and 2021 for: (i) our Same Store properties, (ii) the 2021 Acquisitions and (iii) the 2021 Dispositions (dollars in thousands):
| Six Months Ended June 30, | ||||||||||||
| Description | 2022 | 2021 | Change | |||||||||
| Rental Revenues: | ||||||||||||
| Same Store | $ | 17,018 | $ | 15,389 | $ | 1,629 | ||||||
| 2021 Acquisitions | 5,800 | - | 5,800 | |||||||||
| 2021 Dispositions | - | 4,288 | (4,288 | ) | ||||||||
| Total rental revenues | $ | 22,818 | $ | 19,677 | $ | 3,141 | ||||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 5,218 | $ | 4,740 | $ | 478 | ||||||
| 2021 Acquisitions | 2,110 | - | 2,110 | |||||||||
| 2021 Dispositions | (51 | ) | 1,499 | (1,550 | ) | |||||||
| Total property expenses | $ | 7,277 | $ | 6,239 | $ | 1,038 | ||||||
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Revenues Rental revenues for the six months ended June 30, 2022 were $22.8 million, an increase of $3.1 million, compared to $19.7 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $1.6 million for our Same Store properties during the 2022 period as a result of higher occupancy and average monthly rent per unit.
Property Operating Expenses.Expenses Property operating expenses for the ninesix months ended SeptemberJune 30, 20172022 were $6.8$7.3 million, a decreasean increase of $0.3$1.1 million, compared to $ 7.1$6.2 million for the same period in 2016.2021. Excluding the effect of our 2016 Disposition,acquisition and disposition activities, our property operating expenses increased by $0.5 million for our Same Store properties.properties, which was attributable to a community association special assessment of $0.3 million for Arbors Harbor Town during the second quarter of 2022.
.
Hotel Operating Expenses. Hotel operating expensesReal Estate Taxes Real estate taxes for the ninesix months ended SeptemberJune 30, 20172022 were $9.2$3.4 million, a decreasean increase of $1.0$0.6 million, compared to $10.2$2.8 million for the same period in 2016.2021. Excluding the effect of our acquisition and disposition activities, real estate taxes decreased slightly by $0.1 million for our Same Store properties.
General and Administrative Expenses General and administrative expenses for the six months ended June 30, 2022 were $3.7 million, an increase of $0.5 million, compared to $3.2 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our general and administrative expenses increased by $0.5 million for our Same Store properties. The decreaseincrease is principally attributable to higher asset management fees during the 2022 period resulting from our acquisition and investment activities.
Depreciation and Amortization Depreciation and amortization expense for the six months ended June 30, 2022 was $9.9 million, an increase of $4.2 million, compared to $5.7 million for the same period in hotel operating expenses2021. Excluding the effect of our acquisition and disposition activities, depreciation and amortization expense was due to the aforementioned disposition of the Courtyard Kauai Coconut Beach Hotel on August 15, 2017.relatively unchanged for our Same Store properties.
Interest Expense net.Interest expense for the ninesix months ended SeptemberJune 30, 20172022 was $4.8$6.4 million, an increase of $0.1$1.7 million, compared to $4.7 million for the same period in 2016.2021. Excluding the effect of the Dispositions, our acquisition and disposition activities, interest expense increased slightlydecreased by $0.1 million.
Real Estate Taxes. Real estate taxes for the nine months ended September 30, 2017 were $3.3 million, a decrease of $0.8 million, compared to $4.1 million for the same period in 2016. Excluding the effect of the Dispositions, our real estate taxes slightly increased by $0.2$0.4 million for our Same Store properties.
Property Management Fees. Property management fees, which are basedMark to Market Adjustment on revenues, were $1.0 million forDerivative Financial Instruments During the ninesix months ended SeptemberJune 30, 2017 and $1.2 million, for2022, we recorded positive mark to market adjustments on our derivative financial instruments of $1.1 million. These mark to market adjustments represented the nine months ended September 30, 2016, and were comprisedchange in the fair value of property management fees paid to unaffiliated third parties and our property manager.
Asset Management Fees. Asset management fees for the nine months ended September 30, 2017 and 2016 were $1.4 million and $1.8 million, respectively, and were comprised of asset management fees paid to our external advisor and third parties with respect to our investments. Asset management fees for the nine months ended September 30, 2016 include fees related to the Dispositions of less than $0.1 million.
General and Administrative Expenses. General and administrative expenses, which increased by $0.4 millioninterest rate cap contracts during the nine months ended September 30, 2017 compared to the same period in 2016, consistsperiod.
Income Tax Benefit During 2015, we recorded an aggregate provision for income tax of audit fees, legal fees, board of directors’ fees, and other administrative expenses.
Depreciation and Amortization. Depreciation and amortization was $7.5$2.7 million representing estimated foreign income tax due as a decrease of $0.9 million, compared to $8.4 million for the same period in 2016. Excluding the effectresult of the Dispositions, our depreciation and amortization was relatively constant for our Same Store properties.
Gain on Sale of Real Estate. On August 15, 2017, we sold the Courtyard Kauai Coconut Beach Hotel for a contractual sales price of approximately $62.0 million, resulting in a third quarter gain on sale of real estatetwo foreign investments, Alte Jakobstraße and Holstenplatz. During the first quarter of $20.9 million. Additionally,2022, we recognizedrecorded an income tax benefit of $0.8 million representing a $0.7 million gain on sale of real estate during the nine months ended September 30, 2017 related to escrow reimbursements received from the Lakewood Flats outstanding insurance claim. On August 16, 2016, we sold Lakewood Flats for a contractual sales price of approximately $68.8 million, resulting in a third quarter gain on sale of real estate of approximately $11.5 million and a deferred gain of approximately $1.2 million. The deferred gain represented the amount of monies held in escrow to be reimbursed upon completionpartial refund of the property’s outstanding insurance claim. The remaining deferred gain escrow balance as of September 30, 2017 was approximately $0.6 million.foreign income tax paid.
24
Related Party Transactions
We have agreements with the Advisor and its affiliates to pay certain fees in exchange for services performed by these entities and other related parties. These agreements have one-year terms and currently extend through June 30, 2023. We are dependent on the Advisor and its affiliates for certain services that are essential to us, including asset acquisition and disposition decisions, property management and leasing services, financing services, and other general administrative responsibilities. In the event that these entities are unable to 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 and its affiliates for the periods indicated:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Property management fees (property operating expenses) | $ | 124 | $ | 110 | $ | 242 | $ | 228 | ||||||||
| Administrative services reimbursement (general and administrative costs) | 346 | 332 | 693 | 665 | ||||||||||||
| Asset management fees (general and administrative costs) | 861 | 626 | 1,729 | 1,321 | ||||||||||||
| Total | $ | 1,331 | $ | 1,068 | $ | 2,664 | $ | 2,214 | ||||||||
Summary of Cash Flows
Operating activities
NetThe net cash flows provided by operating activities of $4.6$4.4 million for the ninesix months ended SeptemberJune 30, 2017 consists2022 consisted primarily of our net loss of $4.5 million less (i) the following:positive mark to market adjustments on derivative financial instruments of $1.1 million, (ii) non-cash interest income of $0.3 million and (iii) the net change in operating assets and liabilities of $0.2 million plus (i) depreciation and amortization of $9.9 million and (ii) amortization of deferred financing costs of $0.7 million.
Investing activities
The net cash provided by investing activities of $22.5$4.4 million for the ninesix months ended SeptemberJune 30, 2017 consists2022 consisted primarily of the following:
| proceeds |
| capital expenditures of |
Financing activities
The net cash used inprovided by financing activities of $12.9$10.1 million for the ninesix months ended SeptemberJune 30, 2017 consists2022 consisted primarily of the following:
| redemptions and cancellation of common stock of |
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One of our principal short-term and long-term liquidity requirements includes the debt service payments on our outstanding notes payable. The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of June 30, 2022 (dollars in thousands).
| Contractual Obligations | Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | |||||||||||||||||||||
| Principal | $ | 874 | $ | 2,191 | $ | 96,431 | $ | 18,138 | $ | 147,729 | $ | 27,732 | $ | 293,095 | ||||||||||||||
| Interest Payments(1) | 6,522 | 12,569 | 11,359 | 7,617 | 2,842 | 3,243 | 44,152 | |||||||||||||||||||||
| Total Contractual Obligations | $ | 7,396 | $ | 14,760 | $ | 107,790 | $ | 25,755 | $ | 150,571 | $ | 30,975 | $ | 337,247 | ||||||||||||||
| (1) | These amounts represent future interest payments related to notes payable obligations based on the fixed and variable interest rates specified in the associated debt agreement. All variable rate debt agreements are based on the one-month LIBOR rate. For purposes of calculating future interest amounts on variable interest rate debt the one-month LIBOR rate as of June 30, 2022 was used. |
Funds from Operations
and Modified Funds from operations (“FFO”) isOperations
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 non-GAAP financial measurereal estate asset diminishes predictably over time. We believe that, is widely recognized asbecause 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 measureREIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of REIT operating performance. We use FFO as defined bythese factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations (“FFO”), which is used in the April 2002 “White PaperREIT 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 Funds From Operations” whicha REIT’s operating performance. FFO is not equivalent to our net income (loss),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”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP,depreciation and gains (or losses) from sales of property and impairments of depreciableamortization related to real estate, (including impairmentsgains 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 unconsolidated joint ventures and partnerships which resulted from measurableentities when the impairment is directly attributable to decreases in the fair value of the depreciable real estate held by the joint venture or partnership), plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, subsidiaries, and noncontrolling interests as one measure to evaluate our operating performance. In October 2011, NAREIT clarified theentity. Our FFO definition to exclude impairment charges of depreciable real estate (including impairments of investments in unconsolidated joint ventures and partnerships which resulted from measurable decreases in the fair value of the depreciable real estate held by the joint venture or partnership).calculation complies with NAREIT’s definition.
Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believesWe believe that the use of FFO together with the required GAAP presentations, provides a more complete understanding of our performance.
We believe that FFO is helpfulperformance to investors and ourto management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, impairments of depreciable assets, and extraordinary items, and as a result, when compared year to year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which ismay 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’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.
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Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“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’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “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, nor as an indicationor 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 connectionconjunction with other GAAP measurements. Additionally,measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the exclusioncurrent GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of impairments limitsa publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the usefulnessnon-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 as a historical operating performance measure since an impairment charge indicates that operating performance has been permanently affected. FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO. Our FFO as presented may not be comparable to amounts calculated by other REITs that do not define these terms in accordance with the current NAREIT definition or that interpret the definition differently.MFFO accordingly.
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Our calculationcalculations of FFO for the three and nine months ended September 30, 2017 and 2016 isMFFO 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, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net income | $ | 20,537 | $ | 9,324 | $ | 18,269 | $ | 7,131 | ||||||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 2,353 | 2,616 | 7,499 | 8,396 | ||||||||||||
| Gain on sale of real estate and other assets, net | (21,336 | ) | (11,462 | ) | (21,619 | ) | (11,462 | ) | ||||||||
| Income tax benefit associated with real estate sale(1) | (1,592 | ) | (29 | ) | (1,592 | ) | (29 | ) | ||||||||
| FFO | (38 | ) | 449 | 2,557 | 4,036 | |||||||||||
| Net income | $ | 20,537 | $ | 9,324 | $ | 18,269 | $ | 7,131 | ||||||||
| Less: income attributable to noncontrolling interests | (4,430 | ) | 59 | (4,557 | ) | 14 | ||||||||||
| Net income applicable to Company's common shares | $ | 16,107 | $ | 9,383 | $ | 13,712 | $ | 7,145 | ||||||||
| Net income per common share, basic and diluted | $ | 0.65 | $ | 0.37 | $ | 0.55 | $ | 0.28 | ||||||||
| FFO | $ | (38 | ) | $ | 449 | $ | 2,557 | $ | 4,036 | |||||||
| Less: FFO attributable to noncontrolling interests | (67 | ) | (244 | ) | (833 | ) | (916 | ) | ||||||||
| FFO attributable to Company's common shares | $ | (105 | ) | $ | 205 | $ | 1,724 | $ | 3,120 | |||||||
| FFO per common share, basic and diluted | $ | (0.00 | ) | $ | 0.01 | $ | 0.07 | $ | 0.12 | |||||||
| Weighted average number of common shares | ||||||||||||||||
| outstanding, basic and diluted | 24,899 | 25,391 | 25,031 | 25,470 | ||||||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| Description | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net (loss)/income | $ | (3,116 | ) | $ | 499 | $ | (4,495 | ) | $ | 27,611 | ||||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 4,953 | 2,755 | 9,872 | 5,665 | ||||||||||||
| Gain on disposition of unconsolidated joint venture | - | (1,457 | ) | - | (1,457 | ) | ||||||||||
| Gain on sale of investment property | - | - | - | (27,825 | ) | |||||||||||
| FFO | 1,837 | 1,797 | 5,377 | 3,994 | ||||||||||||
| MFFO adjustments: | ||||||||||||||||
| Other adjustments: | ||||||||||||||||
| Acquisition and other transaction related costs expensed(1) | - | - | - | - | ||||||||||||
| Noncash adjustments: | ||||||||||||||||
| Amortization of above or below market leases and liabilities | - | - | - | - | ||||||||||||
| Mark-to-market adjustments(2) | (492 | ) | - | (1,110 | ) | (2 | ) | |||||||||
| Non-recurring (loss)/gain from extinguishment/sale of debt, derivatives or securities holdings(3) | 2 | 1 | (2 | ) | (7 | ) | ||||||||||
| MFFO before straight-line rent | 1,347 | 1,798 | 4,265 | 3,985 | ||||||||||||
| Straight-line rent(4) | - | - | - | - | ||||||||||||
| MFFO - IPA recommended format | $ | 1,347 | $ | 1,798 | $ | 4,265 | $ | 3,985 | ||||||||
| Net (loss)/income | $ | (3,116 | ) | $ | 499 | $ | (4,495 | ) | $ | 27,611 | ||||||
| Less: income attributable to noncontrolling interests | - | (54 | ) | - | (131 | ) | ||||||||||
| Net (loss)/income applicable to Company’s common shares | $ | (3,116 | ) | $ | 445 | $ | (4,495 | ) | $ | 27,480 | ||||||
| Net (loss)/income per common share, basic and diluted | $ | (0.16 | ) | $ | 0.02 | $ | (0.22 | ) | $ | 1.36 | ||||||
| FFO | $ | 1,837 | $ | 1,797 | $ | 5,377 | $ | 3,994 | ||||||||
| Less: FFO attributable to noncontrolling interests | - | (138 | ) | - | (288 | ) | ||||||||||
| FFO attributable to Company’s common shares | $ | 1,837 | $ | 1,659 | $ | 5,377 | $ | 3,706 | ||||||||
| FFO per common share, basic and diluted | $ | 0.09 | $ | 0.08 | $ | 0.27 | $ | 0.18 | ||||||||
| MFFO - IPA recommended format | $ | 1,347 | $ | 1,798 | $ | 4,265 | $ | 3,985 | ||||||||
| Less: MFFO attributable to noncontrolling interests | - | (138 | ) | - | (288 | ) | ||||||||||
| MFFO attributable to Company’s common shares | $ | 1,347 | $ | 1,660 | $ | 4,265 | $ | 3,697 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 20,089 | 20,193 | 20,100 | 20,193 | ||||||||||||
| 2) | 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. |
| 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. |
| 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, |
Cash flows generated from FFODistributions
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 usedrequired to fund all or a portion of certain capitalizable items that are excluded from FFO, such as capital expenditures and payments of principal on debt, each of which may impact the amountmake distributions in excess of cash available for special distributions to our stockholders.
available. Distributions,
Distributions if any, are authorized at the discretion of our board of directors based on itstheir analysis of our 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 our portfolio, capital expenditure needs, general financial and market conditions, proceeds from asset sales and other factors that our board of directors deems relevant. TheOur board of director’sdirectors’ decisions will be substantially influenced by thetheir 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.
On November 20, 2015, our board of directors authorized a special cash distribution of $1.50 per share of common stock, payable to stockholders of record as of December 31, 2015. The Company paid this special cash distribution which aggregated $38.4 million on January 5, 2016. This special cash distribution represented a portion of proceeds received from previous asset sales.
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.
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 16, 2017.24, 2022.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency Exchange Risk
The Euro was the functional currency for the operations of Alte Jakobstraße (“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.
Interest Rate Risk
We may be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. Our management’s objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates. With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We may enter into derivative financial instruments such as options, forwards, interest rate swaps, caps, or floors to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate portion of our variable rate debt. However, all of our outstanding notes payable of $103.4 million, excluding deferred financing fees, as of September 30, 2017 were subject to fixed interest rates.
| Controls and Procedures. |
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 SeptemberJune 30, 2017,2022, 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 inInternal 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 SeptemberJune 30, 2017,2022, 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 theour last fiscal quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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OTHER INFORMATION
| Item 1. | Legal Proceedings. |
Item 1. Legal Proceedings.From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.
WeAs of the date hereof, we are not a party to and none of our properties are subject to, any material pending legal proceedings.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. |
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2016.
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.
Share Redemption Program
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 and our board of directors’ assessment of our investment objectives and liquidity options for our stockholders. Currently, our board of directors has adoptedtargeted June 30, 2028 for the commencement of a share redemption program that permits stockholders to sell their shares back to us, subjectliquidity event. However, we can provide no assurances as to the significant conditions and limitationsactual timing of the program. Our boardcommencement of directors can amend the provisions ofa liquidity event for our share redemption program at any time without thestockholders or our ultimate liquidation. Furthermore, we will seek stockholder approval of our stockholders.
The terms on which we redeem shares may differ between redemptions upon a stockholder’s death, “qualifying disability” (as defined in the share redemption program) or confinement to a long-term care facility (collectively, Exceptional Redemptions) and all other redemptions, or Ordinary Redemptions.
Any shares approved for redemption will be redeemed on a periodic basis as determined from time to time by our board of directors, and no less frequently than annually. We will not redeem, during any 12-month period, more than 5% of the weighted average number of shares outstanding during the 12-month period immediately prior to the date of redemption. In addition, the cash available for redemptions is limited to no more than $10 million in any twelve-month period. The redemption limitations apply to all redemptions, whether Ordinary or Exceptional Redemptions.liquidating our entire portfolio.
The per share redemption price for Ordinary Redemptions and Exceptional Redemptions is equal to the lesser of 80% and 90%, respectively, of (i) the current estimated per share value and (ii) the average price per share the investor paid for all of his shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) less the Special Distributions (as defined in the share redemption program).
Effective November 18, 2016, our estimated value per share was $7.80. For a full description of the methodologies used to estimate the value of our common stock as of October 31, 2016, see Part II, Item 5, “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Market Information” included in our Annual Report on Form 10-K for the year ended December 31, 2016.
Notwithstanding the redemption prices set forth above, our board of directors may determine, whether pursuant to formulas or processes approved or set by our board of directors, the redemption price of the shares, which may differ between Ordinary Redemptions and Exceptional Redemptions; provided, however, that we must provide at least 30 days’ notice to stockholders before applying this new price determined by our board of directors.
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. During the quarter ended September 30, 2017, our board of directors approved all Ordinary Redemption requests received that complied with the applicable requirements and guidelines of the share redemption program for an aggregate of 223,105 shares redeemed for approximately $1.1 million (approximately $5.14 per share). During the quarter ended September 30, 2017, our board of directors redeemed all Exceptional Redemption requests received that complied with the applicable requirements and guidelines of the share redemption program for an aggregate of 15,869 shares redeemed for $91,992 (approximately $5.80 per share). All redemptions were funded with cash on hand.
During the quarter ended September 30, 2017, we redeemed shares as follows (including both Ordinary Redemptions and Exceptional Redemptions):
| 2017 | Total Number of Shares Redeemed | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Be Purchased Under the Plans or Programs | ||||||||||||
| July | — | $ | — | — | ||||||||||||
| August | 238,974 | 238,974 | (1 | ) | ||||||||||||
| September | — | — | — | |||||||||||||
| 238,974 | $ | 5.19 | 238,974 | |||||||||||||
| 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.
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��
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 | ||
| Date: August 11, 2022 | By: | /s/ Mitchell C. Hochberg |
| Mitchell C. Hochberg | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 11, 2022 | By: | /s/ Seth Molod |
| Seth Molod | ||
Chief Financial Officer | ||
(Duly Authorized Officer and Principal Financial |
Index to Exhibits
* | 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. |
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