UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
FORM 10-Q(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
For the quarterly period ended SeptemberJune 30, 20172023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the transition period from __________ to __________
Commission file number 000-55773
LIGHTSTONE REAL ESTATE INCOME TRUST INC.Lightstone Value Plus REIT IV, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 47-1796830 | |
(State or Other Jurisdiction of
| (I.R.S. Employer
|
1985 Cedar Bridge Avenue, Suite 1 | ||
Lakewood, New Jersey | 08701 | |
(Address of Principal Executive Offices) | (Zip Code) |
(732)367-0129
(Registrant’s Telephone Number, Including Area Code)
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.
Yesþ ☑ 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).
Yesþ ☑ 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. (Check one):
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 ¨☐ Noþ ☑
As of November 1, 2017,August 7, 2023, there were 9.0 million outstanding shares of common stock of Lightstone Real Estate Income TrustValue Plus REIT IV, Inc.
LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
INDEX
INDEX
i
PART I. FINANCIAL INFORMATION, CONTINUED:INFORMATION:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:STATEMENTS:
LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investment in related party | $ | 37,000,000 | $ | 37,000,000 | ||||
Investments in unconsolidated affiliated real estate entities | 31,158,226 | - | ||||||
Cash | 15,293,700 | 21,874,240 | ||||||
Deposit and other assets | 25,267 | 5,818,713 | ||||||
Due from related parties | - | 28,696 | ||||||
Total Assets | $ | 83,477,193 | $ | 64,721,649 | ||||
Liabilities and Stockholders' Equity | ||||||||
Accounts payable and other accrued expenses | $ | 35,852 | $ | 267,726 | ||||
Due to related parties | 53,609 | - | ||||||
Distributions payable | 587,318 | 413,275 | ||||||
Subordinated advances - related party | 12,843,707 | 12,703,876 | ||||||
Total liabilities | 13,520,486 | 13,384,877 | ||||||
Commitments and Contingencies | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, $0.01 par value; 50,000,000 shares authorized, none issued and outstanding | - | - | ||||||
Common stock, $0.01 par value; 200,000,000 shares authorized, 8,952,132 and 6,397,005 shares issued and outstanding, respectively | 89,521 | 63,970 | ||||||
Additional paid-in-capital | 75,586,926 | 52,616,396 | ||||||
Subscription receivable | - | (274,449 | ) | |||||
Accumulated deficit | (5,719,740 | ) | (1,069,145 | ) | ||||
Total Stockholders' Equity | 69,956,707 | 51,336,772 | ||||||
Total Liabilities and Stockholders' Equity | $ | 83,477,193 | $ | 64,721,649 |
June 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investment property: | ||||||||
Land and improvements | $ | 35,845,388 | $ | - | ||||
Building and improvements | 78,047,363 | - | ||||||
Furniture and fixtures | 11,105,886 | - | ||||||
Construction in progress | - | 114,614,484 | ||||||
Gross investment property | 124,998,637 | 114,614,484 | ||||||
Less accumulated depreciation | (1,139,808 | ) | - | |||||
Net investment property | 123,858,829 | 114,614,484 | ||||||
Investment in unconsolidated affiliated real estate entity | 12,779,062 | 12,998,999 | ||||||
Cash and cash equivalents | 6,106,462 | 8,289,394 | ||||||
Restricted cash | 1,082,281 | 1,215,200 | ||||||
Other assets | 2,269,493 | 1,154,466 | ||||||
Total Assets | $ | 146,096,127 | $ | 138,272,543 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Mortgage payable, net | $ | 77,402,592 | $ | 63,631,383 | ||||
Accounts payable, accrued expenses and other liabilities | 7,953,642 | 6,126,029 | ||||||
Subordinated advances - related party | 13,918,308 | 13,825,600 | ||||||
Total Liabilities | 99,274,542 | 83,583,012 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Company’s Stockholders’ Equity: | ||||||||
Preferred stock, $ | par value; million shares authorized, issued and outstanding- | - | ||||||
Common stock, $ | par value; million shares authorized, million and million shares issued and outstanding, respectively83,075 | 83,984 | ||||||
Additional paid-in-capital | 69,618,679 | 70,480,206 | ||||||
Accumulated deficit | (33,792,801 | ) | (27,881,782 | ) | ||||
Total Company’s Stockholders’ Equity | 35,908,953 | 42,682,408 | ||||||
Noncontrolling interests | 10,912,632 | 12,007,123 | ||||||
Total Stockholders’ Equity | 46,821,585 | 54,689,531 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 146,096,127 | $ | 138,272,543 |
The accompanying notes are an integral part of these consolidated financial statements.
1
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)(unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Income: | ||||||||||||||||
Investment income | $ | 1,134,667 | $ | 600,366 | $ | 3,367,000 | $ | 1,103,133 | ||||||||
Loss from investment in unconsolidated affiliated real estate entity | (741,002 | ) | - | (2,066,879 | ) | - | ||||||||||
Total income | 393,665 | 600,366 | 1,300,121 | 1,103,133 | ||||||||||||
Expenses: | ||||||||||||||||
General and administrative costs | 265,960 | 85,273 | 766,996 | 207,553 | ||||||||||||
Interest expense | 47,122 | 21,138 | 139,831 | 32,787 | ||||||||||||
Total expenses | 313,082 | 106,411 | 906,827 | 240,340 | ||||||||||||
Net income | $ | 80,583 | $ | 493,955 | $ | 393,294 | $ | 862,793 | ||||||||
Net income per common share, basic and diluted | $ | 0.01 | $ | 0.13 | $ | 0.05 | $ | 0.43 | ||||||||
Weighted average number of common shares outstanding, basic and diluted | 8,955,440 | 3,730,626 | 8,451,031 | 2,009,286 |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Hotel revenues: | $ | 7,106,082 | $ | - | $ | 8,058,944 | $ | - | ||||||||
Expenses: | ||||||||||||||||
Hotel operating expenses | 5,905,121 | - | 7,245,035 | - | ||||||||||||
Real estate taxes | 13,095 | - | 16,615 | - | ||||||||||||
General and administrative costs | 422,201 | 149,688 | 678,595 | 303,067 | ||||||||||||
Pre-opening costs | 493,679 | 357,308 | 2,228,344 | 419,283 | ||||||||||||
Depreciation and amortization | 868,710 | - | 1,139,808 | - | ||||||||||||
Total expenses | 7,702,806 | 506,996 | 11,308,397 | 722,350 | ||||||||||||
Interest income | 70,014 | - | 134,377 | - | ||||||||||||
Interest expense, net | (3,208,914 | ) | (46,610 | ) | (4,062,856 | ) | (92,708 | ) | ||||||||
Loss from investment in unconsolidated affiliated real estate entity | (157,435 | ) | (79,601 | ) | (378,269 | ) | (343,643 | ) | ||||||||
Other expense, net | (4,524 | ) | - | (5,662 | ) | - | ||||||||||
Net loss | (3,897,583 | ) | (633,207 | ) | (7,561,863 | ) | (1,158,701 | ) | ||||||||
Less: net loss attributable to noncontrolling interests | 843,505 | 91,071 | 1,650,844 | 106,565 | ||||||||||||
Net loss attributable to Company’s common shares | $ | (3,054,078 | ) | $ | (542,136 | ) | $ | (5,911,019 | ) | $ | (1,052,136 | ) | ||||
Basic and diluted net loss per Company’s common share: | ||||||||||||||||
Net loss per Company’s common shares, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
Weighted average number of common shares outstanding, basic and diluted |
The accompanying notes are an integral part of these consolidated financial statements.
2
PART I. FINANCIAL INFORMATION:INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS.STATEMENTS, CONTINUED:
LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)(unaudited)
Common | ||||||||||||||||||||||||
Additional | ||||||||||||||||||||||||
Paid-In | Subscription | Accumulated | Total | |||||||||||||||||||||
Shares | Amount | Capital | Receivable | Deficit | Equity | |||||||||||||||||||
BALANCE, December 31, 2016 | 6,397,005 | $ | 63,970 | $ | 52,616,396 | $ | (274,449 | ) | $ | (1,069,145 | ) | $ | 51,336,772 | |||||||||||
Net income | - | - | - | - | 393,294 | 393,294 | ||||||||||||||||||
Distributions declared | - | - | - | - | (5,043,889 | ) | (5,043,889 | ) | ||||||||||||||||
Proceeds from offering | 2,506,031 | 25,060 | 24,865,186 | 274,449 | - | 25,164,695 | ||||||||||||||||||
Shares issued from distribution reinvestment program | 69,332 | 693 | 657,959 | - | - | 658,652 | ||||||||||||||||||
Redemption and cancellation of shares | (20,236 | ) | (202 | ) | (196,217 | ) | - | - | (196,419 | ) | ||||||||||||||
Selling commissions and dealer manager fees | - | - | (2,330,905 | ) | - | - | (2,330,905 | ) | ||||||||||||||||
Other offering costs | - | - | (25,493 | ) | - | - | (25,493 | ) | ||||||||||||||||
BALANCE, September 30, 2017 | 8,952,132 | $ | 89,521 | $ | 75,586,926 | $ | - | $ | (5,719,740 | ) | $ | 69,956,707 |
Common | Additional Paid-In | Accumulated | Noncontrolling | Total Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
BALANCE, March 31, 2022 | 8,452,250 | $ | 84,523 | $ | 70,942,083 | $ | (26,161,846 | ) | $ | 12,323,203 | $ | 57,187,963 | ||||||||||||
Net loss | - | - | - | (542,136 | ) | (91,071 | ) | (633,207 | ) | |||||||||||||||
Contributions of noncontrolling interests | - | - | - | - | 175,000 | 175,000 | ||||||||||||||||||
Redemption and cancellation of common stock | (47,841 | ) | (479 | ) | (409,996 | ) | - | - | (410,475 | ) | ||||||||||||||
BALANCE, June 30, 2022 | 8,404,409 | $ | 84,044 | $ | 70,532,087 | $ | (26,703,982 | ) | $ | 12,407,132 | $ | 56,319,281 |
Common | Additional Paid-In | Accumulated | Noncontrolling | Total Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
BALANCE, December 31, 2021 | 8,477,679 | $ | 84,777 | $ | 71,157,978 | $ | (25,651,846 | ) | $ | 12,220,427 | $ | 57,811,336 | ||||||||||||
Net loss | - | - | - | (1,052,136 | ) | (106,565 | ) | (1,158,701 | ) | |||||||||||||||
Contributions of noncontrolling interests | - | - | - | - | 293,270 | 293,270 | ||||||||||||||||||
Redemption and cancellation of common stock | (73,270 | ) | (733 | ) | (625,891 | ) | - | - | (626,624 | ) | ||||||||||||||
BALANCE, June 30, 2022 | 8,404,409 | $ | 84,044 | $ | 70,532,087 | $ | (26,703,982 | ) | $ | 12,407,132 | $ | 56,319,281 |
Common | Additional Paid-In | Accumulated | Noncontrolling | Total | ||||||||||||||||||||
Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
BALANCE, March 31, 2023 | 8,365,426 | $ | 83,655 | $ | 70,197,997 | $ | (30,738,723 | ) | $ | 11,256,137 | $ | 50,799,066 | ||||||||||||
Net loss | - | - | - | (3,054,078 | ) | (843,505 | ) | (3,897,583 | ) | |||||||||||||||
Contributions of noncontrolling interests | - | - | - | - | 500,000 | 500,000 | ||||||||||||||||||
Redemption and cancellation of common stock | (57,990 | ) | (580 | ) | (579,318 | ) | - | - | (579,898 | ) | ||||||||||||||
BALANCE, June 30, 2023 | 8,307,436 | $ | 83,075 | $ | 69,618,679 | $ | (33,792,801 | ) | $ | 10,912,632 | $ | 46,821,585 |
Common | Additional Paid-In | Accumulated | Noncontrolling | Total | ||||||||||||||||||||
Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
BALANCE, December 31, 2022 | 8,398,355 | $ | 83,984 | $ | 70,480,206 | $ | (27,881,782 | ) | $ | 12,007,123 | $ | 54,689,531 | ||||||||||||
Net loss | - | - | - | (5,911,019 | ) | (1,650,844 | ) | (7,561,863 | ) | |||||||||||||||
Contributions of noncontrolling interests | - | - | - | - | 556,353 | 556,353 | ||||||||||||||||||
Redemption and cancellation of common stock | (90,919 | ) | (909 | ) | (861,527 | ) | - | - | (862,436 | ) | ||||||||||||||
BALANCE, June 30, 2023 | 8,307,436 | $ | 83,075 | $ | 69,618,679 | $ | (33,792,801 | ) | $ | 10,912,632 | $ | 46,821,585 |
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(unaudited)
For the Nine Months Ended | For the Nine Months Ended | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 393,294 | $ | 862,793 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Loss from investment in unconsolidated affiliated real estate entity | 2,066,879 | - | ||||||
Changes in assets and liabilities: | ||||||||
Decrease/(increase) in other assets | 106,196 | (5,834 | ) | |||||
(Decrease)/increase in accounts payable and other accrued expenses | (13,150 | ) | 4,969 | |||||
Increase in accrued interest on subordinated advances - related party | 139,831 | 32,787 | ||||||
Increase/(decrease) in due to related parties | 82,305 | (37,774 | ) | |||||
Net cash provided by operating activities | 2,775,355 | 856,941 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Investment in related party | - | (18,194,001 | ) | |||||
Deposit on real estate investment | - | (3,412,500 | ) | |||||
Investments in unconsolidated affiliated real estate entities | (27,537,856 | ) | - | |||||
Cash used in investing activities | (27,537,856 | ) | (21,606,501 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common stock | 25,164,695 | 37,950,067 | ||||||
Proceeds from subordinated advances - related party | - | 10,432,013 | ||||||
Payment of commissions and offering costs | (2,575,121 | ) | (4,713,533 | ) | ||||
Redemption and cancellation of common stock | (196,419 | ) | - | |||||
Distributions paid to Company's common stockholders | (4,211,194 | ) | (724,181 | ) | ||||
Net cash provided by financing activities | 18,181,961 | 42,944,366 | ||||||
Net change in cash | (6,580,540 | ) | 22,194,806 | |||||
Cash, beginning of year | 21,874,240 | 1,213,014 | ||||||
Cash, end of period | $ | 15,293,700 | $ | 23,407,820 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Distributions declared, but not paid | $ | 587,318 | $ | 301,454 | ||||
Commissions and other offering costs accrued but not paid | $ | - | $ | 352,045 | ||||
Subscription receivable | - | 39,000 | ||||||
Value of shares issued from distribution reinvestment program | $ | 658,652 | $ | 215,248 | ||||
Application of deposit to acquisition of investment property | $ | 5,687,250 | $ | - |
For the Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (7,561,863 | ) | $ | (1,158,701 | ) | ||
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities: | ||||||||
Loss from investment in unconsolidated affiliated real estate entity | 378,269 | 343,643 | ||||||
Depreciation and amortization | 1,139,808 | - | ||||||
Amortization of deferred financing costs | 565,884 | - | ||||||
Changes in assets and liabilities: | ||||||||
Increase in other assets | (1,115,027 | ) | (215,354 | ) | ||||
Increase in accounts payable, accrued expenses and other liabilities | 5,255,703 | 985,602 | ||||||
Increase in accrued interest on subordinated advances - related party | 92,708 | 92,708 | ||||||
Cash (used in)/provided by operating activities | (1,244,518 | ) | 47,898 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of investment property | (11,162,637 | ) | (22,883,270 | ) | ||||
Investment in unconsolidated affiliated real estate entity | (158,332 | ) | (273,990 | ) | ||||
Cash used in investing activities | (11,320,969 | ) | (23,157,260 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from mortgage financing | 10,555,719 | 22,012,116 | ||||||
Contributions of noncontrolling interests | 556,353 | 293,270 | ||||||
Redemption and cancellation of common stock | (862,436 | ) | (626,624 | ) | ||||
Cash provided by financing activities | 10,249,636 | 21,678,762 | ||||||
Change in cash, cash equivalents and restricted cash | (2,315,851 | ) | (1,430,600 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of year | 9,504,594 | 12,197,119 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 7,188,743 | $ | 10,766,519 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Capital expenditures for investment property in accounts payable, accrued expenses and other liabilities | $ | 902,846 | $ | 6,299,768 | ||||
Unpaid interest accrued and capitalized as mortgage payable and investment property | $ | 2,323,503 | $ | 330,813 | ||||
Amortization of deferred financing costs included in investment property | $ | 326,103 | $ | 891,987 | ||||
The following is a summary of the Company’s cash, cash equivalents and restricted cash total as presented in our statements of cash flows for the periods presented: | ||||||||
Cash and cash equivalents | $ | 6,106,462 | $ | 10,227,416 | ||||
Restricted cash | 1,082,281 | 539,103 | ||||||
Total cash, cash equivalents and restricted cash | $ | 7,188,743 | $ | 10,766,519 |
The accompanying notes are an integral part of these consolidated financial statements.
4
LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes Toto Consolidated Financial Statements (unaudited)
(Unaudited)
1. |
Lightstone Value Plus REIT IV, Inc. (“Lightstone REIT IV’’), which was formerly known as Lightstone Real Estate Income Trust, Inc. (‘‘Lightstone Income Trust’’), incorporatedbefore September 15, 2021, is a Maryland corporation, formed on September 9, 2014 in Maryland,, which elected to qualify to be taxed as a real estate investment trust (‘(’‘REIT’’) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2016.
Lightstone Income TrustREIT IV, 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 IV or the Company as required by the context in which any such pronoun is used.
The Company has and may continue to seek opportunities to invest in real estate and real estate-related investments. The Company’s real estate investments may include operating properties and development projects and its real estate-related investment may include mezzanine loans, mortgage loans, bridge loans and preferred equity interests, with a focus on development-related investments, including investments intended to finance development or redevelopment opportunities. The Company may also invest in debt and derivative securities related to real estate assets. A portion of the Company’s investments may be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by, The Lightstone Group, LLC (the “Sponsor”), its affiliates or other real estate investment programs it sponsors. Although the Company expects that most of its investments will be of these various types, it may also make other investments. In fact, it may invest in whatever types of investments that it believes are in its best interests.
The Company currently has 1 one operating segment. As of June 30, 2023, the Company majority owned and consolidated the operating results of Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”), a joint venture in which it has a 75% membership interest, and held an unconsolidated approximate 33.3% membership interest in 40 East End Ave. Pref Member LLC (the “40 East End Ave. Joint Venture”). The Company accounts for its unconsolidated membership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
The Williamsburg Moxy Hotel Joint Venture developed, constructed and owns a 216-room branded hotel (the “Williamsburg Moxy Hotel”) located in the Williamsburg neighborhood in the Brooklyn borough of New York City, which opened on March 7, 2023. Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a REIT also sponsored by the Sponsor and a related party, owns the other 25% membership interest in the Williamsburg Moxy Hotel Joint Venture, which is accounted for as noncontrolling interests in the Company’s consolidated financial statements.
The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through June 30, 2023, 23 of the 29 units in the condominium project have been sold 20,000 Common Sharesand the 40 East End Ave. Joint Venture owns the remaining unsold units which are referred to as the 40 East End Project. Various affiliated entities majority-owned and/or controlled by David Lichtenstein, who majority owns and controls the Sponsor, own the other approximate 66.7% membership into in the 40 East End Ave. Joint Venture.
The Company’s advisor is Lightstone Real Estate Income LLC a Delaware limited liability company (the ‘‘Advisor’’“Advisor”), an entitywhich is majority owned by David Lichtenstein, onLichtenstein. On September 12, 2014, the Advisor contributed $200,000for shares of common stock (“Common Shares”), or $10.00 per share.share of the Lightstone REIT IV. Mr. Lichtenstein also is a majority owner of the equity interests of The Lightstone Income Trust’s sponsor,Group, LLC. The Lightstone Group, LLC served as the Sponsor during the Company’s initial public offering (the ‘‘Sponsor’’“Offering”). which terminated on March 31, 2017. Mr. Lichtenstein also owns Common Shares which were issued on June 15, 2015 for $2.0 million, or $ per share. Subject to the oversight of the Company’s board of directors (the “Board of Directors”), and pursuant to the terms of an advisory agreement, the Advisor has the primary responsibility for making investment decisions on behalf of the Company and managing the Company’sits day-to-day operations. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone Income Trust.REIT IV.
5
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
Lightstone Income Trust, together with its subsidiaries is collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to Lightstone Income Trust or the Company as required by the context in which any such pronoun is used.
The Company’s registration statement on Form S-11 (the “Offering”), pursuant to which it offered to sell up to 30,000,000 shares of its common stock, par value $0.01 per share (which may be referred to herein as ‘‘shares of common stock’’ or as ‘‘Common Shares’’) for an initial offering price of $10.00 per share, subject to certain volume and other discounts (the “Primary Offering”) (exclusive of 10,000,000 shares available pursuant to its distribution reinvestment program (the ‘‘DRIP’’) which were offered at a discounted price equivalent to 95% of the Primary Offering Price per Common Share) was declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 on February 26, 2015. On June 30, 2016, the Company adjusted its offering price to $9.14 per Common Share in its Primary Offering, which was equal to the Company’s estimated net asset value (“NAV”) per Common Share as of March 31, 2016, and effective July 25, 2016, the Company’s offering price was adjusted to $10.00 per Common Share in its Primary Offering, which was equal to the estimated NAV per Common Share as of June 30, 2016. Our estimated NAV per Common Share remained unchanged at $10.00 as of both September 30, 2016 and December 31, 2016.
The Offering, which terminated on March 31, 2017, raised aggregate gross proceeds of approximately $85.6 million from the sale of approximately 8.9 million shares of common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor). After including aggregate advances from our Sponsor of $12.6 million under the Subordinated Agreement (as discussed in Note 6) and allowing for the payment of approximately $7.6 million in selling commissions and dealer manager fees and $3.2 million in organization and offering expenses, the Offering generated aggregate net proceeds of approximately $87.5 million.
On April 21, 2017, the Company’s board of directors approved the termination of the DRIP effective May 15, 2017. Previously, the Company’s stockholders had an option to elect the receipt of shares of the Company’s common stock in lieu of cash distributions under the Company’s DRIP, however, all future distributions will be in the form of cash. In addition, through May 15, 2017 (the termination date of the DRIP), the Company issued approximately 0.1 million shares of common stock under its DRIP, representing approximately $1.2 million of additional proceeds under the Offering.
The Company has and expects to continue to seek to originate, acquire and manage a diverse portfolio of real estate-related investments. The Company may invest in mezzanine loans, first lien mortgage loans, second lien mortgage loans, bridge loans and preferred equity interests, in each case with a focus on investments intended to finance development or redevelopment opportunities. The Company may also invest in debt and derivative securities related to real estate assets. The Company expects that a majority of its investments by value will be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by, the Sponsor, by its affiliates or by real estate investment programs sponsored by it.
The Company has nodoes not have any employees. The Company retains the Advisor to manage its affairs on a day-to-day basis. Orchard Securities, LLC (the ‘‘Dealer Manager’’), a third party not affiliated with the Company, the Sponsor or the Advisor, served as the dealer manager of the Offering until their termination on March 31, 2017 as a result of the termination of the Offering. The Advisor is an affiliate of the Sponsor and will receivereceives compensation and fees for services related to the investment and management of the Company’s assets. The Advisor has certain affiliates which may manage the properties the Company acquires. However, the Company may also contract with other unaffiliated third-party property managers.
LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIESThe Company’s stock is not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading.
Notes To
Related Parties
The Sponsor, Advisor and its affiliates are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Certain of these entities are entitled to compensation for services related to the investment, management and disposition of the Company’s assets. The compensation is based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
Noncontrolling Interests in Consolidated Financial StatementsSubsidiaries
(Unaudited)
Noncontrolling interests in consolidated subsidiaries represents Lightstone REIT III’s 25% share of the equity in the Williamsburg Moxy Hotel Joint Venture. Income and losses attributable to the Williamsburg Moxy Hotel Joint Venture are allocated to the noncontrolling interest holder based on its ownership percentage. See Note 3 for additional information.
2. | Summary of Significant Accounting Policies |
The accompanying 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 the Lightstone Income Trust and SubsidiariesREIT IV 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 Rule 8-03 of Regulation S-X.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (‘‘GAAP’’).GAAP. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate debtand investments and securities, the valuation of the investment in related party and revenue recognition.other real estate entities. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2022 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
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LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
Income Taxes
The Company elected to qualify and be taxed as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2016. As a REIT, the Company generally will not be subject to U.S. federal income tax on its net taxable income that it distributes currently to its stockholders. To maintain its REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.
The Company engages in certain activities through taxable REIT subsidiaries (“TRSs”). As such, the Company is subject to U.S. federal and state income taxes and franchise taxes from these activities.
As of June 30, 2023 and December 31, 2022, the Company had no material uncertain income tax positions.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone Income TrustREIT IV and Subsidiariesits subsidiaries (over which the Companyit exercises financial and operating control). All inter-company accountsbalances and transactions have been eliminated in consolidation. In determining whetheraddition, interests in entities acquired are evaluated based on applicable GAAP, and if deemed to be variable interest entities (“VIE”) in which we are 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 have control, substantive participating rights or both under the respective ownership agreement. Investments in other real estate entities where the Company has a controlling financial interest in a joint venture and the requirementability to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary.
New Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance that 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. This guidance will not have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued an accounting standards update which provides guidance on the classification of certain cash receipts and cash payments in the statement of cash flows, including those related to debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, and distributions received from equity method investees. This guidance is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The guidance must be adopted on a retrospective basis and must be applied to all periods presented, but may be applied prospectively if retrospective application would be impracticable. This guidance will not have a material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued an accounting standards update which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company does not expect that this guidance will have a material impact on its consolidated financial statements.
In January 2016, the FASB issued an accounting standards update that eliminates the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet and is effective for periods beginning after December 15, 2017 and early adoption is not permitted. This guidance will not have a material impact on the Company’s consolidated financial statements.
LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
In May 2014, the FASB issued an accounting standards update that provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The adoption of this standard will not have a material impact on the Company’s consolidated financial statements.
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its current operations.
The entities listed below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercisesexercise significant influence, but does not exercise financial and operating control, and is not considered to be the primary beneficiary are accounted for using the equity method.
There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether the Company is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of these entities. A summaryequity being risked compared to the total equity of the Company’s investmentsentity. 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 change in the unconsolidated affiliated real estate entities is as follows:judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.
Revenue Recognition
Revenues consist of amounts derived from hotel operations, including occupied hotel rooms and sales of food, beverage and other ancillary services and are presented on a disaggregated basis below. Revenues are recorded net of any sales or occupancy tax collected from customers.
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As of | ||||||||||||||
Entity | Date of Ownership | Ownership % | September 30, 2017 | December 31, 2016 | ||||||||||
RP Maximus Cove, L.L.C. (the "Cove Joint Venture") | January 31, 2017 | 22.50 | % | $ | 18,552,816 | $ | - | |||||||
40 East End Ave. Pref Member LLC ( “40 East End Ave. Joint Venture”) | March 31, 2017 | 33.30 | % | 12,605,410 | - | |||||||||
Total investments in unconsolidated affiliated real estate entities | $ | 31,158,226 | $ | - |
The Cove Joint VentureLIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
Room revenue is generated through contracts with customers whereby the customers agree to pay a daily rate for right to use a hotel room. The Company’s contract performance obligations are fulfilled at the end of the day that the customer is provided the room and revenue is recognized daily at the contract rate. Payment from the customer is secured at the end of the contract upon check-out by the customer from our hotel. The Company participates in frequent guest programs sponsored by the brand owner of its hotel whereby the brand owner allows guests to earn loyalty points during their hotel stay. The Company recognizes revenue at the amount earned that it will receive from the brand owner when a guest redeems their loyalty points by staying at the Company’s hotel.
Revenue from food, beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized when these goods or services are provided to the customer and the Company’s contract performance obligations have been fulfilled.
Some contracts for rooms, food, beverage or other services require an upfront deposit which is recorded as deferred revenues (or contract liabilities) and recognized once the performance obligations are satisfied. The contract liabilities are not significant.
The Company notes no significant judgments regarding the recognition of room food, beverage and other revenues.
The following table represents the total revenues from hotel operations on a disaggregated basis:
Schedule of cash, cash equivalents, and restricted cash | ||||||||
For the Three Months ended June 30, 2023 | For the Six Months ended June 30, 2023 | |||||||
Hotel revenues | ||||||||
Room | $ | 4,512,058 | $ | 5,111,423 | ||||
Food, beverage and other | 2,594,024 | 2,947,521 | ||||||
Total hotel revenues | $ | 7,106,082 | $ | 8,058,944 |
Accounts Receivable
The Company analyzes accounts receivable aging, historical bad debt levels, customer credit worthiness, current economic trends and management’s expectations about future economic conditions when evaluating the adequacy of the allowance for doubtful accounts and credit loss reserves. The Company’s reported net income or loss is directly affected by management’s estimate of the collectability of accounts receivable.
Depreciation and Amortization
Depreciation expense is computed based on the straight-line method over the estimated useful life of the applicable real estate asset. The Company generally uses estimated useful lives of up to 39 years for buildings and improvements and 5 to 10 years for furniture and fixtures. Maintenance and repairs will be charged to expense as incurred.
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LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash and other assets, accounts payable and accrued expenses andother liabilities approximate their fair values because of the short maturity of these instruments.
The carrying amount of the mortgage payable approximates fair value because its interest rate is variable and reflective of market rates.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade receivables entities are required to use a new forward looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company has adopted this standard noting that it did not have a material impact on the Company’s financial statements or related disclosures.
Reclassifications
Certain prior period amounts may have been reclassified to conform to the current year presentation.
Adverse Developments Affecting the Financial Services Industry and Concentration of Risk
As of June 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash, cash equivalents or restricted cash. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.
Current Environment
The Company’s 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, the Company’s business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability and 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, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions, may adversely affect the Company’s results of operations and financial performance.
9
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
3. | Williamsburg Moxy Hotel |
On September 29, 2016,July 17, 2019, the Company, through its then wholly owned subsidiary, REIT CoveBedford Avenue Holdings LLC, (“REIT Cove”), LSG Cove LLC (“LSG Cove”), an affiliateacquired land parcels located at 353-361 Bedford Avenue in the Williamsburg neighborhood of the borough of Brooklyn in New York City, from unaffiliated third parties, for an aggregate purchase price of $30.4 million, excluding closing and other acquisition related costs, for the development and construction of the Williamsburg Moxy Hotel. On March 7, 2023, the development and construction of the Williamsburg Moxy Hotel was substantially completed and it opened for business. However, certain of its food and beverage venues subsequently opened during the second quarter of 2023.
Williamsburg Moxy Hotel Joint Venture
On August 5, 2021, the Company formed the Williamsburg Moxy Hotel Joint Venture with Lightstone Group, LLC, the Company’s sponsor and a related party, and Maximus Cove Investor LLC (“Maximus”), an unrelated third party (collectively, the “Buyer”), entered into an agreement of sale and purchase with an unrelated third party, RP Cove, L.L.C (the “Seller”),REIT III, pursuant to which Lightstone REIT III acquired 25% of the Buyer would acquire the Seller’sCompany’s membership interest in RP Maximus Cove, L.L.C. (the “Cove Joint Venture”) for approximately $255.0 million (the “Cove Transaction”). The Cove Joint Venture owns and operates The Cove at Tiburon (“the Cove”), a 281-unit, luxury waterfront multifamily rental property located in Tiburon, California. Prior to entering into the Cove Transaction, Maximus previously owned a separate noncontrolling interest in the Cove Joint Venture.
On January 31, 2017, REIT Cove entered into an Assignment and Assumption Agreement (the “Assignment”) with another of the Company’s wholly owned subsidiaries, REIT IV COVEBedford Avenue Holdings LLC (“REIT IV Cove”) and REIT III COVE LLC (“REIT III Cove”), a subsidiary of the operating partnership of Lightstone Value Plus Real Estate Investment Trust III, Inc., a real estate investment trust also sponsored by the Company’s sponsor and a related party, and together with REIT IV Cove, collectively, the “Assignees”. Under the terms of the Assignment, the Assignees were assigned the rights and obligations of REIT Cove with respect to the Cove Transaction.
On January 31, 2017, REIT IV Cove, REIT III Cove, LSG Cove, and Maximus (the “Members”) completed the Cove Transaction for aggregate consideration of approximately $255.0 million, which consisted of $80 million of cash and $175 million of proceeds from a loan from a financial institution$7.9 million. Subsequent to its acquisition, Lightstone REIT III has made capital contributions to the CoveWilliamsburg Moxy Hotel Joint Venture aggregating $5.3 million through June 30, 2023, including $0.6 million made during the six months ended June 30, 2023.
As a result, the Company and Lightstone REIT III have 75% and 25% membership interests, respectively, in the Williamsburg Moxy Hotel Joint Venture. The Company paid approximately $20.0 million for a 22.5% membership interest in the Cove Joint Venture. In connection with the acquisition,Additionally, the Company paidis the Advisor an acquisition fee of $573,750, equal to 1.0%managing member of the Company’s pro-rata share of the contractual purchase price which has been included in investments in unconsolidated affiliated real estate entities on the consolidated balance sheets.
The Company’s interest in the CoveWilliamsburg Moxy Hotel Joint Venture is a non-managing interest. The Company determined that the Cove Joint Venture is a variable interest entity (“VIE”) and because the Company exerts significant influence over but does not control the Cove Joint Venture, it will account for its ownership interest in the Cove Joint Venture in accordance with the equity method of accounting. All distributions of earnings from the Cove Joint Venture will be made on a pro rata basis in proportion to each Members’ equity interest percentage. Any distributions in excess of earnings from the Cove Joint Venture will be made to the Members pursuant to the terms of the Cove Joint Venture’s operating agreement. An affiliate of Maximus is the asset manager of The Cove and receives certain fees as defined in the Property Management Agreement for the management of The Cove. The Company commenced recording its allocated portion of profit or loss and cash distributions beginning as of January 31, 2017Lightstone REIT III has consent rights with respect to its membership interest of 22.5% in the Cove Joint Venture.all major decisions.
LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
In connection with the closing of the Cove Transaction, the Cove Joint Venture simultaneously entered into a $175.0 million loan (the “Loan”) initially scheduled to mature on January 31, 2020 with two, one-year extension options, subject to certain conditions. The Loan requires monthly interest payments through its maturity date. The Loan bears interest at Libor plus 3.85% through its initial maturity and Libor plus 4.15% during each of the extension periods. The Loan is collateralized by The Cove and an affiliate of the Sponsor (the “Guarantor”) has guaranteed the Cove Joint Venture‘s obligation to pay the outstanding balance of the Loan up to approximately $43.8 million (the “Loan Guarantee”). The Members have agreed to reimburse the Guarantor for any balance that may become due under the Loan Guarantee, of which the Company’s share is up to approximately $10.9 million.
Starting in 2013, the Cove has been undergoing an extensive refurbishment which is substantially completed. The Members intend to use remaining proceeds from the Loan and to invest additional capital if necessary to complete the remainder of the refurbishment. The Guarantor provided an additional guarantee of up to approximately $13.4 million (the “Refurbishment Guarantee”) to provide the necessary funds to complete the remaining renovations as defined in the Loan. The Members have agreed to reimburse the Guarantor for any balance that may become due under the Refurbishment Guarantee, of which the Company’s share is up to approximately $3.3 million.
The Company has determined that the fair valueWilliamsburg Moxy Hotel Joint Venture is a VIE and the Company is the primary beneficiary. As the Company is the member most closely associated with the Williamsburg Moxy Hotel Joint Venture and therefore has the power to direct the activities of the Williamsburg Moxy Hotel Joint Venture that most significantly impact its performance, the Company has consolidated the operating results and financial condition of the Williamsburg Moxy Hotel Joint Venture and accounted for the ownership interest of Lightstone REIT III as noncontrolling interests commencing on August 5, 2021. Contributions are allocated in accordance with each investor’s ownership percentage. Earnings and cash distributions are allocated in accordance with each investor’s ownership percentage.
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer is being paid a development fee equal to 3% of hard and soft costs, as defined in the Development Agreement, incurred in connection with the development and construction of the Williamsburg Moxy Hotel (see Note 6 for additional information). Additionally on August 5, 2021, the Williamsburg Moxy Hotel Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. Furthermore, the Advisor and its affiliates are reimbursed for certain development-related costs attributable to the Williamsburg Moxy Hotel.
In connection with the substantial completion of the development and construction of the Williamsburg Moxy Hotel and it opening for business on March 7, 2023, substantially all of the related aggregate development costs ($119.5 million), which were previously included in construction in progress on the consolidated balance sheet, were placed in service and reclassified to land and improvements ($35.8 million), buildings and improvements ($73.7 million), and furniture and fixtures ($10.0 million) on the consolidated balance sheet.
In connection with the opening of the Williamsburg Moxy Hotel, including its food and beverage venues, the Williamsburg Moxy Hotel Joint Venture incurred pre-opening costs of $0.5 million and $2.2 million during the three and six months ended June 30, 2023, respectively, and $0.4 million during both the Loan Guaranteethree and the Refurbishment Guarantee are immaterial.six months ended June 30, 2022. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
The Cove Joint Venture Condensed Financial Information
The Company’s carrying value of its interest in the Cove Joint Venture differs from its share of member’s equity reported in the condensed balance sheet of the Cove Joint Venture due to the Company’s basis of its investment in excess of the historical net book value of the Cove Joint Venture. The Company’s additional basis allocated to depreciable assets is being recognized on a straight-line basis over the lives of the appropriate assets.
The following table represents the unaudited condensed income statement for the Cove Joint Venture:
(amounts in thousands) | For the Three Months Ended | For the Period January 31,2017 (date of investment) through September 30, 2017 | ||||||
Revenue | $ | 3,523 | $ | 8,724 | ||||
Property operating expenses | 1,175 | 3,076 | ||||||
General and administrative costs | 54 | 196 | ||||||
Depreciation and amortization | 2,383 | 6,348 | ||||||
Operating loss | (89 | ) | (896 | ) | ||||
Interest expense and other, net | (2,406 | ) | (6,161 | ) | ||||
Net loss | $ | (2,495 | ) | $ | (7,057 | ) | ||
Company's share of net loss (22.50%) | $ | (561 | ) | $ | (1,588 | ) | ||
Additional depreciation and amortization expense(1) | (180 | ) | (479 | ) | ||||
Company's loss from investment | $ | (741 | ) | $ | (2,067 | ) |
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LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes Toto Consolidated Financial Statements
(Unaudited) (unaudited)
An adjacent land owner has filed a claim questioning the Williamsburg Moxy Hotel Joint Venture’s right to develop and construct the Williamsburg Moxy Hotel without his consent. The following table representsWilliamsburg Moxy Hotel Joint Venture is currently responding to this claim and management believes it will, in due course, be recognized that the unaudited condensedadjacent owner waived his right to object in 2017 when he signed a waiver, consent and subordination allowing the future development of the property as it exists today. While this matter is currently pending in the court system, continued use of the property will ultimately be determined by the government of New York City and management has a number of avenues that it believes are viable paths to unfettered certificates of occupancy. While any dispute has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned proceedings is remote. No provision for loss has been recorded in connection therewith. See Note 7 for additional information.
Moxy Construction Loan
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility for up to $77.0 million (the “Moxy Construction Loan”) to fund the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan is scheduled to initially mature on February 5, 2024, with two, six-month extension options, subject to the satisfaction of certain conditions. The Moxy Construction Loan bears interest at LIBOR plus 9.00%, subject to a 9.50% floor, with monthly interest-only payments based on a rate of 7.50% and the excess added to the outstanding loan balance sheetdue at maturity. LIBOR as of June 30, 2023 and December 31, 2022 was 5.22% and 4.39%, respectively. Additionally, the Moxy Construction Loan provides for a replacement benchmark rate based on SOFR in connection with the phase-out of LIBOR after June 30, 2023. The Moxy Construction Loan is collateralized by the Williamsburg Moxy Hotel.
As of June 30, 2023 and December 31, 2022, the outstanding principal balance of the Moxy Construction Loan was $78.4 million (including $4.0 million of interest capitalized to principal) which is presented, net of deferred financing fees of $1.0 million and $65.6 million (including $1.7 million of interest capitalized to principal) which is presented, net of deferred financing fees of $2.0 million, respectively, on the consolidated balance sheets and is classified as mortgage payable, net. As of June 30, 2023, the remaining availability under the facility was up to $2.6 million and its interest rate was 14.22%. Additionally, the Williamsburg Moxy Hotel Joint Venture was required by the lender to deposit $3.0 million of key money (the “Key Money”) received from Marriott International, Inc. (“Marriott”) during the first quarter of 2023 into an escrow account all of which was subsequently used to fund remaining construction costs for the Coveproject during the second quarter of 2023. The remaining availability under the Moxy Construction Loan may be used to fund the remaining construction costs for the project. See Note 7 for additional information.
In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture:Venture has provided certain completion and carry cost guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture accrued $0.8 million of loan exit fees which are due at the initial maturity date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of both June 30, 2023 and December 31, 2022.
The Williamsburg Moxy Hotel Joint Venture currently intend to refinance the Moxy Construction Loan (outstanding principal balance of $78.4 million as of June 30, 2023) on or before its initial maturity date of February 5, 2024; however, there can be no assurances that it will be successful in such endeavors. If the Williamsburg Moxy Hotel Joint Venture is unable to refinance the Moxy Construction Loan on or before its initial maturity date, it will then seek to exercise the first of its two six-month extension options.
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As of | ||||
(amounts in thousands) | September 30, 2017 | |||
Real estate, at cost (net) | $ | 150,602 | ||
Cash and restricted cash | 2,797 | |||
Other assets | 1,822 | |||
Total assets | $ | 155,221 | ||
Mortgage payable, net | $ | 173,325 | ||
Other liabilities | 1,933 | |||
Members' deficit(1) | (20,037 | ) | ||
Total liabilities and members' deficit | $ | 155,221 |
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
40 East End Ave. Joint Venture
On March 31, 2017, the Company entered into a joint venture agreement (the “40acquired an approximate 33.3% membership interest in the 40 East EndEnded Ave. Transaction”) withJoint Venture from SAYT Master Holdco LLC, an entity majority-owned and controlled by David Lichtenstein, who also majority owns and controls the Company’s Sponsor, and a related party, (the “Seller”), providing for the Company to acquire 33.3% of the Seller’s approximate 100% membership interest in 40 East End Ave. Pref Member LLC ( “40 East End Ave. Joint Venture”) for aggregate consideration of approximately $10.3$10.3 million. During the six months ended September 30, 2017, the Company contributed an additional $2.3 million toThe remaining approximate 66.7% membership interest in the 40 East End Ave. Joint Venture.
In accordance with the Company’s charter, a majorityVenture is owned by SAYT Master Holdco, LLC and other affiliated entities of the Company’s board of directors, including a majority of the Company’s independent directors not otherwise interested in the transaction, approved the 40 East End Ave. Transaction as fair and reasonable to the Company and on terms and conditions not less favorable to the Company than those available from unaffiliated third parties.Sponsor.
The Company’s ownership interest in the 40 East End Ave. Joint Venture is a non-managing interest. Because the Company exerts significant influence over but does not control the 40 East End Ave. Joint Venture, it will accountaccounts for its ownership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting. All contributions to and distributions of earnings from the 40 East End Ave. Joint Venture will beare made on a pro rata basis in proportion to each Member’smember’s equity interest percentage. Any distributions in excess of earnings from the 40 East End Ave. Joint Venture will beare made to the Membersmembers pursuant to the terms of its operating agreement. The Company will commencecommenced recording its allocated portion of earnings and cash distributions, if any, from the 40 East End Ave. Joint Venture beginning as of March 31, 2017 with respect to its membership interest of approximately 33.3% in the 40 East End Ave. Joint Venture.
Additionally, Lightstone Value Plus Real Estate Investment Trust,REIT I, Inc. (“Lightstone REIT I”), a real estate investment trustREIT also sponsored by the Company’s Sponsor, has made $30.0$30.0 million of preferred equity contributions (the “Preferred Contributions”) to a subsidiary of the 40 East End Ave. Joint Venture, pursuant to an instrument that entitlesentitled Lightstone REIT I to monthly preferred distributions at a rate of 12% per annum. As of June 30, 2023, the 40 East End Ave. Joint Venture has redeemed the entire $30.0 million of Preferred Contributions (including $6.0 million redeemed during the six months ended June 30, 2023).
The 40 East End Ave. Joint Venture, through affiliates, ownsdeveloped and constructed a parcel of landluxury residential 29-unit condominium project located at the corner of 81st81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City on which it is constructing a luxury residential project consistingCity. Through June 30, 2023, 23 of the 29 condominium units. As ofunits have been sold and for the nine months ended September 30, 2017, the 40 East End Ave. Joint Venture was being developed and therefore had no resultsowns the remaining six unsold units, which are referred to as the 40 East End Project.
Subsequent to the Company’s acquisition through June 30, 2023, it has made an aggregate of operations.$8.6 million of capital contributions to the 40 East End Ave. Joint Venture, of which $0.2 million were made during the six months ended June 30, 2023.
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LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes Toto Consolidated Financial Statements (unaudited)
(Unaudited)
The 40 East End Ave. Joint Venture Financial Information
The following table represents the unaudited condensed balance sheetincome statements for the 40 East End Ave. Joint Venture:
Schedule of financial information of joint venture | ||||||||||||||||
(amounts in thousands) | For the Three Months Ended June 30, 2023 | For the Three Months Ended | For the Six Months Ended June 30, 2023 | For the Six Months Ended | ||||||||||||
Revenues | $ | 4,192 | $ | 13,884 | $ | 8,647 | $ | 18,678 | ||||||||
Cost of goods sold | 4,271 | 13,377 | 8,837 | 18,037 | ||||||||||||
Impairment of real estate inventory | - | - | - | 112 | ||||||||||||
Other expenses | 336 | 362 | 709 | 749 | ||||||||||||
Operating (loss)/income | (415 | ) | 145 | (899 | ) | (220 | ) | |||||||||
Interest expense and other, net | (58 | ) | (383 | ) | (237 | ) | (811 | ) | ||||||||
Net loss | $ | (473 | ) | $ | (238 | ) | $ | (1,136 | ) | $ | (1,031 | ) | ||||
Company’s share of net loss (33.3%) | $ | (157 | ) | $ | (79 | ) | $ | (378 | ) | $ | (344 | ) |
The following table represents the condensed balance sheets for the 40 East End Ave. Joint Venture:
As of | As of | |||||||
(amounts in thousands) | June 30, 2023 | December 31, 2022 | ||||||
Real estate inventory | $ | 36,623 | $ | 44,663 | ||||
Cash and restricted cash | 127 | 213 | ||||||
Other assets | 2,465 | 406 | ||||||
Total assets | $ | 39,215 | $ | 45,282 | ||||
Other liabilities | $ | 910 | $ | 316 | ||||
Members’ capital | 38,305 | 44,966 | ||||||
Total liabilities and members’ capital | $ | 39,215 | $ | 45,282 |
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As of | ||||
(amounts in thousands) | September 30,2017 | |||
Real estate inventory | $ | 78,811 | ||
Cash and restricted cash | 2,280 | |||
Other assets | 270 | |||
Total assets | $ | 81,361 | ||
Mortgage payable, net | $ | 10,834 | ||
Other liabilities | 2,610 | |||
Members' capital | 67,917 | |||
Total liabilities and members' capital | $ | 81,361 |
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
Stockholders’ Equity |
Distributions on Common Shares
On March 25, 2020, the Board of Directors determined to suspend regular monthly distributions for months ending after March 2020.
Future distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, the Company’s ability to refinance maturing debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
SRP
The Company’s share repurchase program (the “SRP”) may provide its stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions.
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors reopened the SRP only for redemptions submitted in connection with either a stockholder’s death or hardship and set the price for all such purchases at the Company’s estimated net asset value per share, as determined by the Board of Directors and reported by the Company from time to time, as of the date of redemption. Additionally, beginning on January 1, 2022, any 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.
The Board of Directors has established that on an annual basis, the Company will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if either type of redemption requests exceed the annual limitation.
For the six months ended June 30, 2023, the Company repurchased Common Shares at a weighted average price per share of $ per share. For the six months ended June 30, 2022, the Company repurchased Common Shares at a weighted average price per share of $ per share.
Net Earnings per Common Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly,Net earnings per shareCommon Share on a basic and fully diluted basis is calculated by dividing net income/(loss)earnings divided by the weighted-averageweighted average number of shares of common stock outstanding during the applicable period.outstanding. The Company does not have any potentially dilutive securities.
Subscription Receivable
The subscription receivable relates to shares issued to the Company’s shareholders for which the proceeds have not yet been received by the Company as of the balance sheet date solely due to timing of transfers from the escrow agent holding the funds.
Distributions
Distribution Declaration
On November 9, 2017, the Board of Directors authorized and the Company declared a distribution for each month during the three-month period ending March 31, 2018. The distributions will be calculated based on shareholders of record at a rate of $0.002191781 per day, and will equal a daily amount that, if paid each day for a 365-day period, would equal a 8.0% annualized rate based on a share price of $10.00 payable on or about the 15th day following each month end to stockholders of record at the close of business on the last day of the prior month.
Distribution Payments
On August 15, 2017, September 15, 2017 and October 16, 2017, the Company paid distributions for the months ended July 31, 2017, August 31, 2017 and September 30, 2017, respectively, totaling $1,801,111. The distributions were paid in cash. The distributions were paid from a combination of cash flows provided by operations ($853,784 or 47%) and offering proceeds ($947,327 or 53%).
Selling commissions and dealer manager fees were paid to the Dealer Manager, pursuant to various agreements that were terminated on March 31, 2017, in connection with the termination of the Offering, and other third-party offering costs such as registration fees, due diligence fees, marketing costs, and professional fees are accounted for as a reduction against additional paid-in capital as costs are incurred. Organizational costs are expensed as general and administrative costs. The following table represents the selling commissions and dealer manager and other offering costs for the periods indicated:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Selling commissions and dealer manager fees | $ | - | $ | 2,752,667 | $ | 2,330,905 | $ | 3,444,017 | ||||||||
Other offering costs | $ | - | $ | (96,486 | ) | $ | 25,493 | $ | 650,782 |
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LIGHTSTONE REAL ESTATE INCOME TRUSTVALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes Toto Consolidated Financial Statements
(Unaudited)
Since the Company’s inception through March 31, 2017 (the termination date of the Offering), it incurred approximately $7.6 million in selling commissions and dealer manager fees and $3.2 million of other offering costs in connection with the public offering of shares of its common stock. (unaudited)
6. | Related Party |
In addition to certain agreements with the Sponsor and Dealer Manager (see Note 5), theThe Company has agreements with the Advisor to pay certain fees, in exchange for services performed by the Advisor and/or its affiliated entities.
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:
Schedule of summary of amount recorded in pursuant to related party arrangement | ||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Three Months Ended June 30, | For the June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Acquisition fees(1) | $ | - | $ | - | $ | 573,750 | $ | - | ||||||||||||||||||||||||
Development fees and cost reimbursement(1) | $ | 228,432 | $ | 431,587 | $ | 514,475 | $ | 863,088 | ||||||||||||||||||||||||
Asset management fees (general and administrative costs) | 156,112 | - | 417,919 | - | 229,519 | - | 289,776 | - | ||||||||||||||||||||||||
Total | $ | 156,112 | $ | - | $ | 991,669 | $ | - | $ | 457,951 | $ | 431,587 | $ | 804,251 | $ | 863,088 |
(1) |
Investment in Related Party
105-109 W. 28th Street Preferred Investment
On November 25, 2015, the Company entered into an agreement (the “Moxy Transaction”) with various related party entities that provides for the Company to make aggregate preferred equity contributions (the “105-109 W. 28th Street Preferred Investment”) of up to $20.0 million in various affiliates of its Sponsor (the “Developer”) which owns a parcel of land located at 105-109 W. 28th Street, New York, NY at which they are constructing a 343-room Marriott Moxy hotel. The 105-109 W. 28th Street Preferred Investment is made pursuant to an instrument that entitles the Company to monthly preferred distributions at a rate of 12% per annum and was redeemable by the Company at the earlier of (i) the date that is two years from the date of the Company’s final contribution or (ii) the third anniversary of 105-109 W. 28th Street Preferred Investment. The Company may also have requested redemption or a restructuring of the agreement prior to the acceptance of any construction financing, which was obtained in December 2016. On September 30, 2016, the Company and the Developer amended the Moxy Transaction so that the Company’s contributions would become redeemable on the fifth anniversary of the Moxy Transaction. The 105-109 W. 28th Street Preferred Investment is classified as a held-to-maturity security and recorded at cost.
On August 30, 2016, the Company and the Developer amended the Moxy Transaction so that Company’s total aggregate contributions under the 105-109 W. 28th Street Preferred Investment would increase by $17.0 million to $37.0 million.
As of both SeptemberJune 30, 20172023 and December 31, 2016,2022, the 105-109 W. 28th Street Preferred Investment had an outstanding balance of $37.0 million,Company owed the Advisor and its affiliated entities $345,794 and $118,030, respectively, which is classified as an investmentincluded in related partyaccounts payable, accrued expenses and other liabilities on the consolidated balance sheets. DuringAdditionally, as December 31, 2022, the threeAdvisor and nine months ended September 30, 2017,its affiliated entities owed the Company recorded $1,134,667 and $3,367,000, respectively, and during$3,961, which was included in other assets on the three and nine months ended September 30, 2016, the Company recorded $600,366 and $1,103,133, respectively, of investment income related to the 105-109 W. 28th Street Preferred Investment. The Company’s Advisor elected to waive the acquisition fee associated with this transaction.consolidated balance sheets.
LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
Subordinated Advances – Related Party
On March 18, 2016, the Company and its Sponsor entered into a subordinated unsecured loan agreement (the “Subordinated Agreement”) with the Sponsor pursuant to which the Sponsor had committed to make a significant investment in the Companymade aggregate principal advances of up to $36.0$12.6 million which is equivalent to 12.0%through March 31, 2017 (the termination date of the $300.0 million maximum offering amount of Common Shares.Offering). The outstanding principal advances under the Subordinated Agreement (the “Subordinated Advances”) will bear interest at a rate of 1.48%, which was equal to the mid-term applicable U.S. federal rate as of March 2016. Interest will retroactively accrue on the outstanding advances under the Subordinated Agreement back to the date of each quarterly draw, but no interest or outstanding advances will beprincipal is due andor payable to the Sponsor until holders of the Company’s Common Shares have received liquidationliquidating distributions equal to their respective net investments (defined as $10.00$ per Common Share) plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investments.
Distributions in connection with a liquidation of the Company initially will be made to holders of its Common Shares until holders of its Common Shares have received liquidation distributions equal to their respective net investments plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investments. Thereafter, only if additional liquidating distributions are available, the Company will be obligated to repay the outstanding principal advances under the Subordinated Agreement and related accrued interest to the Sponsor, as described in the Subordinated Agreement. In the event that additional liquidation distributions are available after the Company repays its holders of common stockCommon Shares their respective net investments plus their 8% return on investment and then the outstanding principal advances under the Subordinated Agreement and accrued interest to itsthe Sponsor, such additional distributions will be paid to holders of its Common Shares and itsthe Sponsor: 85.0% of the aggregate amount will be payable to holders of the Company’s Common Shares and the remaining 15.0% will be payable to the Sponsor.
15
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
The Subordinated Advancesprincipal advances and itsthe related interest are subordinate to all of the Company’s obligations as well as to the holders of its Common Shares in an amount equal to the shareholder’s net investment plus a cumulative, pre-tax, non-compounded annual return of 8.0% and only potentially payable in the event of a liquidation of the Company.
As of September 30, 2017, an aggregate of approximately $12.6 million of Subordinated Advances had been funded, which along with the related accrued interest of $211,694, are classified as Subordinated Advances – Related Party, a liability on the consolidated balance sheets. During the three and nine months ended September 30, 2017, the Company accrued $47,122 and $139,831, respectively, of interest on the Subordinated Advances and during the three and nine months ended September 30, 2016, the Company accrued $21,138 and $32,787, respectively, of interest on the Subordinated Advances.
In connection with the termination of the Offering, on March 31, 2017, the Company and the Sponsor simultaneously terminated the Subordinated Agreement. As a result of the termination, the Sponsor is no longer obligated to make Subordinated Advancesany additional principal advances to the Company. Interest will continue to accrue on the aggregate Subordinated Advancesoutstanding principal advances and repayment, if any, of the Subordinated Advancesprincipal advances and related accrued interest will be made according to the terms of the Subordinated Agreement disclosed above.
As of both June 30, 2023 and December 31, 2022, an aggregate of $12.6 million of Subordinated Advances had been funded, which along with the related accrued interest of $1.3 million and $1.2 million, respectively, are classified as Subordinated Advances – Related Party, a liability on the consolidated balance sheets. During both the three and six months ended June 30, 2023 and 2022, the Company accrued $46,610 and $92,708, respectively, of interest on the principal advances.
Commitments and Contingencies |
Hotel Franchise Agreement
The Williamsburg Moxy Hotel operates pursuant to a 30-year franchise agreement (the “Hotel Franchise Agreement”) with Marriott International, Inc. (“Marriott”). The Hotel Franchise Agreement provides for the Williamsburg Moxy Hotel Joint Venture to pay franchise fees and marketing fund charges equal to certain prescribed percentages of gross room sales, as defined. Additionally, pursuant to the terms of the Hotel Franchise Agreement, the Williamsburg Moxy Hotel Joint Venture received a key money (“Key Money”) payment of $3.0 million from Marriott during the first quarter of 2023. The Key Money, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets is being amortized as a reduction to franchise fees over the term of the Hotel Franchise Agreement. As of June 30, 2023 the remaining unamortized balance of the Key Money was $3.0 million. Pursuant to the terms of the Hotel Franchise Agreement, the Williamsburg Moxy Hotel Joint Venture may be obligated to return the unamortized portion of the Key Money back to Marriott upon the occurrence of certain events. The franchise fees and marketing fund charges are recorded as a component of hotel operating expenses in the consolidated statements of operations.
Hotel Management Agreements
With respect to the Williamsburg Moxy Hotel, the Williamsburg Moxy Hotel Joint Venture has entered into a hotel management agreement, food and beverage operations management agreement and an asset management agreement (collectively, the “Hotel Management Agreements”) with various third-party management companies pursuant to which they provide oversight and management over the operation of the Williamsburg Moxy Hotel and its food and beverage venues and receive payment of certain prescribed management fees, generally based on a percentage of revenues and certain incentives for exceeding targeted earnings thresholds. The management fees are recorded as a component of hotel operating expenses on the consolidated statements of operations. The Hotel Management Agreements have initial terms ranging from five to 20 years.
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes. See Note 3 for additional information.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
16
PART I. FINANCIAL INFORMATION, CONTINUED:
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 of Lightstone Real Estate Income TrustValue Plus REIT IV, Inc. and Subsidiaries (‘‘Lightstone Income Trust’’), and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Real Estate Income TrustValue Plus REIT IV, Inc., a Maryland corporation, and its subsidiaries.
Forward-Looking Statements
Certain information includedstatements in this Quarterly Report on Form 10-Q contains,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 IV, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated net asset value per share of our common stock (“NAV per Share”), and other materials filed ormatters. 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 be filed by us with the Securities and Exchange Commission (the “SEC”), contain or will contain,identify forward-looking statements. All
These forward-looking statements other than statements ofare not historical facts including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regardingbut reflect the intent, belief or current expectations of Lightstone Real Estate Income Trust Inc. and members of our management team, as well asbased on their knowledge and understanding of the assumptions on which such statements are based,business and generally are identified byindustry, the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-lookingeconomy and other future conditions. These statements are not guarantees of future performance, and involve risks and uncertainties that actualwe caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements.
Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussedexpressed or forecasted in the forward-looking statements.
Risksstatements due to a variety of risks, uncertainties and other factors, that might cause differences, some of which could be material, include,including but are not limited to economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, our lack of operating history, the availability of cash flows from operations to pay distributions, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance, insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor and the Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to timefactors 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, recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases; | |
● | the availability of cash flow from operating activities for distributions, if required to maintain our status as a real estate investment trust, or REIT; | |
● | 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; | |
● | our ability to diversify our portfolio of assets; | |
● | changes in market factors that could impact our rental rates and operating costs; |
● | our ability to secure leases at favorable rental rates; | |
● | our ability to sell our assets at a price and on a timeline consistent with our investment objectives; | |
● | impairment charges; | |
● | unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and | |
● | factors that could affect our ability to qualify as a real estate investment trust. |
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our Registration Statements on Form S-11, as the same may be amended and supplemented from time to time, and in the Company’s other reports filed with the SEC.
We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speakmanagement’s view only as of the date they are made,of this Report, and wemay 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, over time unlessexcept as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
OverviewCautionary 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.
Business and Structure
Lightstone Value Plus REIT IV, Inc. (“Lightstone REIT IV”), which was formerly known as Lightstone Real Estate Income Trust, Inc. before September 15, 2021, is a Maryland corporation, formed on September 9, 2014, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2016.
Lightstone REIT IV, together with its subsidiaries is collectively referred to as the ‘‘Company’’“Company” and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’“we,” “our,” “us” or similar pronouns refers to Lightstone Income TrustREIT IV or the Company as required by the context in which any such pronoun is used.
Lightstone Income Trust hasWe have and expects tomay continue to seek opportunities to originate, acquireinvest in real estate and manage a diverse portfolio of real estate-related investments. The CompanyOur real estate investments may invest ininclude operating properties and development projects and its real estate-related investment may include mezzanine loans, first lien mortgage loans, second lien mortgage loans, bridge loans and preferred equity interests, in each case with a focus on development-related investments, including investments intended to finance development or redevelopment opportunities. We may also invest in debt and derivative securities related to real estate assets. We expect that a majorityA portion of our investments by value willmay be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by, the Sponsor, byThe Lightstone Group, LLC (the “Sponsor”), its affiliates or byother real estate investment programs sponsored by it.it sponsors. Although we expect that most of our investments will be of these various types, we may also make other investments. In fact, we may invest in whatever types of investments that we believe are in its best interests.
We currently have one operating segment. As of June 30, 2023, we majority owned and consolidated the operating results of Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”), a joint venture in which we have a 75% membership interest, and held an unconsolidated approximate 33.3% membership interest in 40 East End Ave. Pref Member LLC (the “40 East End Ave. Joint Venture”). We account for our unconsolidated membership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
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Capital requiredThe Williamsburg Moxy Hotel Joint Venture developed and constructed a 216-room branded hotel (the “Williamsburg Moxy Hotel”) located in the Williamsburg neighborhood of Brooklyn in New York City which opened on March 7, 2023. Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a REIT also sponsored by the Sponsor and a related party, owns the other 25% membership interest in the Williamsburg Moxy Hotel Joint Venture, which is accounted for as noncontrolling interests in our consolidated financial statements.
The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project (the “40 East End Project”) located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through June 30, 2023, 23 of the 29 units in the 40 East End Project have been sold and the 40 East End Ave. Joint Venture owns the remaining six unsold units which are referred to originateas the 40 East End Avenue Project. Various affiliated entities majority-owned and/or controlled by David Lichtenstein, who majority owns and acquire investmentscontrols the Sponsor, and conduct our operations was obtained from public offerings of shares of our common stock anda related party, owns the other approximate 66.7% membership into in the 40 East End Ave. Joint Venture.
Our advisor is expected to be obtained from any indebtedness that we may incur either in connection with the acquisition of any real estate and real estate related investments or thereafter. We were dependent upon the net proceeds from public offerings of our common stock to conduct our proposed activities.
We sold 20,000 Common Shares to Lightstone Real Estate Income LLC, a Delaware limited liability company (the ‘‘Advisor’’“Advisor”), an entitywhich is majority owned by David Lichtenstein, onLichtenstein. On September 12, 2014, the Advisor contributed $200,000 to Lightstone REIT IV in exchange for 20,000 shares of common stock (“Common Shares”), or $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of our sponsor,The Lightstone Group, LLC. The Lightstone Group, LLC served as the Sponsor during our initial public offering (the ‘‘Sponsor’’).
Our registration statement on Form S-11(the “Offering”), pursuant to which we offered to sell up to 30,000,000 shares of our common stock (which may be referred to herein as ‘‘shares of common stock’’ or as ‘‘Common Shares’’) for an initial offering price of $10.00 per share, subject to certain volume and other discounts (the “Primary Offering”) (exclusive of 10,000,000 shares available pursuant to its distribution reinvestment plan (the “DRIP”) which were offered at a discounted price equivalent to 95% of the Primary Offering price per Common Share) was declared effective by the SEC under the Securities Act of 1933 on February 26, 2015. On June 30, 2016, we adjusted our offering price to $9.14 per Common Share in our Primary offering, which was equal to our estimated net asset value (“NAV”) per Common Share as of March 31, 2016, and effective July 25, 2016, our offering price was adjusted to $10.00 per Common Share in our Primary Offering, which is equal to the estimated NAV per Common Share as of June 30, 2016. Our estimated NAV per Common Share remained unchanged at $10.00 as of both September 30, 2016 and December 31, 2016. The Offering, which terminated on March 31, 2017, raised aggregate gross proceeds of approximately $85.6 million from the sale of 8.9 million shares of our common stock (including2017. Mr. Lichtenstein also owns 222,222 Common Shares which were issued on June 15, 2015 for $2.0 million, in Common Shares at a purchase price ofor $9.00 per Common Shareshare. Subject to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor).
On April 21, 2017, the Company’soversight of our board of directors approved(the “Board of Directors”) and pursuant to the terminationterms of an advisory agreement, the DRIP effective May 15, 2017. Previously,Advisor has the Company’s stockholders had an option to elect the receipt of shares of the Company’s common stock in lieu of cash distributions under the Company’s DRIP, however, all future distributions will be in the form of cash. In addition, through May 15, 2017 (the termination date of the DRIP), we issued approximately 0.1 million shares of common stock underprimary responsibility for making investment decisions on our DRIP, representing approximately $1.2 million of additional proceeds under the Offering.behalf and managing our day-to-day operations. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT IV.
We do not have employees. We have no employees. We retainedentered into an advisory agreement with the Advisor, pursuant to managewhich the Advisor supervises and manages our affairs on a day-to-day basis. Orchard Securities, LLC (the ‘‘Dealer Manager’’) served asoperations and selects our real estate and real estate related investments, subject to oversight by our Board of Directors. We pay the dealer manager of the Offering until their termination on March 31, 2017 as a result of the termination of the Offering. The Advisor is an affiliate of the Sponsor. The Advisor will receive compensation and fees for services related to the investment, management and managementdevelopment of our assets, duringand we reimburse the Advisor for certain expenses incurred on our offering, acquisition, operational and liquidation stages.behalf.
On March 18, 2016, we and ourthe Sponsor entered into a subordinated unsecured loan agreement (the “Subordinated Agreement”) pursuant to which the Sponsor had committedmade aggregate principal advances of $12.6 million to make a significant investment in us of up to $36.0 million, which was equivalent to 12.0%through March 31, 2017 (the termination date of the $300.0 million maximum offering amount of Common Shares.Offering). The outstanding principal advances under the Subordinated Agreement (the “Subordinated Advances”) will bear interest at a rate of 1.48%, which was equal to the mid-term applicable U.S. federal rate as of March 2016. Interest will retroactively accrue on the outstanding advances under the Subordinated Agreement back to the date of each quarterly draw, but no interest or outstanding advances will beprincipal is due and payable to the Sponsor until holders of the Company’sour Common Shares have received liquidation distributions equal to their respective net investments (defined as $10.00 per Common Share) plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investments.
Distributions in connection with a liquidationThe principal advances and the related interest are subordinate to all of our obligations as well as to the Company initially will be made to holders of our Common Shares until holders of our Common Shares have received liquidation distributionsin an amount equal to their respectivethe shareholder’s net investmentsinvestment plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investments. Thereafter,and only if additional liquidating distributions are available, we will be obligated to repay the holders of common stock their respective net investments plus their 8% return on investment and then the outstanding advances under the Subordinated Agreement and accrued interest to the Sponsor, as describedpotentially payable in the Subordinated Agreement. In the unlikely event that additionalof a liquidation distributions are available after we repay the outstanding advances under the Subordinated Agreement and accrued interest to our Sponsor, such additional distributions will be paid to holders of our Common Shares and our Sponsor: 85.0% of the aggregate amount will be payable to holders of our Common Shares and the remaining 15.0% will be payable to the Sponsor.Company.
As of September 30, 2017 an aggregate of approximately $12.6 million of Subordinated Advances had been funded, which along with the related accrued interest of $211,694, is classified as Subordinated Advances – Related Party, a liability, on the consolidated balance sheets.
In connection with the termination of the Offering on March 31, 2017, we and ourthe Sponsor simultaneously terminated the Subordinated Agreement. AsAgreement and as a result, of the termination, our Sponsor is no longer obligated to make Subordinated Advancesany additional principal advances to the Company.us. Interest will continue to accrue on the aggregate Subordinated Advancesoutstanding principal advances and repayment, if any, of the Subordinated Advancesprincipal advances and related accrued interest will still be made according to the terms of the Subordinated Agreement disclosed above.
As of June 30, 2023, $13.9 million of principal advances and related accrued interest were outstanding.
Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of its stockholders. We do not intend to list our shares at this time. We do not anticipate that there would be any market for our Common Shares until they are listed for trading.
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Current EnvironmentAcquisitions and Investment Strategy
Our strategy is to originate, acquire and manage a diverse portfolio of real estate or real estate-related investments located primarily in the United States. A substantial portion of our investments currently are related-party investments located in relatively large metropolitan areas. We generally have sought to create a portfolio of investments that either generate or are expected to generate attractive cash flow for distributions. However, we have and still may target capital appreciation from our investments.
We have not established any limits on the percentage of our portfolio that may be comprised of various categories of assets which present differing levels of risk. The allocation of our assets under management is dependent, in part, upon the then-current commercial real estate market, the investment opportunities it presents and available financing, if any, as well as other micro and macro market conditions.
We have and may continue to seek opportunities to invest in real estate and real estate-related investments. Our real estate investments may include operating properties and development projects and its real estate-related investments may include mezzanine loans, mortgage loans, bridge loans and preferred equity interests, with a focus on development-related investments, including those intended to finance development or redevelopment opportunities. We may also invest in debt and derivative securities related to real estate assets. A portion of our investments may be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly, owned by, our sponsor, its affiliates or other real estate investment programs sponsored by it. Although we expect that most of our investments will be of these various types, we may make other investments. In fact, we may invest in whatever types of investments that we believe are in our best interests.
We have and may continue to focus our acquisition and origination activity on real estate properties and real estate-related investments located in the United States, including certain related-party investments generally conducted through joint venture arrangements. We sometimes refer to the foregoing types of investments as our targeted investments. We expect to target investments that generally will offer predictable current cash flow and/or attractive risk-adjusted returns based on the underwriting criteria established and employed by our advisor, which may include the anticipated leverage point, market and economic conditions, the location and quality of the underlying collateral and the borrower’s exit or refinancing plan. Our ability to continue to execute our investment strategy may be enhanced through access to the sponsor’s extensive experience in both financing and developing real estate projects as well as in buying assets in the open market from third-parties. We have and will continue to seek to build a portfolio that may include some of or all the following investment characteristics: (a) provides current income; (b) is secured by high-quality commercial real estate; (c) includes subordinate capital investments by strong sponsors that support its investments and provide downside protection; and (d) possesses strong structural features that maximize repayment potential, such as a clear exit or refinancing plan by the borrower.
We have and may also continue to seek to invest in real estate-related loans and debt securities both by directly originating them and by purchasing them from third-party sellers. Although we generally prefer the benefits of direct origination, situations may arise to purchase real estate-related loans and debt securities, possibly at discounts to par, which compensate for the lack of control or structural enhancements typically associated with directly structured investments.
Adverse Developments Affecting the Financial Services Industry and Concentration of Credit Risk
As of June 30, 2023 and December 31, 2022, we had cash deposited in certain financial institutions in excess of federally insured levels. 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. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on our operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, our ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on our business, financial condition and results of operations.
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Current Environment
Our operating results as well as our investment opportunitiesand financial condition are substantially impacted by the overall health of the North American economies. Ourlocal, 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 conditions, such asand other conditions; including, but not limited to, availability or terms of credit,financings, financial markets volatility and uncertainty as a result of recent banking failures, 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, inflation and recession.
Our business may be affected by marketoverall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges experienced by the U.S. and global economies. Theseother changes in economic conditions may materially affect the value and performance of our properties, and mayadversely affect our ability to pay distributions, the availability or the termsresults of financing that we have or may anticipate utilizing,operations and our ability to make principal and interest payments on, or refinance, any outstanding debt when due.financial performance.
We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the acquisition and operation of real estate and real estate related investments,our operations, other than those referred to inabove or throughout this Form 10-Q. The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.
Portfolio Summary
As of June 30, 2023, we majority owned and consolidated the operating results of the Williamsburg Moxy Hotel Joint Venture, a joint venture in which we have a 75% membership interest, and held an unconsolidated approximate 33.3% membership interest in the 40 East End Ave. Joint Venture. We account for our unconsolidated membership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
The Williamsburg Moxy Hotel Joint Venture developed and constructed (the Williamsburg Moxy Hotel which opened for business on March 7, 2023. Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a REIT also sponsored by the Lightstone Group, LLC (the “Sponsor “) and a related party, owns the other 25% membership interest in the Williamsburg Moxy Hotel Joint Venture, which is accounted for as noncontrolling interests in our consolidated financial statements.
Hospitality | Location | Year Built | Date Acquired/Opened | For the Period from March 7, 2023 to June 30, 2023 Available Rooms | Percentage Occupied for the Period March 7, 2023 to June 30, 2023 | Revenue per Available Room (“RevPAR”) for the Period March 7, 2023 to June 30, 2023 | Average Daily Rate (“ADR”) for the Period March 7, 2023 to June 30, 2023 | |||||||||||||||
Williamsburg Moxy Hotel | Williamsburg, New York | 2023 | 3/7/2023 | 25,056 | 78 | % | $ | 204.00 | $ | 261.04 |
The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through June 30, 2023, 23 of the 29 units in the 40 East End Project have been sold and the 40 East End Ave. Joint Venture owns the remaining six unsold units which are referred to as the 40 East End Project. Various affiliated entities majority-owned and/or controlled by David Lichtenstein, who also majority owns and controls the Sponsor, own the other approximate 66.7% membership interest in the 40 East End Ave. Joint Venture.
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Portfolio Summary –The following information generally applies to our investments in our real estate properties:
● | we believe our real estate properties are adequately covered by insurance and suitable for their intended purpose; |
● | our real estate properties are located in markets where we are subject to competition; and |
● | depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements. |
Unconsolidated Affiliated Real Estate Entity:
Multi - Family Residential | Location | Year Built | Leasable Units | Percentage Occupied as of | Annualized Revenues based | Annualized Revenues per September 30, 2017 | ||||||||||||||||||
The Cove (Multi-Family Complex) | Tiburon, California | 1967 | 281 | 90 | % | $ | 14.0 million | $ | 55,724 |
Critical Accounting Policies and Estimates
There were no material changes during the ninesix months ended SeptemberJune 30, 20172023 to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2016.2022.
Results of Operations
DuringOpening of Williamsburg Moxy Hotel
On March 7, 2023, the fourth quarterWilliamsburg Moxy Hotel Joint Venture, which we majority own and consolidate in our financial statements, substantially completed the construction and development of 2015 we made our first real estate-related investment, the 105-109 W. 28th Street Preferred Investment. Additionally, we acquired a 22.5% membership in RP Maximus Cove, L.L.C. (the “Cove Joint Venture”) on January 31, 2017 and we acquired an approximate 33.3% interest in 40 East End Ave. Pref Member LLC ( “40 East End Ave. Joint Venture”) on March 31, 2017. We account for our 22.5% interestWilliamsburg Moxy Hotel located in the Cove Joint Venture and our approximately 33.3% interest in the 40 East End Ave. Joint Venture under the equity method of accounting as of September 30, 2017. The operating results of our investments are reflected in our consolidated statements of operations commencing from their respective dates of acquisition. The Cove Joint Venture owns and operates The Cove at Tiburon (“the Cove”), a 281-unit, luxury waterfront multifamily rental property located in Tiburon, California. The 40 East End Ave. Joint Venture, through affiliates, owns a parcel of land located at the corner of 81st Street and East End Avenue in the Upper East SideWilliamsburg neighborhood of the borough of Brooklyn in New York City on whichand it is constructing a luxury residential project consistingopened for business. However, certain of 29 condominium units. Asits food and beverage venues subsequently opened during the second quarter of 2023.
Accordingly, our consolidated hotel revenues, hotel operating expenses, real estate taxes, pre-opening costs and for the threedepreciation and nine months ended September 30, 2017, the 40 East End Ave. Joint Venture was being developed and therefore had no results of operations. See Note 3 and Note 6 of the Notes to Consolidated Financial Statements for additional information on our investments.
For the Three Months Ended September 30, 2017 vs. September 30, 2016
Investment income
Investment income, which wasamortization are all attributable to the 105-109 W. 28th Street Preferred Investment,operations of the Williamsburg Moxy Hotel. Because the Williamsburg Moxy Hotel was $1,134,667under development and construction prior to its opening date, it had no operating results during all periods before March 7, 2023.
Comparison of the three months ended June 30, 2023 vs. June 30, 2022
Consolidated
During the three months ended June 30, 2023, the Williamsburg Moxy Hotel was 83% occupied and had RevPAR of $229.55 and ADR of $276.90.
Hotel revenues
Hotel revenues were $7.1 million for the three months ended SeptemberJune 30, 20172023 for the Williamsburg Moxy Hotel. Hotel revenues consisted of $4.5 million of room revenue and $2.6 million of food, beverage and other revenue.
Hotel operating expenses
Hotel operating expenses were $5.9 million for the three months ended June 30, 2023 for the Williamsburg Moxy Hotel. Hotel operating expenses consisted of $2.9 million of room-related expense and $3.0 million of food and beverage costs.
General and administrative expenses
General and administrative expenses increased by $0.3 million to $0.4 million during the three months ended June 30, 2023 compared to $600,366$0.1 million for the same period in 2016 as a result2022. The increase is primarily due to asset management fees related to the Williamsburg Moxy Hotel, commencing upon its opening.
Depreciation and amortization
Depreciation and amortization expense was $0.9 million during the three months ended June 30, 2023 for the Williamsburg Moxy Hotel.
Interest expense, net
Interest expense, net was $3.2 million and $46,610 for the three months ended June 30, 2023 and 2022, respectively. Interest expense, net is attributable to the Moxy Construction Loan and the outstanding principal advance of $12.6 million (included in Subordinated Advances – Related Party on the Consolidated Balance Sheets). The significant increase in interest expense is directly attributable to the cessation of the Company’s additional contributioncapitalization of all interest expense associated with the Moxy Construction Loan in connection with the substantial completion of the development and construction of the Williamsburg Moxy Hotel on March 7, 2023. During the 2022 period, $1.3 million of interest attributable to the105-109 W. 28th Street Preferred Investment subsequent Moxy Construction Loan was capitalized to construction in progress on the 2016 period.consolidated balance sheet because the Williamsburg Moxy Hotel was under construction.
Loss from investment in unconsolidated affiliated real estate entity
Our losslosses from investment in unconsolidated affiliated real estate entity during three months ended September 30, 2017 was $741,002. Our loss from investment in unconsolidated affiliated real estate entity isare solely attributable to our ownership interest in the Cove40 East End Ave. Joint Venture. Commencing on January 31, 2017 which wasThe losses from our investment in the date that we acquired our interest, we40 East End Ave. Joint Venture were $0.2 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively. We account for our ownership interestinvestment in the Cove40 East End Ave. Joint Venture underin accordance with the equity method of accounting.
Pre-opening costs
In connection with the opening of the Williamsburg Moxy Hotel, including its food and beverage venues, pre-opening costs of $0.5 million and $0.4 million were incurred during the three months ended June 30, 2023 and 2022, respectively. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to Lightstone REIT III’s 25% membership interest in the Williamsburg Moxy Hotel Joint Venture.
Comparison of the six months ended June 30, 2023 vs. June 30, 2022
Consolidated
During the period March 7, 2023 through June 30, 2023, the Williamsburg Moxy Hotel was 78% occupied and had RevPAR of $204.00 and ADR of $261.04.
Hotel revenues
Hotel revenues were $8.1 million for the six months ended June 30, 2023 for the Williamsburg Moxy Hotel. Hotel revenues consisted of $5.1 million of room revenue and $3.0 million of food, beverage and other revenue.
Hotel operating expenses
Hotel operating expenses were $7.2 million for the six months ended June 30, 2023 for the Williamsburg Moxy Hotel. Hotel operating expenses consisted of $3.6 million of room expense and $3.6 million of food and beverage costs.
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General and administrative expenses
General and administrative expenseexpenses increased by $180,687$0.4 million to $265,960$0.7 million during the threesix months ended SeptemberJune 30, 20172023 compared to $85,273$0.3 million for the same period in 2016.2022. The increase reflects an increase in theis primarily due to asset management fees related to our Advisorthe Williamsburg Moxy Hotel, commencing upon its opening.
Depreciation and amortization
Depreciation and amortization expense was $1.1 million during the 2017 period.six months ended June 30, 2023 for the Williamsburg Moxy Hotel.
Interest expense, net
Interest expense, which wasnet is attributable to the Moxy Construction Loan and the outstanding principal advances of $12.6 million (included in Subordinated Advances – Related Party was $47,122 foron the three months ended September 30, 2017compared to $21,138for the same periodConsolidated Balance Sheets). The significant increase in 2016 as a result of the additional advances funded by the Sponsorsubsequent to the 2016 period.
For the Nine Months Ended September 30, 2017 vs. September 30, 2016
Investment income
Investment income, which wasinterest expense is directly attributable to the 105-109 W. 28th Street Preferred Investment, was $3,367,000 forcessation of the ninecapitalization of all interest expense associated with the Moxy Construction Loan in connection with the substantial completion of the development and construction of the Williamsburg Moxy Hotel on March 7, 2023. During the 2023 (from January 1, 2023 through March 7, 2023) and during the six months ended SeptemberJune 30, 2017compared to $1,103,133 for the same period in 2016 as a result2022, $2.0 million and $2.4 million, respectively, of the Company’s additional contribution to the105-109 W. 28th Street Preferred Investment subsequentinterest attributable to the 2016 period.Moxy Construction Loan was capitalized to construction in progress on the consolidated balance sheet because the Williamsburg Moxy Hotel was under construction.
Loss from investment in unconsolidated affiliated real estate entity
Our losslosses from investment in unconsolidated affiliated real estate entity during nineare solely attributable to our ownership interest in the 40 East End Ave. Joint Venture. The losses from our investment in the 40 East End Ave. Joint Venture were $0.4 million and $0.3 million for the six months ended SeptemberJune 30, 2017 was $2,066,879. Our loss2023 and 2022, respectively. We account for our investment in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
Pre-opening costs
In connection with the opening of the Williamsburg Moxy Hotel, including its food and beverage venues, pre-opening costs of $2.2 million and $0.4 million were incurred during the six months ended June 30, 2023 and 2022, respectively. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to Lightstone REIT III’s 25% membership interest in the Williamsburg Moxy Hotel Joint Venture.
Financial Condition, Liquidity and Capital Resources
As of June 30, 2023, we had cash and cash equivalents of $6.1 million and restricted cash of $1.1 million. We currently believe that our available cash on hand, remaining availability under the Moxy Construction Loan plus cash flow generated from the Williamsburg Moxy Hotel, which opened on March 7, 2023, will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this report, which primarily consist of the remaining construction costs for the Williamsburg Moxy Hotel, anticipated operating expenses, scheduled debt service (excluding balloon payments due at maturity), and any necessary capital contributions for our investment in unconsolidated affiliated real estate entity is attributableand distributions to our ownership interest in the Cove Joint Venture. Commencing on January 31, 2017 which was the date that we acquiredshareholders, if any, required to maintain our interest, we account for our ownership interest in the Cove Joint Venture under the equity method of accounting.
General and administrative expenses
General and administrative expenses increased by $559,443 to $766,996 during the nine months ended September 30, 2017 compared to $207,553for the same period in 2016. The increase reflects an increase in the asset management fees to our Advisor and higher accounting and transfer agent fees during the 2017 period.
Interest expense
Interest expense, which was attributable to the Subordinated Advances – Related Party, was $139,831 for the nine months ended September 30, 2017compared to $32,787for the same period in 2016qualification as a result of the additional advances funded by the Sponsorsubsequent to the 2016 period.
Financial Condition, Liquidity and Capital Resources
For the nine months ended September 30, 2017 our primary source of funds were approximately $25.2 million of net proceeds from the sale of shares of common stock under our Offering and $2.8 million of cash flows from operations.
Our future sources of funds will primarily consist of cash on hand and cash flows from our operations. We currently believe that these cash resources will be sufficient to satisfy our cash requirements (primarily operating expenses and distributions)REIT for the foreseeable future, and we do not anticipate a needfuture.
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We intend to raise funds from other than these sources within the next twelve months.
We obtained the capital requiredlimit our aggregate long-term permanent borrowings to originate and acquire investments and conduct our operations from the proceeds of our Offering, and may obtain additional capital from any future offerings we may conduct, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations.
Once we have fully invested the proceeds of our Offering, our portfolio-wide loan-to-value ratio (calculated after the close75% of the Offering) is expected to be approximately 25%. For purposes of calculating our 25% target leverage, we will determine the loan-to-value ratio on our portfolio based on the greater of the aggregate cost and the fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our investments and other assets. There is no limitation on the amount westockholders. Market conditions will dictate our overall leverage limit; as such our aggregate long-term permanent borrowings may borrow for the purchasebe less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or origination of any single investment. less.
Our charter allows us to incur leverage up toprovides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of our total “net assets” (as definednet assets in our charter) asthe absence of the date of any borrowing, whicha justification showing that a higher level is generally expected to be approximately 75% of the cost of our investments. We may only exceed this 300% limit withappropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors.directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets.
Our future borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In all events,addition, we expectmay acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our secured and unsecured borrowingsproperties with non-recourse debt. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be reasonable in relationresponsible to the net valuelender for the satisfaction of the indebtedness if it is not paid by the property owning entity.
In general the type of future financing executed by us to a large extent will be dictated by the nature of the investment and current market conditions. For long-term real estate investments, it is our assetsintent to finance future acquisitions using long-term fixed rate debt. However there may be certain types of investments and market circumstances which may result in variable rate debt being the more appropriate choice of financing. To the extent floating rate debt is used to finance the purchase of real estate, management will evaluate a number of protections against significant increases in interest rates, including the purchase of interest rate cap instruments.
We may also obtain lines of credit to be used to acquire real estate and/or real estate related investments. If obtained, these lines of credit will be at prevailing market terms and will be reviewed by our board of directors at least quarterly.
On January 31, 2017, the Cove Joint Venture entered into a $175.0 million loan (the “Loan”) initially scheduled to mature on January 31, 2020 with two, one-year extension options, subject to certain conditions. The Loan requires monthly interest payments through its maturity date. The Loan bears interest at Libor plus 3.85% through its initial maturity and Libor plus 4.15% during each of the extension periods. The Loan is collateralized by The Cove and an affiliate of the Sponsor (the “Guarantor”) has guaranteed the Cove Joint Venture‘s obligation to pay the outstanding balance of the Loan up to approximately $43.8 million (the “Loan Guarantee”). The members of the Cove Joint Venture have agreed to reimburse the Guarantor for any balance that may become due under the Loan Guarantee, of which our share is up to approximately $10.9 million.
Starting in 2013, the Cove has been undergoing an extensive refurbishment which is substantially completed. The members of the Cove Joint Venture intend to use remaining proceedsrepaid from the Loan andsale or refinancing of real estate and/or real estate related investments, working capital and/or permanent financing. The Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to invest additional capital if necessarydo so. We expect that such properties may be purchased by the Sponsor’s affiliates on our behalf, in our name, in order to completeminimize the remainderimposition of the refurbishment. The Guarantor provided an additional guaranteea transfer tax upon a transfer of upsuch properties to approximately $13.4 million (the “Refurbishment Guarantee”) to provide the necessary funds to complete the remaining renovations as defined in the Loan. The members of the Cove Joint Venture have agreed to reimburse the Guarantor for any balance that may become due under the Refurbishment Guarantee, of which our share is up to approximately $3.3 million.us.
In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our Advisor. During our organization and offering stage, we made payments to the Dealer Manager for selling commissions and dealer manager fees. During this stage, we made payments to our Advisor for reimbursement of certain other organization and offering expenses.
Selling commissions and dealer manager fees were paid to the Dealer Manager or soliciting dealers, as applicable, pursuant to various agreements, and other third-party offering costs such as registration fees, due diligence fees, marketing costs, and professional fees are accounted for as a reduction against additional paid-in capital as costs are incurred. Any organizational costs are accounted for as general and administrative costs. The following table represents the selling commissions and dealer manager fees and other offering costs for the periods indicated:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Selling commissions and dealer manager fees | $ | - | $ | 2,752,667 | $ | 2,330,905 | $ | 3,444,017 | ||||||||
Other offering costs | $ | - | $ | (96,486 | ) | $ | 25,493 | $ | 650,782 |
We have agreements with the Advisor to pay certain fees, in exchange for services performed by the Advisor and/or its affiliated entities. As of June 30, 2023 and December 31, 2022, we owed the Advisor and its affiliated entities $345,794 and $118,030, respectively, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. Additionally, as of December 31, 2022, the Advisor and its affiliates owed us $3,961, which is included in other assets on the consolidated balance sheets.
The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Acquisition fees(1) | $ | - | $ | - | $ | 573,750 | $ | - | ||||||||
Asset management fees (general and administrative costs) | 156,112 | - | 417,919 | - | ||||||||||||
Total | $ | 156,112 | $ | - | $ | 991,669 | $ | - |
During our operational stage, we expect to make payments to our Advisor in connection with the selection and origination or purchase of investments and the management of our assets and to reimburse certain costs incurred by our Advisor in providing services to us. The advisory agreement has a one-year term but may be renewedand is renewable for an unlimited number of successive one-year periods upon the mutual consent of our Advisor and our independent directors. Payments to our Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. We may also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for us. Upon the liquidation of our assets, we may pay our Advisor or its affiliates a disposition commission.
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The following table represents the fees incurred associated with the payments to the Advisor for the periods indicated:
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Development fees and cost reimbursement(1) | $ | 228,432 | $ | 431,587 | $ | 514,475 | $ | 863,088 | ||||||||
Asset management fees (general and administrative costs) | 229,519 | - | 289,776 | - | ||||||||||||
Total | $ | 457,951 | $ | 431,587 | $ | 804,251 | $ | 863,088 |
(1) | Development fees and the reimbursement of development-related costs that we pay to the Advisor and its affiliates are capitalized and are included in the carrying value of the Williamsburg Moxy Hotel. |
Summary of Cash Flows
The following summary discussion of our cash flows is based on the statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
For the Nine Months Ended September 30, 2017 | For the Nine Months Ended September 30, 2016 | |||||||
Cash flows provided by operating activities | $ | 2,775,355 | $ | 856,941 | ||||
Cash flows used in investing activities | (27,537,856 | ) | (21,606,501 | ) | ||||
Cash flows provided by financing activities | 18,181,961 | 42,944,366 | ||||||
Net change in cash and cash equivalents | (6,580,540 | ) | 22,194,806 | |||||
Cash and cash equivalents, beginning of the year | 21,874,240 | 1,213,014 | ||||||
Cash and cash equivalents, end of the period | $ | 15,293,700 | $ | 23,407,820 |
For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | |||||||
Cash flows (used in)/provided by operating activities | $ | (1,244,518 | ) | $ | 47,898 | |||
Cash flows used in investing activities | (11,320,969 | ) | (23,157,260 | ) | ||||
Cash flows provided by financing activities | 10,249,636 | 21,678,762 | ||||||
Change in cash, cash equivalents and restricted cash | (2,315,851 | ) | (1,430,600 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of the year | 9,504,594 | 12,197,119 | ||||||
Cash, cash equivalents and restricted cash, end of the period | $ | 7,188,743 | $ | 10,766,519 |
Our principal sources of cash flow were derived from proceeds received from our Offering and operating cash flows provided by our investments. In the future, we expect that cash available on hand and earnings from our investments will provide us with a relatively consistent stream of cash flow to sufficiently fund our operating expenses, any scheduled debt service and any monthly distributions authorized by our Board of Directors.
Our principal demands for liquidity currently are expected to be acquisition and development activities, including contributions to our investments in unconsolidated affiliated real estate entities. The principal sources of funding for our operations are currently expected to be available cash on hand, operating cash flows and financings.
Operating activities
The net cash provided byused in operating activities of $2.8$1.2 million during the 2017 period primarily related tosix months ended June 30, 2023 consisted of our net incomeloss of $0.4$7.6 million adjusted by adding backplus the net change in assets and liabilities of $4.2 million, our loss from our investment in unconsolidated affiliated real estate entitiesentity of $2.1$0.4 million, depreciation and amortization of $1.1 million and by changes in assets and liabilitiesamortization of $0.3deferred financing costs of $0.6 million.
Investing activities
The cash used in investing activities of $27.5 million during the 2017 periodsix months ended June 30, 2023 of $11.3 million consisted primarily of investments in unconsolidated affiliated real estate entities.$11.2 million of development and construction costs associated with the Williamsburg Moxy Hotel.
Financing activities
The net cash provided by financing activities of $18.2 million during the 2017 period principally consistssix months ended June 30, 2023 of $10.2 million consisted of proceeds from the issuanceconstruction financing for the Williamsburg Moxy Hotel of our common stock$10.6 million and capital contributions made by Lightstone REIT III to the Williamsburg Moxy Hotel Joint Venture of $25.2 million;$0.6 million partially offset by the payment of selling commissions, dealer manager fees and other offering costs of approximately $2.6, distributions of $4.2 million to common stockholders and redemptions and cancellation of common stock of $0.2 million.
We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.
DRIP and Share Repurchase Program
Our DRIP provides our stockholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. The offering provided for 10.0 million shares available for issuance under our DRIP which were offered at a discounted price equivalent to 95% of our Primary Offering price per Common Share. Through May 15, 2017 (the termination date of the DRIP), 128,554 shares of common stock had been issued underof $0.9 million.
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Williamsburg Moxy Hotel
On July 17, 2019, we, through our DRIP.then wholly owned subsidiary, Bedford Avenue Holdings LLC, acquired land parcels located at 353-361 Bedford Avenue in the Williamsburg neighborhood of the borough of Brooklyn in New York City, from unaffiliated third parties, for an aggregate purchase price of $30.4 million, excluding closing and other acquisition related costs, for the development and construction of the Williamsburg Moxy Hotel. On March 7, 2023, the development and construction of the Williamsburg Moxy Hotel was substantially completed and it opened for business. However, certain of its food and beverage venues subsequently opened during the second quarter of 2023.
Williamsburg Moxy Hotel Joint Venture
On August 5, 2021, we formed the Williamsburg Moxy Hotel Joint Venture with Lightstone REIT III, pursuant to which Lightstone REIT III acquired 25% of our membership interest in Bedford Avenue Holdings LLC for aggregate consideration of $7.9 million. Subsequent to its acquisition, Lightstone REIT III has made capital contributions to the Williamsburg Moxy Hotel Joint Venture aggregating $5.3 million through June 30, 2023, including $0.6 million made during the six months ended June 30, 2023.
As a result, we and Lightstone REIT III have 75% and 25% membership interests, respectively, in the Williamsburg Moxy Hotel Joint Venture. Additionally, we are the managing member of the Williamsburg Moxy Hotel Joint Venture and Lightstone REIT III has consent rights with respect to all major decisions.
We have determined that the Williamsburg Moxy Hotel Joint Venture is a variable interest entity, or VIE, and we are the primary beneficiary. As we are the member most closely associated with the Williamsburg Moxy Hotel Joint Venture and therefore has the power to direct the activities of the Williamsburg Moxy Hotel Joint Venture that most significantly impact its performance, we have consolidated the operating results and financial condition of the Williamsburg Moxy Hotel Joint Venture and accounted for the ownership interest of Lightstone REIT III as noncontrolling interests commencing on August 5, 2021. Contributions are allocated in accordance with each investor’s ownership percentage. Earnings and cash distributions are allocated in accordance with each investor’s ownership percentage.
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer is being paid a development fee equal to 3% of hard and soft costs, as defined in the Development Agreement, incurred in connection with the development and construction of the Williamsburg Moxy Hotel (see Note 6 of the Notes to the Consolidated Financial Statements for additional information). Additionally on August 5, 2021, the Williamsburg Moxy Hotel Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. Furthermore, the Advisor and its affiliates are reimbursed for certain development-related costs attributable to the Williamsburg Moxy Hotel.
In connection with the substantial completion of the development and construction of the Williamsburg Moxy Hotel and it opening for business on March 7, 2023, substantially all of the related aggregate development costs ($119.5 million), which were previously included in construction in progress on the consolidated balance sheet, were placed in service and reclassified to land and improvements ($35.8 million), buildings and improvements ($73.7 million), and furniture and fixtures ($10.0 million) on the consolidated balance sheet.
In connection with the opening of the Williamsburg Moxy Hotel, including its food and beverage venues, the Williamsburg Moxy Hotel Joint Venture incurred pre-opening costs of $0.5 million and $2.2 million during the three and six months ended June 30, 2023, respectively, and $0.4 million during both the three and six months ended June 30, 2022. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
An adjacent land owner has filed a claim questioning the Williamsburg Moxy Hotel Joint Venture’s right to develop and construct the Williamsburg Moxy Hotel without his consent. The Williamsburg Moxy Hotel Joint Venture is currently responding to this claim and management believes it will, in due course, be recognized that the adjacent owner waived his right to object in 2017 when he signed a waiver, consent and subordination allowing the future development of the property as it exists today. While this matter is currently pending in the court system, continued use of the property will ultimately be determined by the government of New York City and management has a number of avenues that it believes are viable paths to unfettered certificates of occupancy. While any dispute has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned proceedings is remote. No provision for loss has been recorded in connection therewith. See Note 7 of the Notes to Consolidated Financial Statements for additional information.
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Moxy Construction Loan
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility for up to $77.0 million (the “Moxy Construction Loan”) to fund the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan is scheduled to initially mature on February 5, 2024, with two, six-month extension options, subject to the satisfaction of certain conditions. The Moxy Construction Loan bears interest at LIBOR plus 9.00%, subject to a 9.50% floor, with monthly interest-only payments based on a rate of 7.50% and the excess added to the outstanding loan balance due at maturity. LIBOR as of June 30, 2023 and December 31, 2022 was 5.22% and 4.39%, respectively. Additionally, the Moxy Construction Loan provides for a replacement benchmark rate based on SOFR in connection with the phase-out of LIBOR after June 30, 2023. The Moxy Construction Loan is collateralized by the Williamsburg Moxy Hotel.
As of June 30, 2023 and December 31, 2022, the outstanding principal balance of the Moxy Construction Loan was $78.4 million (including $4.0 million of interest capitalized to principal) which is presented, net of deferred financing fees of $1.0 million and $65.6 million (including $1.7 million of interest capitalized to principal) which is presented, net of deferred financing fees of $2.0 million, respectively, on the consolidated balance sheets and is classified as mortgage payable, net. As of June 30, 2023, the remaining availability under the facility was up to $2.6 million and its interest rate was 14.22%. Additionally, the Williamsburg Moxy Hotel Joint Venture was required by the lender to deposit $3.0 million of key money (the “Key Money”) received from Marriott International, Inc. (“Marriott”) during the first quarter of 2023 into an escrow account all of which was subsequently used to fund remaining construction costs for the project during the second quarter of 2023. The remaining availability under the Moxy Construction Loan may be used to fund the remaining construction costs for the project. See Note 7 of the Notes to Consolidated Financial Statements for additional information.
In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture has provided certain completion and carry cost guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture accrued $0.8 million of loan exit fees which are due at the initial maturity date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of both June 30, 2023 and December 31, 2022.
The Williamsburg Moxy Hotel Joint Venture currently intend to refinance the Moxy Construction Loan (outstanding principal balance of $78.4 million as of June 30, 2023) on or before its initial maturity date of February 5, 2024; however, there can be no assurances that it will be successful in such endeavors. If the Williamsburg Moxy Hotel Joint Venture is unable to refinance the Moxy Construction Loan on or before its initial maturity date, it will then seek to exercise the first of its two six-month extension options.
40 East End Ave. Joint Venture
On March 31, 2017, we acquired an approximate 33.3% membership interest in the 40 East End Ave. Joint Venture from SAYT Master Holdco LLL, an entity majority-owned and controlled by David Lichtenstein, who also majority owns and controls the Sponsor, a related party, for aggregate consideration of $10.3 million. The remaining approximate 66.7% of the membership interest in the 40 East End Ave. Joint Venture is owned by SAYT Master Holdco, LLC and other affiliated entities of the Sponsor.
Our ownership interest in the 40 East End Ave. Joint Venture is a non-managing interest. Because we exert significant influence over but do not control the 40 East End Ave. Joint Venture, we account for our ownership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting. All contributions to and distributions of earnings from the 40 East End Ave. Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the 40 East End Ave. Joint Venture are made to the members pursuant to the terms of its operating agreement. We commenced recording our allocated portion of earnings and cash distributions, if any, from the 40 East End Ave. Joint Venture beginning as of March 31, 2017 with respect to our membership interest of approximately 33.3% in the 40 East End Ave. Joint Venture.
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Additionally, Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a REIT also sponsored by the Sponsor, made $30.0 million of preferred equity contributions (the “Preferred Contributions”) to a subsidiary of the 40 East End Ave. Joint Venture, pursuant to an instrument that entitled Lightstone REIT I to monthly preferred distributions at a rate of 12% per annum. As of June 30, 2023, the 40 East End Ave. Joint Venture has redeemed the entire $30.0 million of Preferred Contributions (including $6.0 million redeemed during the six months ended June 30, 2023).
The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through June 30, 2023, 23 of the 29 units have been sold and the 40 East End Ave. Joint Venture owns the remaining six unsold units, which are referred to as the 40 East End Avenue Project.
Subsequent to our acquisition through June 30, 2023, we have made an aggregate of $8.6 million of capital contributions to the 40 East End Ave. Joint Venture, of which $0.2 million were made during the six months ended June 30, 2023.
Distributions on Common Shares
On March 25, 2020, the Board of Directors determined to suspend regular monthly distributions for months ending after March 2020.
Future distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, the Company’s ability to refinance near-term debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
SRP
Our share repurchase program (the “SRP”) may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stockCommon Shares back to us, subject to restrictions. From
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, our Board of Directors reopened the SRP only for redemptions submitted in connection with either ag stockholder’s death or hardship and set the price for all such purchases at our estimated net asset value per share, as determined by the Board of Directors and reported by the Company from time to time, on the date of inception through December 31, 2015, we did not receiveredemption. Additionally, beginning on January 1, 2022, any requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.
Our Board of Directors has established that on an annual basis we will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Redemption requests are expected to redeem sharesbe processed on a quarterly basis and may be subject to pro ration if either type of our common stock under our share repurchase program. redemption requests exceed the annual limitation.
For the yearsix months ended December 31, 2016June 30, 2023, we repurchased 18,798 shares of common stock pursuant to our share repurchase program90,919 Common Shares at ana weighted average price per share of $9.75$9.49 per share. For the ninesix months ended SeptemberJune 30, 2017,2022, we repurchased 20,236 shares of common stock pursuant to our share repurchase program73,270 Common Shares at ana weighted average price per share of $9.71$8.55 per share. We funded share repurchases for the periods noted above from the cumulative proceeds of the sale of our shares pursuant to our DRIP.
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On April 21, 2017, the Board of Directors approved the termination of our DRIP effective May 15, 2017. All future distributions will be in the form of cash.
Our Board of Directors reserves the right to terminate our share repurchase program without cause by providing written notice of termination of the share repurchase program to all stockholders.
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards set forth in the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the "IPA"), 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 andacquisition 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.Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.
MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.
We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 80,583 | $ | 493,955 | $ | 393,294 | $ | 862,793 | ||||||||
FFO adjustments: | ||||||||||||||||
Adjustments to equity earnings from unconsolidated affiliated real estate entities, net | 715,911 | - | 1,907,349 | - | ||||||||||||
FFO | 796,494 | 493,955 | 2,300,643 | 862,793 | ||||||||||||
MFFO adjustments: | ||||||||||||||||
Other adjustments: | ||||||||||||||||
Acquisition and other transaction related costs expensed | - | - | - | 4,000 | ||||||||||||
MFFO | 796,494 | 493,955 | 2,300,643 | 866,793 | ||||||||||||
Straight-line rent(1) | - | - | - | - | ||||||||||||
MFFO - IPA recommended format | $ | 796,494 | $ | 493,955 | $ | 2,300,643 | $ | 866,793 | ||||||||
Net income | $ | 80,583 | $ | 493,955 | $ | 393,294 | $ | 862,793 | ||||||||
Less: net income attributable to noncontrolling interests | - | - | - | - | ||||||||||||
Net income applicable to Company's common shares | $ | 80,583 | $ | 493,955 | $ | 393,294 | $ | 862,793 | ||||||||
Net loss per common share, basic and diluted | $ | 0.01 | $ | 0.13 | $ | 0.05 | $ | 0.43 | ||||||||
FFO | $ | 796,494 | $ | 493,955 | $ | 2,300,643 | $ | 862,793 | ||||||||
Less: FFO attributable to noncontrolling interests | - | - | - | - | ||||||||||||
FFO attributable to Company's common shares | $ | 796,494 | $ | 493,955 | $ | 2,300,643 | $ | 862,793 | ||||||||
FFO per common share, basic and diluted | $ | 0.09 | $ | 0.13 | $ | 0.27 | $ | 0.43 | ||||||||
MFFO - IPA recommended format | $ | 796,494 | $ | 493,955 | $ | 2,300,643 | $ | 866,793 | ||||||||
Less: MFFO attributable to noncontrolling interests | - | - | - | - | ||||||||||||
MFFO attributable to Company's common shares | $ | 796,494 | $ | 493,955 | $ | 2,300,643 | $ | 866,793 | ||||||||
Weighted average number of common shares outstanding, basic and diluted | 8,955,440 | 3,730,626 | 8,451,031 | 2,009,286 |
Distributions Declared by our Board of Directors and Source of Distributions
The following table provides a summary of our quarterly distributions declared during the periods presented. The amount of distributions paid to our stockholders in the future will be determined by our Board of Directors and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code. Additionally, our stockholders had the option to elect the receipt of shares in lieu of cash under our DRIP until it was terminated effective May 15, 2017.
Year to Date September 30, 2017 | Three Months Ended September 30, 2017 | Three Months Ended June 30, 2017 | Three Months Ended March 31, 2017 | |||||||||||||||||||||||||||||
Distribution period: | Percentage of Distributions | Q3 2017 | Percentage of Distributions | Q2 2017 | Percentage of Distributions | Q1 2017 | Percentage of Distributions | |||||||||||||||||||||||||
Date distribution declared | May 12, 2017 | March 27, 2017 | November 14, 2016 | |||||||||||||||||||||||||||||
Date distribution paid | August 15, 2017, September 15, 2017, & October 16, 2017 | May 15, 2017, June 15, 2017, & July 14, 2017 | February 15, 2017, March 15, 2017, & April 17, 2017 | |||||||||||||||||||||||||||||
Distributions paid | $ | 4,530,564 | $ | 1,801,111 | $ | 1,782,830 | $ | 946,623 | ||||||||||||||||||||||||
Distributions reinvested | 513,325 | - | 98 | 513,227 | ||||||||||||||||||||||||||||
Total Distributions | $ | 5,043,889 | $ | 1,801,111 | $ | 1,782,928 | $ | 1,459,850 | ||||||||||||||||||||||||
Source of distributions: | ||||||||||||||||||||||||||||||||
Cash flows provided by operations | $ | 2,775,355 | 55 | % | $ | 853,784 | 47 | % | $ | 725,411 | 41 | % | $ | 946,623 | 65 | % | ||||||||||||||||
Offering proceeds | 1,755,209 | 35 | % | 947,327 | 53 | % | 1,057,419 | 59 | % | - | 0 | % | ||||||||||||||||||||
Proceeds from issuance of common stock through DRIP | 513,325 | 10 | % | - | 0 | % | 98 | 0 | % | 513,227 | 35 | % | ||||||||||||||||||||
Total Sources | $ | 5,043,889 | 100 | % | $ | 1,801,111 | 100 | % | $ | 1,782,928 | 100 | % | $ | 1,459,850 | 100 | % | ||||||||||||||||
Cash flows provided by operations (GAAP basis) | $ | 2,775,355 | $ | 853,784 | $ | 725,412 | $ | 1,196,159 | ||||||||||||||||||||||||
Number of shares of common stock issued pursuant to the Company's DRIP | 54,034 | - | 10 | 54,024 |
Year to Date September 30, 2016 | Three Months Ended September 30, 2016 | Three Months Ended June 30, 2016 | Three Months Ended March 31, 2016 | |||||||||||||||||||||||||||||
Distribution period: | Percentage of Distributions | Q3 2016 | Percentage of Distributions | Q2 2016 | Percentage of Distributions | Q1 2016 | Percentage of Distributions | |||||||||||||||||||||||||
Date distribution declared | August 5, 2016 | May 12, 2016 | October 28, 2015, March 11, 2016 | |||||||||||||||||||||||||||||
Date distribution paid | August 15, 2016 September 15, 2015 October 14, 2016 | May 14, 2016, June 15, 2016, & July 15, 2016 | February 16, 2016, March 15, 2016, & April 15, 2016 | |||||||||||||||||||||||||||||
Distributions paid | $ | 889,647 | $ | 507,217 | $ | 250,216 | $ | 132,214 | ||||||||||||||||||||||||
Distributions reinvested | 305,089 | 241,022 | 27,019 | 37,048 | ||||||||||||||||||||||||||||
Total Distributions | $ | 1,194,736 | $ | 748,239 | $ | 277,235 | $ | 169,262 | ||||||||||||||||||||||||
Source of distributions: | ||||||||||||||||||||||||||||||||
Cash flows provided by operations | $ | 856,941 | 72 | % | $ | 507,217 | 68 | % | $ | 250,216 | 90 | % | $ | 65,948 | 39 | % | ||||||||||||||||
Offering proceeds | 32,706 | 3 | % | - | - | - | - | 66,266 | 39 | % | ||||||||||||||||||||||
Proceeds from issuance of common stock through DRIP | 305,089 | 25 | % | 241,022 | 32 | % | 27,019 | 10 | % | 37,048 | 22 | % | ||||||||||||||||||||
Total Sources | $ | 1,194,736 | 100 | % | $ | 748,239 | 100 | % | $ | 277,235 | 100 | % | $ | 169,262 | 100 | % | ||||||||||||||||
Cash flows provided by operations (GAAP basis) | $ | 856,941 | $ | 515,675 | $ | 275,318 | $ | 65,948 | ||||||||||||||||||||||||
Number of shares of common stock issued pursuant to the Company's DRIP | 32,384 | 25,371 | 3,113 | 3,900 |
The table below presents our cumulative FFO and distributions declared:
For the period September 9, 2014 | ||||
(date of inception) through | ||||
September 30, 2017 | ||||
FFO | $ | 3,724,817 | ||
Distributions declared | $ | 7,537,209 |
New Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been issued or adopted during 2017 and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or rates. Our interest rate risk management objectives with respect to our long-term debt will be to limit the impact of interest rate changes in earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars, and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We would not hold or issue these derivative contracts for trading or speculative purposes. We do not anticipate having any foreign operations and thus we do not expect to be exposed to foreign currency fluctuations.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, management, including our chief executive officer and chiefprincipal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and chiefprincipal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
There have been no changes in our 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. There were no material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.
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From time to time in the ordinary course of business, the Companywe may become subject to legal proceedings, claims or disputes. See Note 3 of the Notes to Consolidated Financial Statements for additional information.
As of the date hereof, the Company iswe are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on itsour results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company haswe have not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the period covered by this Form 10-Q, we did not sell any unregistered securities.
Use of Public Offering Proceeds
The Company’s sponsor is David Lichtenstein (“Lichtenstein”), who does business as The Lightstone Group, LLC (the “Sponsor”) and is the majority owner of the limited liability company of that name. The Company’s advisor is Lightstone Real Estate Income LLC (the “Advisor”), which is wholly owned by our Sponsor.
On September 12, 2014, the Company sold 20,000 Common Shares to the Advisor for $10.00 per share.
The Company’s registration statement on Form S-11 (the “Offering”), pursuant to which it offered to sell up to 30,000,000 shares of its common stock, par value $0.01 per share (which may be referred to herein as ‘‘shares of common stock’’ or as ‘‘Common Shares’’) for an initial offering price of $10.00 per share, subject to certain volume and other discounts (the “Primary Offering”) (exclusive of 10,000,000 shares available pursuant to its distribution reinvestment program (the ‘‘DRIP’’) which were offered at a discounted price equivalent to 95% of the Primary Offering Price per Common Share) was declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 on February 26, 2015. On June 30, 2016, the Company adjusted its offering price to $9.14 per Common Share in its Primary Offering, which was equal to the Company’s estimated net asset value (“NAV”) per Common Share as of March 31, 2016, and effective July 25, 2016, the Company’s offering price was adjusted to $10.00 per Common Share in its Primary Offering, which is equal to the estimated NAV per Common Share as of June 30, 2016. Our estimated NAV per Common Share remained unchanged at $10.00 as of both September 30, 2016 and December 31, 2016.
The Offering, which terminated on March 31, 2017, raised aggregate gross proceeds of approximately $85.6 million from the sale of approximately 8.9 million shares of common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor). After including the purchase of aggregate advances from our Sponsor of $12.6 million under the Subordinated Agreement and allowing for the payment of approximately $7.6 million in selling commissions and dealer manager fees and $3.2 million in organization and offering expenses, the Offering generated aggregate net proceeds of approximately $87.5 million. In addition, the Company had issued approximately 0.1 million shares of common stock under its DRIP, representing approximately $1.2 million of additional proceeds under the Offering. The DRIP was terminated effective May 15, 2017.
On March 18, 2016, the Company and its Sponsor entered into a subordinated unsecured loan agreement (the “Subordinated Agreement”) pursuant to which the Sponsor had committed to make a significant investment in the Company of up to $36.0 million, which is equivalent to 12.0% of the $300.0 million maximum offering amount of Common Shares.
As of September 30, 2017 an aggregate of approximately $12.6 million of Subordinated Advances had been funded, which along with the related accrued interest of $211,694, are classified as Subordinated Advances – Related Party, a liability, on the consolidated balance sheets.
In connection with the termination of the Offering, on March 31, 2017, the Company and the Sponsor terminated the Subordinated Agreement. As a result of the termination, the Sponsor is no longer obligated to make Subordinated Advances to the Company. Interest will continue to accrue on the aggregate Subordinated Advances and repayment, if any, of the Subordinated Advances and accrued interest will be made according to the terms of the Subordinated Agreement disclosed above.
Below is a summary of the expenses we have incurred in connection with the issuance and distribution of the registered securities since inception:
Type of Expense Amount | ||||
Selling commissions and dealer manager fees | $ | 7,557,885 | ||
Other expenses incurred | 3,180,431 | |||
Total offering costs incurred from inception through March 31, 2017 | $ | 10,738,316 |
Cumulatively through the termination of our Offering on March 31, 2017, we have used the net offering proceeds of $87.5 million (including aggregate advances from our Sponsor of $12.6 million under the Subordinated Agreement), after deduction of offering expenses paid since inception of $10.7 million, as follows:
Cash | $ | 13,874,295 | ||
Cash distributions not funded by operations | 2,392,865 | |||
Investment in related party | 37,000,000 | |||
Real Estate Investments | 33,225,106 | |||
Other uses (primarily timing of payables) | 977,158 | |||
Total uses | $ | 87,469,424 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
None.
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Exhibit Number | Description | |
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.” | |
101* | XBRL (eXtensible Business Reporting Language).The following financial information from Lightstone |
*Filed herewith
Filed herewith |
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SIGNATURES
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 | ||
Date: | By: | /s/ David Lichtenstein |
David Lichtenstein | ||
Chairman and Chief Executive Officer (Principal Executive Officer) |
Date: | By: | /s/ |
Seth Molod | ||
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
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