UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended SeptemberJune 30, 20172019

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to

 

Commission file number 000-52610

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland20-1237795

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

1985 Cedar Bridge Avenue, Suite 1 
Lakewood, New Jersey08701
(Address of Principal Executive Offices)(Zip Code)

 

(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. 

Yes   þ     No    ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þ     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   þ Smaller reporting company  ¨þ
  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 10, 2019, there were approximately 24.923.1 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust, Inc., including shares issued pursuant to the dividend reinvestment plan.  

 

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

 

INDEX

 

  Page
PART IFINANCIAL INFORMATION 
   
Item 1.Financial Statements (unaudited) 
   
 Consolidated Balance Sheets as of SeptemberJune 30, 2017 (unaudited)2019 and December 31, 201620183
   
 Consolidated Statements of Operations (unaudited) for the Three and NineSix Months Ended SeptemberJune 30, 20172019 and 201620184
   
 Consolidated Statements of Comprehensive Income/Loss (unaudited)(Loss)/Income for the Three and NineSix Months Ended SeptemberJune 30, 20172019 and 201620185
   
 Consolidated Statement of Stockholders’ Equity (unaudited) for the NineThree and Six Months Ended SeptemberJune 30, 20172019 and 20186
   
 Consolidated Statements of Cash Flows (unaudited) for the NineSix Months Ended SeptemberJune 30, 20172019 and 201620187
   
 Notes to Consolidated Financial Statements8
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations19
Item 3.Quantitative and Qualitative Disclosures About Market Risk3523
   
Item 4.Controls and Procedures3536
   
PART IIOTHER INFORMATION 
   
Item 1.Legal Proceedings36
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds36
   
Item 3.Defaults Upon Senior Securities3637
   
Item 4.Mine Safety Disclosures3637
   
Item 5.Other Information3637
   
Item 6.Exhibits3637

 

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)


 

As of

September 30, 2017

 

As of

December 31, 2016

  As of
 June 30, 2019		  As of
 December 31, 2018		 
 (Unaudited)     (unaudited)    
Assets                
Investment property:                
Land and improvements $49,667  $60,485  $36,687  $36,786 
Building and improvements  162,689   203,054   117,178   117,852 
Furniture and fixtures  2,118   17,613   2,317   2,265 
Construction in progress  979   962   142,263   63,519 
        
Gross investment property  215,453   282,114   298,445   220,422 
Less accumulated depreciation  (36,377)  (49,773)  (31,590)  (30,028)
Net investment property  179,076   232,341   266,855   190,394 
Investment in related parties  153,936   142,752 
Investments in related parties  77,223   102,008 
Cash and cash equivalents  127,381   105,539   43,558   35,565 
Marketable securities, available for sale  53,851   52,495 
Restricted escrows  4,362   2,818 
Tenant and other accounts receivable  1,083   1,875 
Mortgage receivable  -   4,893 
Intangible assets, net  376   693 
Marketable securities and other investments  58,869   106,949 
Restricted cash  2,401   1,017 
Notes receivable, net  23,746   - 
Prepaid expenses and other assets  2,958   3,889   3,011   3,050 
Assets held for disposition  -   37,226 
Total Assets $523,023  $547,295  $475,663  $476,209 
                
Liabilities and Stockholders' Equity                
Mortgages payable, net $157,879  $183,313  $151,902  $118,401 
Notes payable, net  18,598   18,586 
Accounts payable, accrued expenses and other liabilities  21,653   18,827   3,362   3,024 
Due to related parties  553   573   271   432 
Tenant allowances and deposits payable  1,009   1,429   703   611 
Distributions payable  4,396   4,432   4,027   4,134 
Deferred rental income  685   1,105   714   662 
Acquired below market lease intangibles, net  340   446 
Liabilities held for disposition  -   50,704 
Total Liabilities  205,113   228,711   160,979   177,968 
                
Commitments and contingencies                
                
Stockholders' equity:                
Company's Stockholders Equity:                
Preferred shares, $0.01 par value, 10,000 shares authorized, none issued and outstanding  -   - 
Common stock, $0.01 par value; 60,000 shares authorized, 24,896 and 25,101 shares issued and outstanding, respectively  249   251 
Preferred shares, $0.01 par value, 10.0 million shares authorized, none issued and outstanding  -   - 
Common stock, $0.01 par value; 60.0 million shares authorized, 23.1 million and 23.7 million shares issued and outstanding, respectively  231   237 
Additional paid-in-capital  194,986   197,036   177,559   184,469 
Accumulated other comprehensive income  13,571   15,954 
Accumulated other comprehensive loss  (169)  (2,251)
Accumulated surplus  90,302   84,240   111,215   101,382 
        
Total Company's stockholders' equity  299,108   297,481   288,836   283,837 
  -   -         
Noncontrolling interests  18,802   21,103   25,848   14,404 
                
Total Stockholders' Equity  317,910   318,584   314,684   298,241 
                
Total Liabilities and Stockholders' Equity $523,023  $547,295  $475,663  $476,209 

 

The accompanying notes are an integral part of these consolidated financial statements.

 3 

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 

 Three Months Ended September 30,  Nine Months Ended September 30, 
 2017  2016  2017  2016  For the Three Months Ended June 30,  For the Six Months Ended June 30, 
          2019  2018  2019  2018 
Revenues:                                
Rental income $8,085  $9,391  $24,705  $28,559  $3,662  $3,617  $7,263  $7,268 
Tenant recovery income  738   930   2,553   3,122   234   357   667   749 
Other service income  2,069   2,739   7,834   8,489 
                
Total revenues  10,892   13,060   35,092   40,170   3,896   3,974   7,930   8,017 
                
Expenses:                                
Property operating expenses  5,652   6,784   18,513   20,880   1,102   1,202   2,263   2,431 
Real estate taxes  602   673   1,951   2,387   451   279   735   559 
General and administrative costs  2,174   1,042   4,615   3,680   760   1,050   1,589   2,216 
Depreciation and amortization  2,738   2,705   8,252   8,595   1,302   1,376   2,581   2,687 
Total operating expenses  3,615   3,907   7,168   7,893 
Operating income  281   67   762   124 
                                
Total operating expenses  11,166   11,204   33,331   35,542 
                
Operating (loss)/income  (274)  1,856   1,761   4,628 
                
Other (expense)/income, net  (69)  6   (75)  142 
Mark to market adjustment on derivative financial instruments  26   130   83   (282)
Other income/(loss), net  157   (33)  113   76 
Interest and dividend income  5,635   4,646   15,432   14,764   3,833   4,555   7,735   9,732 
Interest expense  (3,581)  (3,065)  (10,776)  (10,128)  (288)  (1,489)  (687)  (3,086)
Unrealized (loss)/gain on marketable equity securities  (4,782)  3,467   (1,665)  (340)
Loss on sale and redemption of marketable securities  (18)  (15)  (67)  (952)  (314)  (75)  (625)  (78)
Gain on satisfaction of mortgage receivable  -   -   3,216   - 
Gain on disposition of real estate  10,483   3,799   10,483   23,705 
Net (loss)/income from continuing operations  (1,113)  6,492   5,633   6,428 
                                
Net income  12,202   7,357   20,057   31,877 
Net income from discontinued operations  -   6,421   13,481   5,690 
Net (loss)/income  (1,113)  12,913   19,114   12,118 
                                
Less: net income attributable to noncontrolling interests  (392)  (310)  (915)  (1,166)  (305)  (753)  (1,159)  (643)
Net (loss)/income attributable to Company's common shares $(1,418) $12,160  $17,955  $11,475 
                                
Net income attributable to Company's common shares $11,810  $7,047  $19,142  $30,711 
Net income per Company’s common share, basic and diluted $0.47  $0.28  $0.77  $1.21 
Basic and diluted net (loss)/income per Company's common share:                
Continuing operations $(0.07) $0.23  $0.18  $0.23 
Discontinued operations  -   0.26   0.58   0.23 
Net (loss)/income per Company’s common share, basic and diluted $(0.07) $0.49  $0.76  $0.46 
                                
Weighted average number of common shares outstanding, basic and diluted  24,931   25,379   24,993   25,479   23,174   24,650   23,324   24,715 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 4 

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(Amounts in thousands)

(Unaudited)

  For the Three Months Ended September 30,  For the Nine Months Ended September 30, 
  2017  2016  2017  2016 
             
Net income $12,202  $7,357  $20,057  $31,877 
                 
Other comprehensive income                
Holding (loss)/gain on available for sale securities  (48)  (1,979)  (2,789)  2,713 
Reclassification adjustment for loss included in net income  18   15   67   952 
                 
Other comprehensive (loss)/income  (30)  (1,964)  (2,722)  3,665 
                 
Comprehensive income  12,172   5,393   17,335   35,542 
                 
Less: Comprehensive income attributable to noncontrolling interests  (379)  (933)  (576)  (1,452)
                 
Comprehensive income attributable to Company's common shares $11,793  $4,460  $16,759  $34,090 

The accompanying notes are an integral part of these consolidated financial statements.

5

PART I. FINANCIAL INFORMATION, CONTINUED:  

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITYCOMPREHENSIVE (LOSS)/INCOME

(Amounts in thousands)

(Unaudited)

 

  Common  

Additional

Paid-In

  

Accumulated

Other

Comprehensive

  Accumulated  Noncontrolling  Total Stockholders' 
  Shares  Amount  Capital  Income  Surplus  Interests  Equity 
BALANCE, December 31, 2016  25,101  $251  $197,036  $15,954  $84,240  $21,103  $318,584 
                             
Net income  -   -   -   -   19,142   915   20,057 
Other comprehensive losss  -   -   -   (2,383)  -   (339)  (2,722)
Distributions declared  -   -   -   -   (13,080)  -   (13,080)
Distributions paid to noncontrolling interests  -   -   -   -   -   (2,885)  (2,885)
Contributions received from noncontrolling interests  -   -   -   -   -   8   8 
Redemption and cancellation of shares  (205)  (2)  (2,050)  -   -   -   (2,052)
BALANCE, September 30, 2017  24,896  $249  $194,986  $13,571  $90,302  $18,802  $317,910 
  For the Three Months Ended June 30,  For the Six Months Ended June 30, 
  2019  2018  2019  2018 
             
Net (loss)/income $(1,113) $12,913  $19,114  $12,118 
                 
Other comprehensive income/(loss)                
Holding gain/(loss) on available for sale debt securities  141   (465)  1,501   (1,497)
Reclassification adjustment for loss included in net income  314   75   625   78 
                 
Other comprehensive income/(loss)  455   (390)  2,126   (1,419)
                 
Comprehensive income/(loss)  (658)  12,523   21,240   10,699 
                 
Less: Comprehensive (income)/loss attributable to noncontrolling interests  (314)  (746)  (1,203)  (615)
                 
Comprehensive (loss)/income attributable to Company's common shares $(972) $11,777  $20,037  $10,084 

 

The accompanying notes are an integral part of these consolidated financial statements.

5

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)

  Common  Additional
Paid-In		  Accumulated
Other
Comprehensive		  Accumulated  Noncontrolling  Total Stockholders' 
  Shares  Amount  Capital  Income/(loss)  Surplus  Interests  Equity 
BALANCE, March 31, 2018  24,722  $247  $193,245  $(1,018) $97,477  $17,240  $307,191 
Net income  -   -   -   -   12,160   753   12,913 
Other comprehensive loss  -   -   -   (382)  -   (8)  (390)
Distributions declared (a)  -   -   -   -   (4,299)  -   (4,299)
Distributions paid to noncontrolling interests  -   -   -   -   -   (820)  (820)
Contributions received from noncontrolling interests  -   -   -   -   -   3   3 
Redemption and cancellation of shares  (111)  (1)  (1,103)  -   -   -   (1,104)
BALANCE, June 30, 2018  24,611  $246  $192,142  $(1,400) $105,338  $17,168  $313,494 
                             
(a) Distributions per share were $0.175.             
                             
  Common  Additional
Paid-In		  Accumulated
Other
Comprehensive		  Accumulated  Noncontrolling  Total Stockholders' 
  Shares  Amount  Capital  Income/(loss)  Surplus  Interests  Equity 
BALANCE, December 31, 2017  24,847  $248  $194,497  $15,467  $86,956  $18,202  $315,370 
Reclassification of other accumulated comprehensive income to accumulated surplus  -   -   -   (15,476)  15,476   -   - 
Net income  -   -   -   -   11,475   643   12,118 
Other comprehensive loss  -   -   -   (1,391)  -   (28)  (1,419)
Distributions declared (a)  -   -   -   -   (8,569)  -   (8,569)
Distributions paid to noncontrolling interests  -   -   -   -   -   (1,653)  (1,653)
Contributions received from noncontrolling interests  -   -   -   -   -   4   4 
Redemption and cancellation of shares  (236)  (2)  (2,355)  -   -   -   (2,357)
BALANCE, June 30, 2018  24,611  $246  $192,142  $(1,400) $105,338  $17,168  $313,494 
                             
(a) Distributions per share were $0.350.             
                             
  Common  Additional
Paid-In		   Accumulated
Other
Comprehensive		  Accumulated  Noncontrolling  Total Stockholders' 
  Shares  Amount   Capital   Income/(loss)  Surplus  Interests  Equity 
BALANCE, March 31, 2019  23,407  $235  $181,196  $(615) $116,659  $20,852  $318,327 
Net loss  -   -   -   -   (1,418)  305   (1,113)
Other comprehensive income  -   -   -   446   -   9   455 
Distributions declared (a)  -   -   -   -   (4,026)  -   (4,026)
Distributions paid to noncontrolling interests  -   -   -   -   -   (880)  (880)
Contributions received from noncontrolling interests  -   -   -   -   -   5,562   5,562 
Redemption, cancellation and tender of shares  (361)  (4)  (3,711)              (3,715)
Shares issued from distribution reinvestment program  6   -   74   -   -   -   74 
BALANCE, June 30, 2019  23,052  $231  $177,559  $(169) $111,215  $25,848  $314,684 
                             
(a) Distributions per share were $0.175.             
                             
  Common  Additional
Paid-In		  Accumulated
Other
Comprehensive		  Accumulated  Noncontrolling  Total Stockholders' 
  Shares  Amount  Capital  Income/(loss)  Surplus  Interests  Equity 
BALANCE, December 31, 2018  23,708  $237  $184,469  $(2,251) $101,382  $14,404  $298,241 
Net income  -   -   -   -   17,955   1,159   19,114 
Other comprehensive income  -   -   -   2,082   -   44   2,126 
Distributions declared (a)  -   -   -   -   (8,122)  -   (8,122)
Distributions paid to noncontrolling interests  -   -   -   -   -   (1,711)  (1,711)
Contributions received from noncontrolling interests  -   - �� -   -   -   11,952   11,952 
Redemption, cancellation and tender of shares  (667)  (7)  (7,036)              (7,043)
Shares issued from distribution reinvestment program  11   1   126   -   -   -   127 
BALANCE, June 30, 2019  23,052  $231  $177,559  $(169) $111,215  $25,848  $314,684 
                             
(a) Distributions per share were $0.350.             

 

The accompanying notes are an integral part of these consolidated financial statements.

 6 

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)(Unaudited)

 

  For the Nine Months Ended September 30, 
  2017  2016 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income $20,057  $31,877 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  8,252   8,595 
Mark to market adjustment on derivative financial instruments  (83)  282 
Loss on sale of marketable securities, available for sale  67   952 
Gain on disposition of real estate  (10,483)  (23,705)
Gain on satisfaction of mortgage receivable  (3,216)  - 
Other non-cash adjustments  568   427 
Changes in assets and liabilities:        
(Decrease)/increase in prepaid expenses and other assets  (339)  97 
Increase/(decrease) in tenant and other accounts receivable  426   (122)
Decrease in tenant allowances and deposits payable  (287)  (634)
Increase in accounts payable,  accrued expenses and other liabilities  3,676   2,053 
(Decrease)/increase in due to related parties  (20)  679 
Decrease in deferred rental income  (127)  (30)
Net cash provided by operating activities  18,491   20,471 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of investment property, net  (2,290)  (2,557)
Contributions in preferred investments in related parties  (13,739)  (51,032)
Proceeds from preferred investments in related parties  2,300   42,237 
Investment in joint venture  255   (17)
Collections on mortgage receivable  8,109   110 
Purchase of marketable securities  (5,081)  - 
Proceeds from sale and redemption of marketable securities  936   28,395 
Distributions from investment in unconsolidated affiliated real estate entity  -   1,989 
Proceeds from sale of investment property and other real estate assets  32,651   60,691 
(Funding)/refund of restricted escrows  (1,439)  5,436 
Net cash provided by investing activities  21,702   85,252 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from mortgage financing  -   20,400 
Mortgage payments  (306)  (62,937)
Payment of loan fees and expenses  -   (733)
Redemption and cancellation of common stock  (2,052)  (3,179)
Contributions received from noncontrolling interests  8   6 
Distributions paid to noncontrolling interests  (2,885)  (9,861)
Distributions paid to Company's common stockholders  (13,116)  (13,426)
Net cash used in financing activities  (18,351)  (69,730)
         
Net change in cash and cash equivalents  21,842   35,993 
Cash and cash equivalents, beginning of year  105,539   68,459 
Cash and cash equivalents, end of period $127,381  $104,452 
         
Supplemental cash flow information for the periods indicated is as follows:        
         
Cash paid for interest $5,694  $6,192 
Distributions declared but not paid $4,396  $4,471 
Non cash purchase of investment property $336  $16 
Assets transferred due to foreclosure $27,028  $- 
Liabilities extinguished in foreclosure $(27,028) $- 
  For the Six Months Ended June 30, 
  2019  2018 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income $19,114  $12,118 
Less net income – discontinued operations  13,481   5,690 
Net income – continuing operations  5,633   6,428 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  2,581   2,687 
Mark to market adjustment on derivative financial instruments  135   (151)
Unrealized loss on marketable equity securities, available for sale  1,665   340 
Loss on sale and redemption of marketable securities, available for sale  625   78 
Amortization of deferred financing costs  652   338 
Noncash interest income  (747)  (70)
Other non-cash adjustments  351  - 
Changes in assets and liabilities:        
Decrease/(increase) in prepaid expenses and other assets Increase in prepaid expenses and other assets  (321)  (607)
Increase in tenant allowance and security deposits payable Increase in tenant allowances and deposits payable  92   18 
Increase in accounts payable and accrued expenses Increase/(decrease) in accounts payable,  accrued expenses and other liabilities  380   (1,328)
(Decrease)/increase in due to Sponsor Decrease in due to related parties  (161)  (75)
Increase in deferred rental income (Decrease)/increase in deferred rental income  (42)  52 
Net cash provided by operating activities – continuing operations  10,843   7,710 
Net cash (used in)/provided by operating activities – discontinued operations  (55)  1,568 
Net cash provided by operating activities  10,788   9,278 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of investment property  (78,879)  (431)
Purchase of marketable securities  (6,450)  (71,375)
Proceeds from sale of marketable securities  54,429   8,951 
Investment in joint venture  (57)  (649)
Proceeds from joint venture  109   713 
Funding of notes receivable  (22,999)  - 
Proceeds from investments in related parties  27,000   60,000 
Investments in related parties  (2,267)  (12,795)
         
Net cash used in investing activities – continuing operations  (29,114)  (15,586)
Net cash used in investing activities – discontinued operations  (239)  (374)
Net cash used in investing activities  (29,353)  (15,960)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from mortgage financing  36,109   - 
Mortgage principal payments  (808)  (21,182)
Payment of loan fees and expenses  (2,453)  - 
Redemption and cancellation of common shares  (7,043)  (2,357)
Contributions received from noncontrolling interests  11,952   4 
Distributions paid to noncontrolling interests  (1,711)  (1,653)
Distributions paid to Company's common stockholders  (8,104)  (8,658)
         
Net cash provided by/(used in) financing activities  27,942   (33,846)
         
Net change in cash, cash equivalents and restricted cash  9,377   (40,528)
Cash, cash equivalents and restricted cash, beginning of year  36,582   119,219 
Cash, cash equivalents and restricted cash, end of period $45,959  $78,691 
         
See Note 2 for supplemental cash flow information.        
         
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 $43,558  $75,960 
Restricted cash  2,401   2,731 
Total cash, cash equivalents and restricted cash $45,959  $78,691 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 7 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

 

1.Organization

 

Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (“Lightstone REIT”) was formed on June 8, 2004 (date of inception) and subsequently qualified as a real estate investment trust (“REIT”) during the year ending December 31, 2006. Lightstone REIT was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States. The Company also has and will continue to seekcurrently seeks to originate, acquire and manage a diverse portfolio of real estate-related investments.

 

Lightstone REIT is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT, L.P., a Delaware limited partnership formed on July 12, 2004 (the “Operating Partnership”), in which Lightstone REIT as the general partner, held a 98% interest as of SeptemberJune 30, 2017.2019.

 

The Lightstone REIT and the Operating Partnership and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used.

 

The Company is managed by Lightstone Value Plus REIT, LLC (the “Advisor”), an affiliate of the Lightstone Group, Inc., under the terms and conditions of an advisory agreement. The Lightstone Group, Inc. previously served as the Company’s sponsor (the “Sponsor”) during its initial public offering, which closed on October 10, 2008. Subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing the Company’s day-to-day operations. Through his ownership and control of The Lightstone Group, David Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP, LLC, which has subordinated profits interests (“SLP units”) in the Operating Partnership. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control the Lightstone REIT or the Operating Partnership.

 

The 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. In the event the Company does not obtain listing prior to October 10, 2018 (the tenth anniversary of the completion of its initial public offering,) its charter requires that the Board of Directors must either (i) seek stockholder approval of an extension or amendment of this listing deadline; or (ii) seek stockholder approval to adopt a plan of liquidation of the corporation.

On October 20, 2017, the Company filed a definitive proxy statement with the Securities and Exchange Commission pursuant to which it is seeking stockholder approval to amend its charter to remove the requirement that the Company must either list its stock on a national securities exchange or seek stockholder approval to adopt a plan of liquidation of the corporation on or before October 10, 2018 (the “Charter Amendment”). In the event that the stockholders do not approve the Charter Amendment and the Company does not obtain listing of its stock on a national securities exchange prior to October 10, 2018 its charter requires that the Board of Directors must seek stockholder approval to adopt a plan of liquidation of the corporation.

 

As of SeptemberJune 30, 2017,2019, on a collective basis, the Company wholly owned or majority owned and consolidated the operating results and financial condition of 2two retail properties (St. Augustine Outlet Center and DePaul Plaza) containing a total of approximately 0.5 million square feet of retail space, 14 industrial properties containing a total of approximately 1.0 million square feet of industrial space and one multi-family residential property (Gantry Park Landing) containing a total of 199 units. All of the Company’s properties are located within the United States. As of SeptemberJune 30, 2017,2019, the retail properties,St. Augustine Outlet Center, DePaul Plaza and Gantry Park Landing were 75%, 89% and 99% occupied, respectively.

Tender Offer

The Company commenced a tender offer on April 19, 2019, pursuant to which it is offered to acquire up to 0.5 million shares of its common stock at a purchase price of $7.00 per share, or $3.5 million in the industrial properties andaggregate (the “Tender Offer”). Pursuant to the multi-family residential properties were 85%, 74% and 96% occupied basedterms of the Tender Offer, which expired on a weighted-average basis, respectively.June 14, 2019, the Company repurchased approximately 60,420 of its shares of common stock at $7.00 per share, or an aggregate of approximately $0.4 million.

Discontinued Operations

 

Noncontrolling Interests

AsDuring the first quarter of September 30, 2017, the noncontrolling interests consist of (i) parties2019, a portfolio comprised of the Company that hold unitsCompany’s industrial properties (the “Gulf Coast Industrial Portfolio”) which were previously included in the Operating PartnershipCompany’s Industrial Segment, met the criteria to be classified as discontinued operations in the consolidated statements of operations for all periods presented. Additionally, the associated assets and (ii) certain interestsliabilities of ten of the properties within the Gulf Coast Industrial Portfolio which are located in Louisiana (the “Louisiana Properties”) have been reclassified as held for disposition in the consolidated subsidiaries.balance sheet as of December 31, 2018. The units include SLP units, limited partner unitsdisposition of the Louisiana Properties, which represented all of the Company’s remaining industrial properties, represented a strategic shift that had a major effect on the Company’s operations and common units. The noncontrolling interestsfinancial results and therefore, upon their disposition, the operating results of the entire Gulf Coast Industrial Portfolio were classified as discontinued operations in the Company’s consolidated subsidiaries include ownership interests in Pro-DFJV Holdings LLC (“PRO”) and 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”)statements of operations for all periods presented (See Note 8).

 

 8 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Segment Reporting

Since its inception, the Company has owned and managed various commercial and residential properties located throughout the United States. It historically operated within four business segments which were: (i) retail real estate (the “Retail Segment”), (ii) multi-family residential real estate (the “Multi-Family Residential Segment”), (iii) industrial real estate (the “Industrial Segment”) and (iv) hospitality (the “Hospitality Segment”). Additionally, it presented as unallocated amounts (“Unallocated”) its (i) investments in real estate companies which were unconsolidated, (ii) other real estate-related investments and (iii) corporate operations. However, during 2015 the Company disposed of substantially all of its hospitality properties and subsequently in 2017 sold its only remaining hospitality property and therefore, no longer had a Hospitality Segment. Additionally, during the first quarter of 2019, the Company disposed of all of its remaining industrial properties and no longer has an Industrial Segment. As a result of these disposition activities, the Company only remaining properties were two retail properties (St. Augustine Outlet Center and DePaul Plaza) and one multi-family property (Gantry Park Landing).

Because of the changes in the composition of the Company’s real estate investments, the segment financial information is no longer relevant to the Company’s chief operating decision maker and it no longer is a driver of resource allocation decisions. Rather, the Company now evaluates all of its real estate investments as one operating segment and no longer reports any segment information in its consolidated financial statements.

Noncontrolling Interests

Partners of Operating Partnership

On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of shares of common stock of the Company, as allowed by the limited partnership agreement.

In connection with the Company’s initial public offering, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP Units in the Operating Partnership at a cost of $100,000 per unit.

In addition, 497,209 units of common limited partnership interest in the Operating Partnership (“Common Units”) were issued during the years ended December 31, 2008 and 2009 and remain outstanding as of June 30, 2019.

Other Noncontrolling Interests in Consolidated Subsidiaries

As of June 30, 2019, the other noncontrolling interests in consolidated subsidiaries include ownership interests in (i) Pro-DFJV Holdings LLC (“PRO”) held by the Company’s Sponsor, (ii) 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”), held by the Company’s Sponsor and other affiliates, (iii) the 162nd Street Joint Venture I held by an affiliate of the Company’s Sponsor, (iv) the 162nd Street Joint Venture II held by an affiliate of the Company’s Sponsor and (v) the Greenpoint Joint Venture held by an affiliate of the Company’s Sponsor. PRO’s holdings principally consist of Marco OP Units and Marco II OP Units (see Note 4). The 2nd Street Joint Venture owns Gantry Park Landing, a multi-family apartment building located in Queens, New York. The 162nd Street Joint Venture I, the 162nd Street Joint Venture II and the Greenpoint Joint Venture each hold a promissory note collateralized by land parcels being developed by unaffiliated third parties (see Note 5).

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements include the accounts of the Lightstone REIT and its Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. In addition, 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. For entities in which we have less than a controlling interest but have significant influence, we account for the investment using the equity method of accounting.

 

There are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we are the primary beneficiary.  The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity.  Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses.  A change in the 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.

9

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2018. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

 

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 and real-estate related investments, marketable securities, notes receivable, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

 

The consolidated balance sheet as of December 31, 20162018 included herein has been derived from the consolidated balance sheet included in the Company's Annual Report on Form 10-K.

 

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

 

NewConsolidated VIEs

The Company consolidates the 162nd Street Joint Venture I, the 162nd Street Joint Venture II and the Greenpoint Joint Venture, which are variable interest entities, or VIEs, for which we are the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership, or legal entities such as an LLC, are considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.

Recently Adopted Accounting Pronouncements

 

In January 2017,August 2018, the Financial Accounting Standards Board (“FASB”) issuedSEC adopted the final rule amending certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statements. The rule was effective on November 5, 2018 and will be effective for the quarter that begins after the effective date.  Since the Company already includes a year to date consolidated statement of stockholders’ equity in our interim financial statement filings, the adoption of this guidance that clarifiesresulted in the definitioninclusion of a businessquarter to date consolidated statement of stockholders equity in our second and assists inthird quarter interim financial statement filings and the evaluationinclusion of whether a transaction will be accountedcorresponding prior periods statement of stockholders’ equity 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 is not expected to have a material impact on the Company’s consolidated financial statements.presented.

 

In November 2016, the FASB issued guidance that requires amounts that are generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for public companies for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted and the pronouncement requires a retrospective transition method of adoption. This guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In AugustFebruary 2016, the FASB issued an accounting standards update which provides(“ASU”) that amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under 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.  Thisnew guidance is substantially the same as in prior periods, but eliminates current real estate- specific provisions and changes the treatment of initial direct costs. The standard became effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years.  The guidance must be adoptedthe Company 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.January 1, 2019.

 

 910 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore will only recognize right-of-use assets and lease liabilities for leases with a term greater than one year.

The Company did not recognize any right-of-use assets or lease liabilities upon adoption of the standard. The Company does not have any material leases such as ground leases or building leases or any material leases for leases with a term greater than one year. From time to time the Company will enter into immaterial leases for office equipment such as copiers.  The resulting right-of-use assets or lease liabilities would be immaterial in the aggregate and are recognized in the period they are incurred as lease expense.

The ASU provides a practical expedient which allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both: (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provides a transition option that permits entities to not recast the comparative periods presented when transitioning to the standard, which the Company also elected.

The adoption of this standard did not have a material effect on our consolidated financial position or our results of operations.

New Accounting Pronouncements

 

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.  This guidanceThe Company is currently in the process of evaluating the impact the adoption of this standard will not have a material impact on the Company’s 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.

In January 2016, the FASB issued an accounting standards update that generally requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new guidance must be applied using a modified-retrospective approach and is effective for periods beginning after December 15, 2017 and early adoption is not permitted. If this standard had been in effect for the three and nine months ended September 30, 2017 it would have resulted in a decrease in net income of approximately $30 and $2.7 million, respectively and if this standard had been in effect for the three and nine months ended September 30, 2016 it would have resulted in a decrease and an increase to net income of approximately $2.0 million and $3.7 million, respectively.

[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 Company is continuing to evaluate the standard; however, we do not expect its adoption to have a significant impact on the consolidated financial statements, as substantially all revenues consist of rental income from leasing arrangements, which is specifically excluded from the standard.

 

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

 

Supplemental Cash Flow Information

Supplemental cash flow information for the periods indicated is as follows:

  For the Six Months Ended June 30, 
  2019  2018 
       
Cash paid for interest $3,619  $3,995 
Distributions declared but not paid $4,027  $4,299 
Investment property acquired but not paid $307  $- 
Assets transferred due to foreclosure $37,299  $- 
Liabilities extinguished in foreclosure $50,914  $- 
Reclassification of accumulated other comprehensive income and noncontrolling interests to accumulated surplus $-  $15,476 
Holding gain/loss on marketable securities $2,126  $1,419 
Value of shares issued from distribution reinvestment program $127  $- 

Reclassifications 

Certain prior period amounts may have been reclassified to conform to the current year presentation.

3.Marketable Securities and Fair Value MeasurementsDevelopment Projects

 

Lower East Side Moxy Hotel

On December 3, 2018, the Company, through a subsidiary of the Operating Partnership, acquired three parcels of land located at 147-151 Bowery, New York, New York (collectively, the “Bowery Land”) from 151 Emmut Properties LLC and 145-149 Bowery LLC, both unaffiliated third parties, for aggregate consideration of approximately $56.5 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). Additionally, on December 6, 2018, the Company, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, New York, New York (the “Air Rights”) from B.R.P. Realty Corp., an unaffiliated third party, for approximately $2.4 million, excluding closing and other acquisition related costs. The Company intends to use the Air Rights in connection with the development and construction of the Lower East Side Moxy Hotel. In connection with the acquisition of the Bowery Land and the Air Rights, the Advisor earned an acquisition fee equal to 2.75% of the gross contractual purchase price, which was approximately $1.6 million.

11

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

As of June 30, 2019 and December 31, 2018, the Company incurred and capitalized to construction in progress an aggregate of $67.2 million (including the acquisition fee of $1.6 million and capitalized interest of $1.8 million) and $63.3 million (including the acquisition fee of $1.6 million), respectively, consisting of acquisition and other development costs attributable to the Lower East Side Moxy Hotel. During the three and six months ended June 30, 2019, the Company capitalized interest of approximately $0.9 million and $1.8 million, respectively in connection with the development of the Lower East Side Moxy Hotel.

Exterior Street Project

On February 27, 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York (collectively, the “Exterior Street Land”), from Borden Realty Corp and 399 Exterior Street Associates LLC, unaffiliated third parties, for an aggregate purchase price of approximately $59.0 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a multi-family residential property (the “Exterior Street Project”).

On March 29, 2019, the Company entered into a $35.0 million loan (the “Exterior Street Loan”) which bears interest at 4.50% and is scheduled to initially mature on April 9, 2020, but may be further extended through the exercise of two, six-month extension options, subject to certain conditions. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land. In connection with the acquisition of the Exterior Street Land, the Advisor earned an acquisition fee equal to 2.75% of the gross aggregate contractual purchase price, which was approximately $1.6 million.

As of June 30, 2019, the Company incurred and capitalized to construction in progress an aggregate of $62.8 million (including the acquisition fee of $1.6 million and $1.0 million of capitalized interest) consisting of acquisition and other development costs attributable to the Exterior Street Project. During the three and six months ended June 30, 2019, the Company capitalized interest of approximately $0.7 million and $1.0 million, respectively in connection with the development of the Exterior Street Project.

Santa Clara Data Center

On January 10, 2019, the Company, through subsidiaries of the Operating Partnership, acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, CA (the “Martin Avenue Land”) from The Chioini Living Trust, an unaffiliated third party, for approximately $10.6 million, excluding closing and other acquisition related costs, on which the Company is developing a data center (the “Santa Clara Data Center”). In connection with the acquisition of the Martin Avenue Land, the Advisor earned an acquisition fee equal to 2.75% of the gross contractual purchase price, which was approximately $0.2 million.

As of June 30, 2019, the Company has incurred and capitalized to construction in progress an aggregate of $12.2 million (including the acquisition fee of $0.2 million and $0.2 million of capitalized interest) consisting of acquisition and other development costs attributable to the Santa Clara Data Center. During the three and six months ended June 30, 2019, the Company capitalized interest of approximately $0.1 million and $0.2 million, respectively in connection with the development of the Santa Clara Data Center.

12

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

4.Marketable Securities, Fair Value Measurements and Notes Payable

Marketable Securities:

 

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

 

  As of September 30, 2017 
  Adjusted Cost  Gross Unrealized
Gains		  Gross Unrealized
Losses		  Fair Value 
Equity Securities, primarily REITs $1,405  $165  $-  $1,570 
Marco OP Units and Marco II OP Units  19,227   14,585   -   33,812 
Corporate Bonds and Preferred Equities  16,463   516   -   16,979 
Mortgage Backed Securities ("MBS")  1,915   -   (298)  1,617 
Total $39,010  $15,266  $(298) $53,978 

 As of December 31, 2016  As of June 30, 2019 
 Adjusted Cost  Gross Unrealized
Gains		  Gross Unrealized
Losses		  Fair Value  Adjusted Cost  Gross Unrealized
Gains		  Gross Unrealized
Losses		  Fair Value 
Equity Securities, primarily REITs $1,405  $325  $-  $1,730 
Marketable Securities:                
Equity securities:                
Equity Securities $4,012  $299  $(16) $4,295 
Marco OP Units and Marco II OP Units  19,227   17,949   -   37,176   19,227   14,201   -   33,428 
Corporate Bonds and Preferred Equities  11,382   -   (397)  10,985 
  23,239   14,500   (16)  37,723 
Debt securities:                
Corporate Bonds  16,242   73   (244)  16,071 
                
Other Investments:                
Certificate of Deposit  5,076   -   -   5,076 
  5,076   -   -   5,076 
Total $44,557  $14,573  $(260) $58,870 
                
 As of December 31, 2018 
 Adjusted Cost  Gross Unrealized
Gains		  Gross Unrealized
Losses		  Fair Value 
Marketable Securities:                
Equity securities:                
Equity Securities $1,439  $230  $(18) $1,651 
Marco OP Units and Marco II OP Units  19,227   15,924   -   35,151 
  20,666   16,154   (18)  36,802 
Debt securities:                
Corporate Bonds  65,817   124   (2,120)  63,821 
Mortgage Backed Securities ("MBS")  2,918   -   (314)  2,604   1,615   -   (301)  1,314 
  67,432   124   (2,421)  65,135 
Other Investments:                
Certificate of Deposit  5,012   -   -   5,012 
  5,012   -   -   5,012 
Total $34,932  $18,274  $(711) $52,495  $93,110  $16,278  $(2,439) $106,949 

 

As of both June 30, 2019 and December 31, 2018, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695 were owned by PRO. The Marco OP Units and the Marco II OP Units are exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of Simon Property Group, Inc. (“Simon”). Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units to Simon OP Units which must be immediately delivered to Simon in exchange for cash or similar number of shares of Simon’s common stock (“Simon Stock”).

 

10

Prior to January 1, 2018, the Company accounted for marketable equity securities at fair value with unrealized gains and losses recognized in AOCI on the consolidated balance sheet. Realized gains and losses on marketable equity securities sold or impaired were recognized on the consolidated statements of operations.

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

NotesOn January 1, 2018, the Company adopted guidance issued by the FASB that required it to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit datachange the way it accounts for marketable equity securities. The Company’s marketable equity securities are measured at fair value and where indicated in millions)(Unaudited)starting January 1, 2018 unrealized gains and losses are recognized on the consolidated statements of operations. Upon adoption, the Company reclassified $15.5 million of aggregate net unrealized gains from AOCI to opening accumulated surplus.

 

The Company considers the declines in market value of certain of its investments to be temporary in nature as the unrealized losses were caused primarily by changes in market interest rates or widening credit spreads. When evaluating these investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. During the ninethree and six months ended SeptemberJune 30, 20172019 and 2016,2018, the Company did not recognize any impairment charges. As of SeptemberJune 30, 2017,2019, the Company does not consider any of its investments to be other-than-temporarily impaired.

 

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. TheAt the time of purchase, the maturities of the Company’s MBS generally ranged from 27 years to 30 years.

 

Notes Payable

Margin Loan

The Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (2.09% as of September 30, 2017) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were no amounts outstanding under this Margin Loan as of September 30, 2017 and December 31, 2016.

Line of Credit

On September 14, 2012, the Company entered into a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $25.0 million. The Line of Credit expires on June 19, 2019 and bears interest at Libor plus 1.35% (2.59% as of September 30, 2017). The Line of Credit is collateralized by approximately 252,000 Marco OP Units and PRO guaranteed the Line of Credit. The amount outstanding under the Line of Credit was $18.6 million as of September 30, 2017 and December 31, 2016 and is included in Notes Payable on the consolidated balance sheets.

Fair Value Measurements

 

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

 

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

 

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

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Marketable securities available for sale, measured at fair value on a recurring basis as of the dates indicated are as follows:

 

 Fair Value Measurement Using     Fair Value Measurement Using    
As of September 30, 2017 Level 1  Level 2  Level 3  Total 
As of June 30, 2019 Level 1  Level 2  Level 3  Total 
                  
Marketable Securities:                                
Equity Securities, primarily REITs $1,570  $-  $-  $1,570  $4,295  $-  $-  $4,295 
Marco OP and OP II Units  -   33,812   -   33,812   -   33,428   -   33,428 
Corporate Bonds and Preferred Equities  -   16,979   -   16,979 
MBS  -   1,617   -   1,617 
Corporate Bonds  -   16,071   -   16,071 
Certificate of Deposit  -   5,076   -   5,076 
Total $1,570  $52,408  $-  $53,978  $4,295  $54,575  $-  $58,870 

 

 Fair Value Measurement Using     Fair Value Measurement Using    
As of December 31, 2016 Level 1  Level 2  Level 3  Total 
As of December 31, 2018 Level 1  Level 2  Level 3  Total 
                  
Marketable Securities:                                
Equity Securities, primarily REITs $1,730  $-  $-  $1,730  $1,651  $-  $-  $1,651 
Marco OP and OP II Units  -   37,176   -   37,176   -   35,151   -   35,151 
Corporate Bonds and Preferred Equities  -   10,985   -   10,985 
Corporate Bonds  -   63,821   -   63,821 
MBS  -   2,604   -   2,604   -   1,314   -   1,314 
Certificate of Deposit  -   5,012   -   5,012 
Total $1,730  $50,765  $-  $52,495  $1,651  $105,298  $-  $106,949 

 

The fair values of the Company’s investments in Corporate Bonds and Preferred Equities and MBS are measured using readily available quoted prices for similar assets. Additionally, as noted and disclosed above, the Company’s Marco OP and Marco OP II Units are ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and Marco OP II Units.

 

The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.

4.Mortgage Receivable

In June 2011, the Company acquired a senior mortgage note (the “Senior Mortgage”) with an outstanding principal balance of $8.8 million for $5.6 million from, an unaffiliated third party. The purchase price reflected a discount of $3.2 million to the then outstanding principal balance.

The Senior Mortgage was originated by Banc of America in July 2007 with an initial principal balance of $9.1 million. It was collateralized by a Holiday Inn Express located in East Brunswick, New Jersey and bore interest at a fixed rate of 6.33% per annum with scheduled monthly principal and interest payments of approximately $56 through its stated maturity in August 2017. However, the Senior Mortgage was transferred to special servicing in February 2010 due to payment defaults. Because the Senior Mortgage was in default, the aforementioned discount was not amortized by the Company.

As a result of the payment defaults, the borrower was required to transfer any excess cash flow from the underlying collateral to the Company on a monthly basis. The Company applied the cash receipts method of income recognition, whereby the Company recognized any excess cash, after the required funding for real estate taxes and insurance and other escrow-related disbursements, as interest income until such time as the borrower was current on all amounts owed to the Company for interest and then any remaining cash was applied as a reduction to the Company’s carrying amount of the Senior Mortgage.

In June 2017, the Company received a payment of approximately $8.1 million in full satisfaction of the Senior Mortgage and recorded a gain on satisfaction of mortgage receivable of $3.2 million representing the difference between the $8.1 million received and the Company’s $4.9 million carrying value of the Senior Mortgage.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

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

  As of June 30, 2019 
Due in 1 year $4,723 
Due in 1 year through 5 years  4,395 
Due in 5 years through 10 years  4,250 
Due after 10 years  5,431 
Total $18,799 

The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.

Notes Payable

Margin Loan

The Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (3.25% as of June 30, 2019) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were no amounts outstanding under this Margin Loan as of June 30, 2019 and December 31, 2018.

Line of Credit

The Company had a non-revolving credit facility (the “Line of Credit”) with a financial institution which previously permitted borrowings up to $25.0 million and was scheduled to expire on June 19, 2019. Effective June 19, 2019, the Line of Credit was extended until June 19, 2021 and the amount available for borrowings was reduced to $20.0 million. The Line of Credit bears interest at Libor plus 1.35% (3.75% as of June 30, 2019). The Line of Credit is collateralized by approximately 209,000 Marco OP Units and PRO has guaranteed the Line of Credit. No amounts were outstanding under the Line of Credit as of June 30, 2019 and December 31, 2018.

 

5.Mortgages Payable, NetNotes Receivable

 

Mortgages payable, net consists162nd Street Joint Venture I

On February 5, 2019, a wholly-owned subsidiary of the following:Operating Partnership (the “162nd Street Sub I”) and an affiliate of the Sponsor (“CRE Capital I”) formed the 162nd Street Joint Venture I, a joint venture in which the Company and CRE Capital I have 45.45% and 55.55% ownership interests, respectively. On the same date, the 162nd Street Joint Venture I made a $4.2 million, nonrecourse loan (the “162nd Street Joint Venture I Promissory Note”) to an unaffiliated third party (the “162nd Street Joint Venture I Borrower”). The Company has determined that the 162nd Street Joint Venture I is a VIE and the 162nd Street Sub I is the primary beneficiary.  Another wholly-owned subsidiary of the Operating Partnership is the manager and sole decision maker of the 162nd Street Joint Venture I. Since the 162nd Street Sub I is the primary beneficiary, beginning on February 5, 2019, the Company has consolidated the operating results and financial condition of the 162nd Street Joint Venture I and accounted for the ownership interest of CRE Capital I as a noncontrolling interest. The 162nd Street Joint Venture I Promissory Note is recorded in notes receivable on the consolidated balance sheet.

Property Interest Rate Weighted Average
Interest Rate as of
September 30, 2017		  Maturity Date Amount Due at
Maturity		  As of
 September 30, 2017		  As of
 December 31, 2016		 
                 
Oakview Plaza (Extinguished in foreclosure on September 15, 2017) $-  $-  $25,583 
                     
Gulf Coast Industrial Portfolio 9.83%  9.83% Due on demand  50,205   50,205   50,205 
                     
St. Augustine Outlet Center LIBOR + 4.50%  5.52% August 2018  20,400   20,400   20,400 
                     
Gantry Park 4.48%  4.48% November 2024  65,317   74,500   74,500 
                     
DePaul Plaza LIBOR + 2.75%  3.76% June 2020  13,494   14,582   14,888 
                     
Total mortgages payable    6.23%   $149,416  $159,687  $185,576 
                     
Less: Deferred financing costs              (1,808)  (2,263)
                     
Total mortgages payable, net             $157,879  $183,313 

 

The Company’s non-recourse mortgage162nd Street Joint Venture I Promissory Note is due March 1, 2020 and is collateralized by the ownership interests of the 162nd Street Joint Venture I Borrower. The 162nd Street Joint Venture I Borrower owns a parcel of land located at 89-25 East 162nd Street, Jamaica, New York (Lot 30) that the 162nd Street Joint Venture I Borrower intends to develop. Additionally, the 162nd Street Joint Venture I Promissory Note and the 162nd Street Joint Venture II Promissory Note (as defined and described below) are cross-collateralized. The 162nd Street Joint Venture I Promissory Note bears interest at a rate of Libor + 7.5% per annum with a floor of 10% (10.0 % as of June 30, 2019). The 162nd Street Joint Venture I received an origination fee of 1.5% of the loan (the “Oakview Plaza Mortgage”) secured bybalance or approximately $0.1 million, which is presented in the consolidated balance sheets as a retail power center located in Omaha, Nebraska (“Oakview Plaza”) matured in January 2017 and was not repaid which constituted a maturity default. The Oakview Plaza Mortgage was transferred to a special servicer and on September 15, 2017, ownership of Oakview Plaza was transferred todirect deduction from the lender via foreclosure (the “Oakview Plaza Foreclosure”). The carrying value of the assets transferred162nd Street Joint Venture I Promissory Note and is being amortized to interest income, using a straight-line method that approximates the effective interest method, over the initial term of the 162nd Street Joint Venture I Promissory Note. The maturity of the 162nd Street Joint Venture I Promissory Note can be further extended for an additional one year at the discretion of the 162nd Street Joint Venture I Borrower provided certain conditions are met, including the funding of an additional reserve for interest and the liabilities extinguished in connection with the Oakview Plaza Foreclosure both approximated $27.0 million. The balancepayment of an extension fee equal to 1% of the Oakview Plaza Mortgage as of the date of foreclosure was $25.6 million and the associated accrued default interest was $1.0 million.

Libor as of September 30, 2017 and December 31, 2016 was 1.24% and 0.53%, respectively. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company.

The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of September 30, 2017:

  2017  2018  2019  2020  2021  Thereafter  Total 
Principal maturities $50,307  $21,967  $1,621  $14,924  $1,328  $69,540  $159,687 
                             
Less: Deferred financing costs                          (1,808)
                             
Total principal maturities, net                         $157,879 

Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. The Company is currently in compliance with all of its financial debt covenants other than the debt associated with the Gulf Coast Industrial Portfolio as discussed below. Additionally, certain of our mortgages payable also contain clauses providing for prepayment penalties.

As a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio (the “Gulf Coast Industrial Portfolio Mortgage”), the lender elected to retain the excess cash flow from these properties beginning in July 2011.  During the third quarter of 2012, the Gulf Coast Industrial Portfolio Mortgage was transferred to a special servicer, who discontinued scheduled debt service payments and notified the Company that the Gulf Coast Industrial Portfolio Mortgage was in default and although originally due in February 2017 became due on demand. The Company believes the continued loss of excess cash flow from the Gulf Coast Industrial Portfolio or the loss of these properties will not have a material impact on its results of operations or financial position.outstanding loan balance.

 

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

AlthoughUpon funding of the lender162nd Street Joint Venture I Promissory Note, the 162nd Street Joint Venture I retained approximately $0.4 million of the proceeds to establish a reserve for interest and other items which is not currently charging orpresented in the consolidated balance sheets as a direct deduction from the carrying value of the 162nd Street Joint Venture I Promissory Note and is being paidapplied against the monthly interest due during the initial term of the 162nd Street Joint Venture I Promissory Note.

162nd Street Joint Venture II

On February 5, 2019, a wholly-owned subsidiary of the Operating Partnership (the “162nd Street Sub II”) and an affiliate of the Sponsor (“CRE Capital II”) formed the 162nd Street Joint Venture II, a joint venture in which the Company and CRE Capital II have 45.45% and 55.55% ownership interests, respectively. On the same date, the 162nd Street Joint Venture II made a $9.2 million, nonrecourse loan (the “162nd Street Joint Venture II Promissory Note”) to an unaffiliated third party (the “162nd Street Joint Venture II Borrower”). The Company has determined that the 162nd Street Joint Venture II is a VIE and the 162nd Street Sub II is the primary beneficiary.  Another wholly-owned subsidiary of the Operating Partnership is the manager and sole decision maker of the 162nd Street Joint Venture II. Since the 162nd Street Sub II is the primary beneficiary, beginning on February 5, 2019, the Company has consolidated the operating results and financial condition of the 162nd Street Joint Venture II and accounted for the ownership interest of CRE Capital II as a noncontrolling interest. The 162nd Street Joint Venture II Promissory Note is recorded in notes receivable on the consolidated balance sheet.

The 162nd Street Joint Venture II Promissory Note is due March 1, 2020 and is collateralized by the ownership interests of the 162nd Street Joint Venture II Borrower. The 162nd Street Joint Venture II Borrower owns a parcel of land located at 89-12 East 162nd Street, Jamaica, New York (Lot 50) that the 162nd Street Joint Venture II Borrower intends to develop. Additionally, the 162nd Street Joint Venture II Promissory Note and the 162nd Street Joint Venture I Promissory Note are cross-collateralized. The 162nd Street Joint Venture II Promissory Note bears interest at a rate of Libor + 7.5% per annum with a floor of 10% (10.0% as of June 30, 2019). The 162nd Street Joint Venture II received an origination fee of 1.5% of the stated default rate,loan balance or approximately $0.1 million, which is presented in the Companyconsolidated balance sheets as a direct deduction from the carrying value of the 162nd Street Joint Venture II Promissory Note and is accruing defaultbeing amortized to interest expense onincome, using a straight-line method that approximates the Gulf Coast Industrial Portfolio Mortgage pursuanteffective interest method, over the initial term of the 162nd Street Joint Venture II Promissory Note. The maturity of the 162nd Street Joint Venture II Promissory Note can be further extended for an additional one year at the discretion of the 162nd Street Joint Venture II Borrower provided certain conditions are met, including the establishment of an additional reserve for interest and the payment of an extension fee equal to 1% of the termsoutstanding loan balance.

Upon funding of its loan agreement. Additionally, the Company accrued default interest expense on162nd Street Joint Venture II Promissory Note, the Oakview Plaza Mortgage pursuant to the terms of its loan agreement from January 2017 through September 15, 2017. Default interest expense of $0.8 million and $2.5 million was accrued during the three and nine months ended September 30, 2017 and default interest expense of $0.5 million and $1.5 million was accrued during the three and nine months ended September 30, 2016. Additionally, as disclosed above, in connection with the Oakview Plaza Foreclosure,162nd Street Joint Venture II retained approximately $1.0 million of defaultthe proceeds to establish a reserve for interest related to the Oakview Plaza Mortgage was extinguished. As a result, cumulative accrued default interest expense (solely related the Gulf Coast Industrial Portfolio Mortgage) of $10.7 million and $9.2 million is included in accounts payable, accrued expenses and other liabilities on ouritems, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of Septemberthe 162nd Street Joint Venture II Promissory Note and is being applied against the monthly interest due during the initial term of the 162nd Street Joint Venture II Promissory Note.

Greenpoint Joint Venture

On April 5, 2019, a wholly-owned subsidiary of the Operating Partnership (the “Greenpoint Sub”) and an affiliate of the Sponsor (“CRE Greenpoint”) formed the Greenpoint Joint Venture, a joint venture in which the Company and CRE Greenpoint each have 50.0% ownership interests. On the same date, the Greenpoint Joint Venture made aggregate mortgage loans of $13.0 million (a $0.9 million mortgage loan and a $12.1 million mortgage loan, collectively, the “Greenpoint Joint Venture Mortgages”) to an unaffiliated third party (the “Greenpoint Joint Venture Borrower”). The Company has determined that the Greenpoint Joint Venture is a VIE and the Greenpoint Sub is the primary beneficiary.  Another wholly-owned subsidiary of the Operating Partnership is the manager and sole decision maker of the Greenpoint Joint Venture. Since the Greenpoint Sub is the primary beneficiary, beginning on April 5, 2019, the Company has consolidated the operating results and financial condition of the Greenpoint Joint Venture and accounted for the ownership interest of CRE Greenpoint as a noncontrolling interest. The Greenpoint Venture Mortgages are recorded in notes receivable on the consolidated balance sheet.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Greenpoint Joint Venture Mortgages are due April 5, 2020 and are collateralized by parcels of land located at 47-16 through 47-24 Greenpoint Avenue, Sunnyside, New York, and the buildings and other improvements that the Greenpoint Joint Venture Borrower is currently developing. The Greenpoint Joint Venture Mortgages bear interest at a rate of Libor + 5.75% per annum with a floor of 8.25% (8.25% as of June 30, 20172019). The Greenpoint Joint Venture received an origination fee of 1.0% of the loan balance or approximately $0.1 million, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the Greenpoint Joint Venture Mortgages and is being amortized to interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Greenpoint Joint Venture Mortgages. The maturity of the Greenpoint Joint Venture Mortgages can be further extended for two additional six-month periods at the discretion of the Greenpoint Joint Venture Borrower provided certain conditions are met, including the establishment of an additional reserve for interest and the payment of an extension fee equal to 1% of the outstanding loan balance.

Upon funding of the Greenpoint Joint Venture Mortgages, the Greenpoint Joint Venture retained approximately $1.7 million of the proceeds to establish a reserve for interest and other items, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the Greenpoint Joint Venture Mortgages and is being applied against the monthly interest due during the initial term of the Greenpoint Joint Venture Mortgages.

During the three and six months ended June 30, 2019, the Company recorded $0.6 million and $0.7 million, respectively, of interest income related to the Notes Receivable and as of June 30, 2019, the balance of the Notes Receivable was $26.4 million and the remaining reserves for interest and other items aggregated $2.7 million.

6.Mortgages Payable, Net

Mortgages payable, net consists of the following:

Property Interest Rate Weighted Average
Interest Rate as of
June 30, 2019		  Maturity Date Amount Due at
Maturity		  As of
 June 30, 2019		  As of
December 31, 2018		 
                 
Gantry Park 4.48%  4.48% November 2024 $65,317  $72,737  $73,341 
                     
DePaul Plaza LIBOR + 2.75%  5.24% June 2020  13,494   13,868   14,072 
                     
Bowery Land and Air Rights LIBOR + 4.25%  6.74% December 2020  33,676   33,676   32,567 
                     
Exterior Street Land 4.50%  4.50% April 2020  35,000   35,000   - 
                     
Total mortgages payable    5.04%   $147,487   155,281   119,980 
                     
Less: Deferred financing costs              (3,379)  (1,579)
                     
Total mortgages payable, net             $151,902  $118,401 

Libor as of June 30, 2019 and December 31, 2016,2018 was 2.40% and 2.52%, respectively. However,The Company’s loans are secured by the Company does not expect to pay any of the accrued default interest expense as these mortgage loansindicated real estate and are non-recourse to it.the Company, unless otherwise indicated.

 

In addition,On March 29, 2019, the Company’s recourseCompany entered into the $35.0 million Exterior Street Loan which bears interest at 4.50% and is scheduled to initially mature on April 9, 2020, but may be further extended through the exercise of two, six-month extension options, subject to certain conditions. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land.

On December 3, 2018, the Company entered into a mortgage loan securedcollateralized by the St. Augustine Outlet Center located in St. Augustine, FloridaBowery Land and the Air Rights (the “Bowery Mortgage) for approximately $35.6 million. The Bowery Mortgage has a term of two years, bears interest at LIBOR+4.25% and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity. Through June 30, 2019, the Company received aggregate proceeds of $33.7 million under the Bowery Mortgage. As a result, the Bowery Mortgage had an outstanding balance and remaining availability of $33.7 million and $1.9 million, respectively, as of June 30, 2019.

The Exterior Street Loan (outstanding principal balance of $20.4$35.0 million as of SeptemberJune 30, 2017)2019) initially matures in August 2018 andon April 9, 2020 but has two, one-year extensions,six-month extension options, subject to satisfaction of certain conditions. The Company currently intends to seek to exercise the extension optionoptions or refinance the Exterior Street Loan on or before its applicable stated maturity date. The mortgage loan (the “DePaul Plaza Mortgage”) collateralized by the initial maturity. Other than these financings,DePaul Plaza retail property (outstanding principal balance of $13.9 million as of June 30, 2019) matures on June 1, 2020. We currently expect to refinance all or a portion of the DePaul Plaza Mortgage on or before its scheduled maturity date. However, if we are unable to refinance the outstanding indebtedness at favorable terms, we will look to repay the then outstanding balance with available cash and/or proceeds from selective asset sales. The Company has no additional significant maturities of mortgage debt over the next 12 months.

 

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of June 30, 2019:

  2019  2020  2021  2022  2023  Thereafter  Total 
Principal maturities $813  $83,600  $1,328  $1,389  $1,454  $66,697  $155,281 
                             
Less: Deferred financing costs                          (3,379)
                             
Total principal maturities, net                         $151,902 

7.Leases

The Company’s two retail properties and multi-family residential property are leased to tenants under operating leases. Substantially all of our multi-family residential property leases have initial terms of 12 months or less. Our retail space leases expire between 2019 and 2030.

We, as a lessor, retain substantially all of the risks and benefits of ownership of the investment properties and continue to account for our leases as operating leases. We accrue fixed lease income on a straight-line basis over the terms of the leases. Some of our tenants are also required to pay overage rents based on sales over a stated base amount during the lease year. We recognize this variable lease consideration only when each tenant’s sales exceed the applicable sales threshold. We amortize any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the related lease.

We structure our leases to allow us to recover a portion of our property operating expenses from our tenants. A portion of our leases require the tenant to reimburse us for a portion of our operating expenses, including common area maintenance (“CAM”), real estate taxes and insurance. Such property operating expenses typically include utility, insurance and other administrative expenses. For some of our leases we receive a fixed payment from the tenant for the CAM component which is recognized as revenue on a straight-line basis over the term of the lease. When not reimbursed by the fixed CAM component, CAM expense reimbursements are based on the tenant’s proportionate share of the allocable operating expenses for the property. We accrue reimbursements from tenants for recoverable portions of all of these expenses as variable lease consideration in the period the applicable expenditures are incurred. We recognize differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material in any period presented.

As of June 30, 2019, the approximate fixed future minimum rent payments, excluding variable lease consideration, from the Company’s two retail properties, due to us under non-cancelable are as follows:

2019  2020  2021  2022  2023  Thereafter  Total 
$2,110  $3,643  $3,232  $2,950  $2,853  $10,832  $25,620 

Pursuant to the lease agreements, tenants of the property may be required to reimburse the Company for some or the entire portion of the particular tenant's pro rata share of the real estate taxes and operating expenses of the property. Such amounts are not included in the future minimum lease payments above, but are included in tenant recovery income on the accompanying consolidated statements of operations. Lease income of approximately $0.4 million and $0.7 million for the three and six months ended June 30, 2019, respectively, and, lease income of approximately $0.7 million and $1.4 million for the three and six months ended June 30, 2018, respectively, related to variable lease payments was included in tenant recovery income on the accompanying consolidated statements of operations.

The Company has excluded our multi-family residential property leases from this table as substantially all of its multi-family residential property leases have initial terms of 12 months of less.

18

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

6.8.DispositionsDiscontinued Operations

 

DoubleTree – DanversDisposition Transactions related to Gulf Coast Industrial Portfolio

On September 7, 2017, theThe Company disposed of a hotelhad an outstanding non-recourse mortgage loan (the “Gulf Coast Industrial Portfolio Mortgage Loan”) which was originated in February 2007 and water park (the “DoubleTree – Danvers”) located in Danvers, Massachusetts, to an unrelated third party for aggregate consideration of approximately $31.5 million. In connection with the disposition, the Company recorded a gain on the disposition of real estate of approximately $10.5 millionsubsequently transferred during the third quarter of 2017.

The disposition of the DoubleTree – Danvers did not qualify to be reported as discontinued operations since the disposition did not represent a strategic shift in the Company’s operations that had a major effect on the Company’s operations and financial results (see note 10). Accordingly, the operating results of the DoubleTree – Danvers are reflected in the Company’s results from continuing operations for all periods presented through its respective date of disposition.

Oakview Plaza

The Oakview Plaza Mortgage secured by Oakview Plaza matured in January 2017 and was not repaid which constituted a maturity default. The Oakview Plaza Mortgage was transferred2012 to a special servicer that discontinued scheduled debt service payments and notified the Company that the loan was in default and due on September 15, 2017,demand. The Gulf Coast Industrial Portfolio Mortgage Loan was initially cross-collateralized by a portfolio of 14 industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) including ten properties located in Louisiana (seven properties located in New Orleans and three properties located in Baton Rouge, and collectively, the “Louisiana Properties”) and four properties located in San Antonio, Texas (the “San Antonio Properties”).

Foreclosure of San Antonio Assets

On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million.

Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of Oakview Plaza was transferred to the lender viaSan Antonio Assets for the Oakview Plaza Foreclosure.agreed upon aggregate sales price of $20.7 million. The Company simultaneously received an aggregate credit of approximately $20.7 million which it applied against the total outstanding indebtedness (approximately $19.6 million and $1.1 million of principal and accrued interest payable, respectively) of the Gulf Coast Industrial Portfolio Mortgage.

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the Oakview Plaza Foreclosure both approximated $27.0 million. The balanceforeclosure of the Oakview Plaza Mortgage asSan Antonio Assets were approximately $13.6 million and $20.7 million, respectively.

Since the Company’s performance obligations were met at the closing of the date of foreclosure was $25.6 millionsales and the associated accrued default interestCompany had no continuing involvement with the San Antonio Assets an aggregate gain on disposition of real estate of approximately $7.1 million was $1.0 million.recognized during the second quarter of 2018.

 

TheDuring 2018, the disposition of Oakview Plazathe San Antonio Assets did not initially qualify to be reported as discontinued operations since thetheir disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly,

Assignment of Ownership in Louisiana Assets to Lender

On February 12, 2019, the Company and the lender of the Gulf Coast Industrial Portfolio Mortgage entered into an assignment agreement (the “Assignment Agreement”) pursuant to which the Company assigned its membership interests in the Louisiana Assets to the lender with an effective date of February 7, 2019. Under the terms of the Assignment Agreement, the lender assumed the significant risks and rewards of ownership and took legal title and physical possession of the Louisiana Assets and assumed all the other assets and related liabilities, including the Gulf Coast Industrial Mortgage and its accrued and unpaid interest, and released the Company of any claims against the liabilities assumed.

As a result of the Assignment Agreement, the Company has fully satisfied all of its obligations with respect to the Gulf Coast Industrial Portfolio Mortgage and all amounts accrued but not paid for interest (including default interest) and no amounts are due to the lender. Additionally, the Company has no continuing involvement with the Louisiana Assets. 

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the Company’s assignment of its ownership interests in the Louisiana Assets to the lender was approximately $37.0 million and $49.6 million, respectively.

Since the Company’s performance obligations were met upon the assignment of its ownership interests in the Louisiana Assets to the lender and the Company has no continuing involvement with the Louisiana Assets, an aggregate gain on debt extinguishment of approximately $13.6 million was recognized during the first quarter of 2019.

The disposition of the Louisiana Assets, which comprised all of the Company’s remaining industrial properties, represented a strategic shift that had a major effect on the Company’s operations and financial results.

19

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

As a result of the disposition transactions related to both the San Antonio Assets and the Louisiana Assets, the Company no longer has any industrial properties. Because the Gulf Coast Industrial Portfolio Mortgage was cross-collateralized by the Gulf Coast Industrial Portfolio, comprised of both the San Antonio Assets and Louisiana Assets, the operating results of the Oakview Plaza are reflectedentire Gulf Coast Industrial Portfolio have been classified as discontinued operations in the Company’s results from continuingconsolidated statements of operations for all periods presented.

The following summary presents the operating results of the Gulf Coast Industrial Portfolio included in discontinued operations in the Consolidated Statements of Operations for the periods indicated.

  For the Three Months Ended
June 30,		  For the Six Months Ended
June 30,		 
  2019  2018  2019  2018 
             
Revenues $-  $1,370  $409  $3,015 
Operating expenses  -   1,093   317   2,262 
Operating income  -   277   92   753 
                 
Interest expense and other, net  -   (993)  (226)  (2,200)
Gain on disposition of real estate  -   7,137   -   7,137 
Gain on debt extinguishment  -   -   13,615   - 
Net income from discontinued operations $-  $6,421  $13,481  $5,690 

Cash flows generated from discontinued operations are presented through its respectiveseparately on the Company’s consolidated statements of cash flows.

The following summary presents the major components of assets and liabilities held for disposition, of as the date of disposition.indicated.

  As of 
  December 31, 2018 
    
Net investment property $32,778 
Restricted escrows  3,274 
Other assets  1,174 
Total assets held for disposition $37,226 
     
Mortgages payable $30,642 
Accounts payable and accrued expenses  19,069 
Other liabilities  993 
Total liabilities held for disposition $50,704 

 

7.9.Net Earnings Per Share

 

Basic net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted net income per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented, there were no exercises of outstanding options and, therefore, dilutive net income per share is equivalent to basic net income per share.

 

14

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

8.10.Related Party Transactions

 

The Company has agreements with the Advisor and Lightstone Value Plus REIT Management LLC (the “Property Manager”) to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements. 

 

20

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:

 

 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended June 30,  Six Months Ended June 30, 
 2017  2016  2017  2016  2019  2018  2019  2018 
Acquisition fees (capitalized and are reflected in the carrying value of the investment) $-  $-  $1,823  $- 
Asset management fees (general and administrative costs) $556  $562  $1,684  $1,804   301   427   638   891 
Property management fees (property operating expenses)  199   190   576   739   76   136   155   289 
Development fees and leasing commissions*  125   29   706   80   93   42   167   120 
Total $880  $781  $2,966  $2,623  $470  $605  $2,783  $1,300 

*Generally, capitalized and amortized over the estimated useful life of the associated asset.

 

* Generally, capitalized and amortized overIn connection with the estimated useful life of the associated asset.

Company’s initial public offering, Lightstone SLP, LLC, an affiliate of the Company’s Sponsor, haspreviously purchased an aggregate of $30.0 million of SLP units which are included in noncontrolling interests in the consolidated balance sheets. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership.

 

During both the ninethree and six months ended SeptemberJune 30, 2017,2019 and 2018, distributions of $1.5$0.5 million were declared and paid on the SLP units.

The Company’s Sponsor, has a 19.17% membership interest in PRO, a subsidiary of the Operating Partnership, which is accounted for as noncontrolling interests.

 

Preferred Investments

 

The Company has entered into several agreements with various related party entities that provide for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle the Company to certain prescribed monthly preferred distributions. The Preferred Investments had an aggregate balance of $152.7$76.0 million and $141.3$100.7 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments.

During the ninesix months ended SeptemberJune 30, 2017,2019, the Company made $13.7 million(i) redeemed an aggregate of additional contributions and redeemed $2.3$17.0 million of the East 11th Street Preferred InvestmentsInvestment and the entire 30-02 39th Street Preferred Investment of $10.0 million and (ii) made aggregate contributions of $2.3 million for the Miami Moxy Preferred Investment and as of SeptemberJune 30, 2017, remaining contributions of up to $64.8 million2019, there were unfunded. During the three and nine months ended September 30, 2017, the Company recognized investment income of $4.6 million and $12.9 million, respectively, and during the three and nine months ended September 30, 2016, the Company recognized investment income of $4.0 million and $12.2 million, respectively, which is included in interest and dividend income on the consolidated statements of operations. The Company did not enter into any new Preferred Investments during the nine months ended September 30, 2017.no unfunded contributions.

 

The Preferred Investments are summarized as follows:

 

    Preferred Investment Balance Unfunded Contributions Investment Income     Preferred Investment Balance  Unfunded Contributions  Investment Income 
 Dividend   As of
September 30,		 As of
December 31,		 As of
September 30,		 Three Months Ended September 30, Nine Months Ended September 30,     As of As of As of Three Months Ended June 30, Six Months Ended June 30, 
Preferred Investments Rate 2017 2016 2017 2017 2016 2017 2016  Dividend Rate  June 30, 2019  December 31, 2018  June 30,2019  2019  2018  2019  2018 
365 Bond Street  12% $-  $-  $-  $-  $-  $-  $2,252 
40 East End Avenue  8% to 12%  30,000   30,000   -   920   613   2,463   1,795   12% $30,000  $30,000  $-  $910  $910  $1,810  $1,810 
30-02 39th Avenue  9% to 12%  10,000   12,300   40,000   307   436   946   1,009   12%  -   10,000   -   -   303   140   603 
485 7th Avenue  12%  60,000   60,000   -   1,840   1,840   5,460   5,480   12%  -   -   -   -   70   -   1,095 
East 11th Street  12%  40,994   31,271   16,506   1,155   1,073   3,135   1,675   12%  26,000   43,000   -   807   1,726   1,907   3,207 
Miami Moxy  12%  11,699   7,682   8,302   346   -   905   -   12%  20,000   17,733   -   558   398   1,090   772 
Total Preferred Investments     $152,693  $141,253  $64,808  $4,568  $3,962  $12,909  $12,211      $76,000  $100,733  $-  $2,275  $3,407  $4,947  $7,487 

 

The Joint Venture

 

We haveThe Company has a 2.5% membership interest in a joint venture (the “Joint Venture”) with Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a related party REIT also sponsored by our Sponsor. The Joint Venture previously acquired our membership interests in a portfolio of 11 hotels in a series of transactions completed during 2015. During the third quarter of 2017, the Joint Venture sold its ownership interests in four of the hotels to an unrelated third party and as a result, holds ownership interests in the seven remainingeight hotels as of SeptemberJune 30, 2017.2019.

The Company accounts for its 2.5% membership interest in the Joint Venture under the cost method and as of June 30, 2019 and December 31, 2018, the carrying value of its investment was $1.2 million and $1.3 million, respectively, which is included in investment in related parties on the consolidated balance sheets.

11.Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ accounts receivable, notes receivable and accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments. The carrying amount of the note receivable approximates fair value because the interest rate is variable and reflective of the market rate.

 

 1521 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

We account for our 2.5% membership interest in the Joint Venture under the cost method and as of September 30, 2017 and December 31, 2016, the carrying value of our investment was $1.2 million and $1.5 million, respectively, which is included in investment in related parties on the consolidated balance sheets.

9.Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ and other accounts receivable, interest receivable from related parties, accounts payable and accrued expenses and due to related parties approximated their fair values because of the short maturity of these instruments. The estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate. The carrying amount reported in the consolidated balance sheets for the mortgage receivable approximated its fair value based upon current market information that would have been used by a market participant to estimate the fair value of such loan.

The estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:

 

  As of September 30, 2017  As of December 31, 2016 
  Carrying Amount  Estimated Fair
Value		  Carrying Amount  Estimated Fair
Value		 
Mortgages payable $159.7  $158.0  $185.6  $183.2 
  As of June 30, 2019  As of December 31, 2018 
  Carrying Amount  Estimated Fair
Value		  Carrying Amount  Estimated Fair
Value		 
Mortgages payable $155.3  $157.8  $120.0  $119.8 

 

The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.

 

10.Segment Information

The Company currently operates in three business segments as of September 30, 2017: (i) retail real estate (the “Retail Segment”), (ii) multi-family residential real estate (the “Multi-family Residential Segment”) and (iii) industrial real estate (the “Industrial Segment”). Prior to the disposition of the DoubleTree – Danvers during the third quarter of 2017, the Company also had one remaining hotel that was classified as a hospitality property (the “Hospitality Segment”). The Company’s Advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Company’s revenues for the three and nine months ended September 30, 2017 and 2016 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of September 30, 2017 and December 31, 2016. The accounting policies of the segments are the same as those described in Note 2: Summary of Significant Accounting Policies of the Company’s December 31, 2016 Annual Report on Form 10-K. Unallocated assets, revenues and expenses relate to corporate related accounts, including the Company’s Preferred Investments in Related Parties (see Note 8).

The Company evaluates performance based upon net operating income/(loss) from the combined properties in each real estate segment.

16

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Selected results of operations for the three and nine months ended September 30, 2017 and 2016, and total assets as of September 30, 2017 and December 31, 2016 regarding the Company’s operating segments are as follows:

  For the Three Months Ended September 30, 2017 
  Retail  Multi-Family  Industrial  Hospitality  Unallocated  Total 
                   
Total revenues $2,452   2,118  $1,581  $4,741  $-  $10,892 
                         
Property operating expenses  905   492   631   3,620   4   5,652 
Real estate taxes  361   19   162   60   -   602 
General and administrative costs  39   3   6   107   2,019   2,174 
                         
Net operating income/(loss)  1,147   1,604   782   954   (2,023)  2,464 
                         
Depreciation and amortization  1,387   407   458   486   -   2,738 
               -         
Operating (loss)/income $(240) $1,197  $324  $468  $(2,023) $(274)
                        ��
As of September 30, 2017:                        
Total Assets $71,896  $68,382  $50,351  $2,777  $329,617  $523,023 

  For the Three Months Ended September 30, 2016 
  Retail  Multi-Family  Industrial  Hospitality  Unallocated  Total 
                   
Total revenues $2,904  $2,283  $1,341  $6,532  $-  $13,060 
                         
Property operating expenses  811   536   523   4,913   1   6,784 
Real estate taxes  356   32   208   77   -   673 
General and administrative costs  (9)  8   1   64   978   1,042 
                         
Net operating income/(loss)  1,746   1,707   609   1,478   (979)  4,561 
                         
Depreciation and amortization  1,161   420   415   709   -   2,705 
                         
Operating income/(loss) $585  $1,287  $194  $769  $(979) $1,856 
                         
As of December 31, 2016:                        
Total Assets $100,105  $71,170  $49,509  $25,071  $301,440  $547,295 

  For the Nine Months Ended September 30, 2017 
  Retail  Multi-Family  Industrial  Hospitality  Unallocated  Total 
                   
Total revenues $7,805  $6,443  $4,683  $16,161  $-  $35,092 
                         
Property operating expenses  2,782   1,430   1,679   12,617   5   18,513 
Real estate taxes  1,120   55   555   221   -   1,951 
General and administrative costs  129   33   (10)  225   4,238   4,615 
                         
Net operating income/(loss)  3,774   4,925   2,459   3,098   (4,243)  10,013 
                         
Depreciation and amortization  3,759   1,218   1,339   1,936   -   8,252 
                         
Operating income/(loss) $15  $3,707  $1,120  $1,162  $(4,243) $1,761 

  For the Nine Months Ended September 30, 2016 
  Retail  Multi-Family  Industrial  Hospitality  Unallocated  Total 
                   
Total revenues $8,546  $10,405  $4,115  $17,104  $-  $40,170 
                         
Property operating expenses  2,648   3,064   1,543   13,623   2   20,880 
Real estate taxes  1,079   463   607   238   -   2,387 
General and administrative costs  54   54   87   235   3,250   3,680 
                         
Net operating income/(loss)  4,765   6,824   1,878   3,008   (3,252)  13,223 
                         
Depreciation and amortization  3,468   1,790   1,237   2,100   -   8,595 
                         
Operating income/(loss) $1,297  $5,034  $641  $908  $(3,252) $4,628 

17

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

11.12.Commitments and Contingencies

 

Legal Proceedings

 

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

 

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

 

12.13.Subsequent Events

 

Distribution Payment

 

On October 16, 2017,July 15, 2019, the distribution for the three-monthquarterly period ending SeptemberJune 30, 20172019 of $4.4$4.0 million was paid in cash.full using a combination of cash and approximately 7,000 shares of the Company’s common stock issued pursuant to the Company’s Distribution Reinvestment Program (“DRIP”), at a discounted price of $11.23 per share.

 

Distribution Declaration

 

On November 14, 2017,August 6, 2019, the Company’s Board of Directors authorized and the Company declared a distribution of $0.175 per share for the three-monthquarterly period ending December 31, 2017.September 30, 2019. The quarterly distribution will be calculated based on shareholdersis the pro rata equivalent of record each day during this three-month period at aan annual distribution of $0.70 per share, or an annualized rate of $0.0019178 per day, and will equal7.0% assuming a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a sharepurchase price of $10.00.$10.00 per share. The distribution will be paid in cash on or about January 15, 2018the 15th day of the month following the quarter-end to shareholdersstockholders of record asat the close of December 31, 2017.business on the last day of the quarter-end. The stockholders have an option to elect the receipt of shares under the Company’s DRIP.

Future distributions declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods and may differ from the amount of the distribution determined for this period. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, current rental revenues, operating and interest expenses and our ability to refinance near-term debt. In addition, the Company currently intends to continue to comply with the REIT distribution requirement that it annually distribute no less than 90% of its taxable income. The Company cannot assure that regular distributions will continue to be made or that it will maintain any particular level of distributions that it has established or may establish.

22

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 Value Plus Real Estate Investment Trust, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT, L.P. and its wholly owned subsidiaries, which we collectively refer to as “the Operating Partnership.” Dollar amounts are presented in thousands, except per share data and where indicated in millions.

As discussed in Notes 1 and 8 of the Notes to Consolidated Financial Statements, the results of operations presented below exclude certain properties due to their classification as discontinued operations.

 

Forward-Looking Statements

 

Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the Securities and Exchange Commission, or the SEC, contain or will contain, forward-looking statements. All statements, other than statements of 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 regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that 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 discussed in the forward-looking statements.

 

Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, 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 (defined herein) 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 (“CAM”), 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, Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q, our Form 10-K 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 speak only as of the date they are made, and 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 unless required by law.

  

Overview

 

Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT”) and Lightstone Value Plus REIT, LP, (the “Operating Partnership”) and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used.

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Lightstone REIT has and may continue to acquire and operate in the future, commercial, residential and hospitality properties and make real estate-related investments, principally in the United States. PrincipallyOur acquisitions and investments are principally conducted through the Operating Partnership, our acquisitionsand have included both portfolios and individual properties. Our commercial holdings currently consist of retail (primarily multi-tenant shopping centers), lodging, industrial properties and residential properties comprised of multi-family complexes. The Company also hasAll such properties have been and will continue to seekbe acquired and operating by us alone or jointly with others.

As discussed in Notes 1 and 8 of the Notes to originate, acquire and manage a diverse portfolioConsolidated Financial Statements, the results of real estate-related investments.operations presented below exclude certain properties due to their classification as discontinued operations.

 

We do not have employees. We have an advisory agreement with Lightstone Value Plus REIT LLC, a Delaware limited liability company, which we refer to as the “Advisor,” pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors. We pay the Advisor fees for services related to the investment and management of our assets, and we reimburse the Advisor for certain expenses incurred on our behalf.

 

Beginning with the year ended December 31, 2006, we qualified to be taxed as a real estate investment trust (a “REIT”), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our ordinary taxable income to stockholders. As a REIT, we generally will not be subject to U.S. federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. As of June 30, 2019, we continue to comply with the requirements for maintaining our REIT status.

To maintain our qualification as a REIT, we engage in certain activities such as providing real estate-related services through taxable REIT subsidiaries (“TRSs”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.

Current Environment

 

Our operating results as well as our investment opportunities are generally impacted by the health of the North American economies.  Our business and financial performance may be adversely affected by current and future economic conditions, such as an availability of credit, financial markets volatility and recession.

 

Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the value and performance of our properties, and may affect our ability to pay distributions, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due.

 

We are not 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, other than those referred to in this Form 10-Q.

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Portfolio Summary –Wholly Owned and Consolidated Real Estate Properties:

 

  Location Year Built (Range of
years built)		 Gross Leasable
Area (GLA") in
Square Feet		  Percentage Occupied as
of September 30, 2017		  Annualized Revenues based
on rents at
September 30, 2017		 Annualized Revenues per
square foot at September
30, 2017		 
Wholly Owned and Consolidated Real Estate Properties:                  
                   
Retail                  
St. Augustine Outlet Center St. Augustine, FL 1998  335,455   83.0% $3.7 million $13.33 
DePaul Plaza Bridgeton, MO 1985  187,090   87.6% $1.9 million $11.88 
    Retail Total  522,545   84.7%      
                   
Industrial                  
7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio New Orleans, LA 1980-2000  339,700   58.4% $2.2 million $10.94 
4 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio San Antonio, TX 1982-1986  484,369   82.6% $2.0 million $5.02 
3 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio Baton Rouge, LA 1985-1987  182,792   80.9% $1.1 million $7.10 
    Industrial Total  1,006,861   74.1%      
                   
Multi - Family Residential Location Year Built (Range of
years built)		 Leasable Units  Percentage Occupied as
of September 30, 2017		  

Annualized Revenues based
on rents at

September 30, 2017

 Annualized Revenues per
unit at September 30, 2017		 
                   
Gantry Park (Multi-Family Apartment Building) Queens, NY 2013  199   96.0% $8.2 million $43,082 
  Location Year Built
(Range of
years built)		 Date Acquired Gross Leasable
Area ("GLA")
in Square
Feet/Leaseable
Units		    Percentage
Occupied as
of June 30, 2019		  Annualized
Revenues
based on rents at
June 30, 2019		  Annualized
Revenues per
square foot/unit
at June 30,
2019		   
                       
St. Augustine Outlet Center St. Augustine, Florida 1998 March 2006  328,120  GLA  74.7%  $2.6 million  $10.78  sqft
DePaul Plaza Bridgeton, Missouri 1985 November 2011  187,142  GLA  89.1%  $1.9 million  $11.59  sqft
Gantry Park Landing (Multi-Family Apartment Building) Queens, New York 2013 August 2013  199  units  99.0%  $8.9 million  $45,019  unit

 

Annualized revenue is defined as the minimum monthly payments due as of SeptemberJune 30, 20172019 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.

 

Critical Accounting Policies and Estimates

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There were no material changes during the nine months ended September 30, 2017 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2016.

 

Results of Operations

 

Dispositions

 

DoubleTree – DanversDisposition Transactions related to Gulf Coast Industrial Portfolio

On September 7, 2017, we disposed of a hotelWe had an outstanding non-recourse mortgage loan (the “Gulf Coast Industrial Portfolio Mortgage Loan”) which was originated in February 2007 and water park (the “DoubleTree – Danvers”) located in Danvers, Massachusetts, to an unrelated third party for aggregate consideration of approximately $31.5 million. In connection with the disposition, we recorded a gain on the disposition of real estate of approximately $10.5 millionsubsequently transferred during the third quarter of 2017.

Oakview Plaza

Our non-recourse mortgage loan (the “Oakview Plaza Mortgage”) secured by a retail power center located in Omaha, Nebraska (“Oakview Plaza”) matured in January 2017 and was not repaid which constituted a maturity default. The Oakview Plaza Mortgage was transferred2012 to a special servicer that discontinued scheduled debt service payments and notified us that the loan was in default and due on September 15, 2017,demand. The Gulf Coast Industrial Portfolio Mortgage Loan was initially cross-collateralized by a portfolio of 14 industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) including ten properties located in Louisiana (seven properties located in New Orleans and three properties located in Baton Rouge, and collectively, the “Louisiana Properties”) and four properties located in San Antonio, Texas (the “San Antonio Properties”).

Foreclosure of San Antonio Assets

On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million.

Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of Oakview Plaza was transferred to the lender via foreclosure (the “Oakview Plaza Foreclosure”). San Antonio Assets for the agreed upon aggregate sales price of $20.7 million. We simultaneously received an aggregate credit of approximately $20.7 million which we applied against the total outstanding indebtedness (approximately $19.6 million and $1.1 million of principal and accrued interest payable, respectively) of the Gulf Coast Industrial Portfolio Mortgage.

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the Oakview Plaza Foreclosure both approximated $27.0 million. The balanceforeclosure of the Oakview Plaza Mortgage asSan Antonio Assets were approximately $13.6 million and $20.7 million, respectively.

Since our performance obligations were met at the closing of the date of foreclosure was $25.6 millionsales and the associated accrued default interest was $1.0 million.

Southeastern Michigan Multi-Family Properties

On May 17, 2016, the Company disposed of three of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties to an unrelated third party for aggregate consideration of approximately $50.6 million. In connectionwe had no continuing involvement with the disposition, the Company recorded aSan Antonio Assets an aggregate gain on the disposition of real estate of approximately $19.9$7.1 million was recognized during the second quarter of 2016. Approximately $38.2 million of the proceeds were used to repay in full the outstanding principal balance of the mortgage that was secured by the Southeastern Michigan Multi-Family Properties.2018.

On July 26, 2016, the remaining apartment community in the Southeastern Michigan Multi-Family Properties was disposed of to the same unrelated third party for approximately $10.3 million. In connection with the disposition, the Company recorded a gain on

During 2018, the disposition of real estate of approximately $3.8 million during the third quarter of 2016. The complete disposition of the Southeastern Michigan Multi-Family Properties resulted in an aggregate gain on the disposition of real estate of approximately $23.7 million during the nine months ended September 30, 2016.

The dispositions of the DoubleTree – Danvers, Oakville Plaza and the Southeastern Michigan Multi-Family PropertiesSan Antonio Assets did not initially qualify to be reported as discontinued operations since nonetheir disposition did not represent a strategic shift that had a major effect on our operations and financial results.

Assignment of Ownership in Louisiana Assets to Lender

On February 12, 2019, we and the lender of the dispositionsGulf Coast Industrial Portfolio Mortgage entered into an assignment agreement (the “Assignment Agreement”) pursuant to which we assigned our membership interests in the Louisiana Assets to the lender with an effective date of February 7, 2019. Under the terms of the Assignment Agreement, the lender assumed the significant risks and rewards of ownership and took legal title and physical possession of the Louisiana Assets and assumed all the other assets and related liabilities, including the Gulf Coast Industrial Mortgage and its accrued and unpaid interest, and released us of any claims against the liabilities assumed.

As a result of the Assignment Agreement, we have fully satisfied all of our obligations with respect to the Gulf Coast Industrial Portfolio Mortgage and all amounts accrued but not paid for interest (including default interest) and no amounts are due to the lender. Additionally, we have no continuing involvement with the Louisiana Assets. 

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with our assignment of our ownership interests in the Louisiana Assets to the lender was approximately $37.0 million and $49.6 million, respectively.

Since our performance obligations were met upon the assignment of our ownership interests in the Louisiana Assets to the lender and we have no continuing involvement with the Louisiana Assets, an aggregate gain on debt extinguishment of approximately $13.6 million was recognized during the first quarter of 2019.

The disposition of the Louisiana Assets, which comprised all of our remaining industrial properties, represented a strategic shift that had a major effect on the Company’sour operations and financial results. Accordingly,

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As a result of the disposition transactions related to both the San Antonio Assets and the Louisiana Assets, we no longer have any industrial properties. Because the Gulf Coast Industrial Portfolio Mortgage was cross-collateralized by the Gulf Coast Industrial Portfolio, comprised of both the San Antonio Assets and Louisiana Assets, the operating results of the DoubleTree – Danvers, Oakville Plaza and the Southeastern Michigan Multi-Family Properties are reflectedentire Gulf Coast Industrial Portfolio have been classified as discontinued operations in the Company’s results from continuingour consolidated statements of operations for all periods presented through their respective dates of disposition. The operating results of the apartment communities contained in the Southeastern Michigan Properties were included in our Multi-Family Residential Segment, the DoubleTree – Danvers in our Hospitality Segment and Oakville in our Retail Segment, through their respective dates of disposition.

Our primary financial measure for evaluating each of our properties is net operating income (“NOI”). NOI represents revenues less property operating expenses, real estate taxes and general and administrative expenses. We believe that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of our properties.presented.

 

For the Three Months Ended SeptemberJune 30, 20172019 vs. SeptemberJune 30, 20162018

 

Consolidated – Continuing Operations

 

Revenues

 

Our revenues are comprised of rental revenues,income and tenant recovery income and other service income. Total revenues decreased slightly by approximately $2.2$0.1 million to $10.9$3.9 million for the three months ended SeptemberJune 30, 20172019 compared to $13.1$4.0 million for the same period in 2016. See “Segment Results of Operations for the Three Months Ended September 30, 2017 compared to September 30, 2016” for additional information on revenues by segment.2018.

 

Property operating expenses

Property operating expenses decreased slightly by approximately $1.1$0.1 million to $5.7$1.1 million for the three months ended SeptemberJune 30, 20172019 compared to $6.8$1.2 million for the same period in 2016. This decrease primarily reflects lower expenses in our Hospitality Segment principally due to the disposition of the DoubleTree – Danvers.2018.

 

Real estate taxes

Real estate taxes expense were relatively flat decreasingincreased by approximately $0.1$0.2 million to $0.6$0.5 million for the three months ended SeptemberJune 30, 20172019 compared to $0.7$0.3 million for the same period in 2016.2018. The increase was principally attributable to real estate taxes associated with our two land parcels located at 355 and 399 Exterior Street, New York (collectively, the “Exterior Street Land”) which were acquired in February 2019.

 

General and administrative expenses

 

General and administrative expenses increaseddecreased by approximately $1.2$0.2 million to $2.2$0.8 million for the three months ended SeptemberJune 30, 20172019 compared to $1.0 million for the same period in 2016.  This increase was primarily2018 principally due to an increasea decrease in professional fees.fees and lower asset management fees as a result of the disposition transactions related to the Gulf Coast Industrial Portfolio.

Depreciation and amortization

 

Depreciation and amortization expenses were flat at $2.7decreased slightly by approximately $0.1 million to $1.3 million for both the three months ended SeptemberJune 30, 2017 and 2016.2019 compared to $1.4 million for the same period in 2018.

 

Interest and dividend income

 

Interest and dividend income increaseddecreased by approximately $1.0$0.6 million to $5.6$3.8 million for the three months ended SeptemberJune 30, 20172019 compared to $4.6 million for the same period in 2016.2018. The increasedecrease primarily reflects an increaselower investment income of $0.7$1.1 million in investment income from our Preferred Investments (see Note 8)and a decrease in dividend income from our investments in marketable securities of $0.4 million partially offset by interest on our notes receivable of $0.6 million and an increase in earningsinterest earned on our investments.available cash of $0.2 million.

 

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Interest expense

 

Interest expense, including amortization of deferred financing costs, increaseddecreased by approximately by approximately $0.5$1.2 million to $3.6$0.3 million for the three months ended SeptemberJune 30, 20172019 compared to $3.1$1.5 million for the same period in 2016. The increase2018. This decrease primarily relates toreflects lower interest expense resulting from the accrualcapitalization of default interest in 2017 onconnection with our development activities and a reduction in outstanding mortgage indebtedness during the Oakview Plaza Mortgage.2019 period resulting from the repayment in full of a mortgage that was collateralized by the St. Augustine Outlet Center in May 2018.

 

GainUnrealized loss on disposition of real estatemarketable equity securities

 

During the third quarterthree months ended June 30, 2019, we recorded an unrealized loss on marketable equity securities of 2017$4.8 million and during the three months ended June 30, 2018, we recognized arecorded an unrealized gain on dispositionmarketable equity securities of real estate$3.5 million which represents the change in the fair value of approximately $10.5 million related toour marketable equity securities during the sale of the DoubleTree – Danvers. During the third quarter of 2016 we recognized a gain on disposition of real estate of approximately $3.8 million related to the sale of the remaining apartment community contained in our Southeastern Michigan Multi-Family Properties.three months ended June 30, 2019 and 2018, respectively.

 

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Noncontrolling interests

 

The net earnings allocated to noncontrolling interests relates to (i) parties of the interestsCompany that hold units in the Operating Partnership, held by our Sponsor as well as common units held by our limited partners (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, and (iii) the ownership interests in 50-01 2nd St2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates.

Segment Resultsaffiliates, (iii) the ownership interest in the 162nd Street Joint Venture I held by an affiliate of Operations forour Sponsor, (iv) the Three Months Ended September 30, 2017 compared to September 30, 2016

Retail Segment

  For the Three Months Ended September 30,  Variance Increase/(Decrease) 
  2017  2016  $  % 
  (unaudited)       
Revenues $2,452  $2,904  $(452)  -15.6%
NOI  1,147   1,746   (599)  -34.3%
Average Occupancy Rate for period  84.7%  85.9%      -1.2%

The following table represents lease expirations forownership interest in the Retail Segment as162nd Street Joint Venture II held by an affiliate of September 30, 2017:

Lease
Expiration
Year		 Number of
Expiring
Leases		  GLA of Expiring
Leases (Sq. Ft.)		  Annualized Base Rent
of Expiring
Leases ($)		  Percent of
Total GLA		  Percent of Total
Annualized Base
Rent		 
2017  6   15,337   188,733   3.9%  3.6%
2018  11   43,285   658,666   10.9%  12.6%
2019  16   72,742   1,404,525   18.4%  27.0%
2020  10   156,195   1,555,082   39.3%  29.9%
2021  5   27,564   418,471   7.0%  8.0%
2022  3   7,818   126,832   2.0%  2.4%
2023  1   28,000   479,920   7.1%  9.2%
2024  1   1,163   53,375   0.3%  1.0%
2025  4   15,517   270,237   3.9%  5.2%
2026  2   28,687   56,382   7.2%  1.1%
Thereafter  -   -   -   -   - 
   59   396,308   5,212,223   100.0%  100.0%

As of September 30, 2017, we had three tenants, Kohl’s Inc., Saks & Companyour Sponsor and H& M Hennes & Mauritz L.P., each with one store, representing approximately 19.0%, 5.4% and 5.0%, respectively,(v) the ownership interest in the Greenpoint Joint Venture held by an affiliate of the total GLA in our Retail Segment. Additionally, as of that date, we did not have any other tenants whose GLA was 5% or more of the total GLA in our Retail Segment.Company’s Sponsor. 

 

Revenues and NOI decreased for the three months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the lower average occupancy rate during the 2017 period.

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Multi-Family Residential Segment

  For the Three Months Ended September 30,  Variance Increase/(Decrease) 
  2017  2016  $  % 
  (unaudited)       
Revenues $2,118  $2,283  $(165)  -7.2%
NOI  1,604   1,707   (103)  -6.0%
Average Occupancy Rate for period  96.0%  64.7%      31.3%

Revenues and NOI decreased for the three months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the disposition of an apartment community contained in the Southeastern Michigan Multi-Family Properties on July 26, 2016. Revenues and NOI decreased by approximately $0.1 million and $0.1 million, respectively, for the three months ended September 30, 2017 compared to the same period in 2016 for the Southeastern Michigan Multi-Family Properties. Revenues and NOI were relatively flat for Gantry Park, our only remaining multi-family residential property.

Industrial Segment

  For the Three Months Ended September 30,  Variance Increase/(Decrease) 
  2017  2016  $  % 
  (unaudited)       
Revenues $1,581  $1,341  $240   17.9%
NOI  782   609   173   28.4%
Average Occupancy Rate for period  73.3%  61.4%      11.9%

The following table represents lease expirations for our Industrial Segment as of September 30, 2016:

Lease
Expiration
Year		 Number of
Expiring
Leases		  GLA of Expiring
Leases (Sq. Ft.)		  Annualized Base Rent
of Expiring
Leases ($)		  Percent of
Total GLA		  Percent of Total
Annualized
Base Rent		 
2017  11   37,380   -   5.0%  0.0%
2018  32   243,433   1,711,343   32.7%  34.4%
2019  19   103,085   583,374   13.8%  11.7%
2020  24   158,916   1,381,840   21.3%  27.8%
2021  3   10,054   89,567   1.3%  1.8%
2022  11   104,475   692,166   14.0%  13.9%
2023  1   88,800   519,480   11.9%  10.4%
Thereafter  -   -   -   -   - 
   101   746,143   4,977,770   100.0%  100.0%

As of September 30, 2017, we did not have any tenants whose GLA was 5% or more of the total GLA in our Industrial Segment.

Revenues and NOI increased for the three months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the higher average occupancy rate during the 2017 period.

Hospitality Segment

  For the Three Months Ended September 30,  Variance Increase/(Decrease) 
  2017  2016  $  % 
  (unaudited)       
Revenues $4,741  $6,532  $(1,791)  -27.4%
NOI  954   1,478   (524)  -35.5%
Average Occupancy Rate for period  76.4%  84.8%      -8.4%
Rev PAR $108.25  $113.56  $(5.31)  -4.7%

Revenues and NOI decreased during the three months ended September 30, 2017 compared to the same period in 2016 resulting from the disposition of the DoubleTree – Danvers, which was our only remaining hospitality property, on September 7, 2017, as well as decreased occupancy levels and RevPAR during the 2017 period.

For the NineSix Months Ended SeptemberJune 30, 20172019 vs. SeptemberJune 30, 20162018

 

Consolidated – Continuing Operations

 

Revenues

 

Our revenues are comprised of rental revenues,income and tenant recovery income and other service income. Total revenues decreased slightly by approximately $5.1$0.1 million to $35.1$7.9 million for the ninesix months ended SeptemberJune 30, 20172019 compared to $40.2$8.0 million for the same period in 2016. See “Segment Results of Operations for the nine months ended September 30, 2017 compared to September 30, 2016” for additional information on revenues by segment.2018.

 

Property operating expenses

 

Property operating expenses decreased slightly by approximately $2.4$0.1 million to $18.5$2.3 million for the ninesix months ended SeptemberJune 30, 20172019 compared to $20.9$2.4 million for the same period in 2016. This decrease primarily reflects lower expenses in our Multi-Family Residential Segment principally due to the disposition of the Southeastern Michigan Multi-Family Properties and our Hospitality Segment principally due to the disposition of the DoubleTree – Danvers.2018.

 

Real estate taxes

 

Real estate taxes expense decreasedincreased slightly by approximately $0.4$0.1 million to $2.0$0.7 million for the ninesix months ended SeptemberJune 30, 20172019 compared to $2.4$0.6 million for the same period in 2016.  This decrease primarily reflects lower expenses in our Multi-Family Residential Segment principally due to the disposition of the Southeastern Michigan Multi-Family Properties.2018.

 

General and administrative expenses

 

General and administrative expenses increaseddecreased by approximately $0.9$0.6 million to $4.6$1.6 million for the ninesix months ended SeptemberJune 30, 20172019 compared to $3.7$2.2 million for the same period in 2016.  This increase was primarily2018 principally due to an increasea decrease in professional fees.fees and lower asset management fees as a result of the disposition transactions related to the Gulf Coast Industrial Portfolio.

 

Depreciation and amortization

 

Depreciation and amortization expense decreased slightly by approximately $0.3$0.1 million to $8.3$2.6 million for the ninesix months ended SeptemberJune 30, 20172019 compared to $8.6$2.7 million for the same period in 2016.  This decrease primarily reflects lower depreciation expense in our Multi-Family Residential Segment principally due to the disposition of the Southeastern Michigan Multi-Family Properties.2018.

 

Interest and dividend income

 

Interest and dividend income increaseddecreased by approximately $0.6$2.0 million to $15.4$7.7 million for the ninesix months ended SeptemberJune 30, 20172019 compared to $14.8$9.7 million for the same period in 2016.2018. The increasedecrease primarily reflects an increaselower investment income of $0.7$2.5 million in investment income from our Preferred Investments (see Note 8) partially offset by lower interest and a decrease in dividend income from our investments in marketable securities of $0.1$0.6 million partially offset by interest on our notes receivable of $0.8 million and an increase in interest earned on available cash of $0.3 million.

 

Interest expense

 

Interest expense, including amortization of deferred financing costs, increaseddecreased by approximately $0.7$2.4 million to $10.8$0.7 million for the ninesix months ended SeptemberJune 30, 20172019 compared to $10.1$3.1 million for the same period in 2016. The increase2018. This decrease primarily relates toreflects lower interest expense resulting from the accrualcapitalization of default interest onin connection with our development activities and a reduction in outstanding mortgage indebtedness during the Oakview Plaza Mortgage.

Gain on disposition of real estate

During the nine months ended September 30, 2017 we recognized a gain on disposition of real estate of approximately $10.5 million related to the sale of the DoubleTree – Danvers. During the nine months ended September 30, 2016 we recognized a gain on disposition of real estate of approximately $23.7 million related to the sale of the Southeastern Michigan Multi-Family Properties.

Gain on satisfaction of mortgage receivable

During the second quarter of 2017 we recognized a gain on satisfaction of mortgage receivable of approximately $3.2 million related to2019 period resulting from the repayment in full of oura mortgage receivablethat was collateralized by a Holiday Inn Express locatedthe St. Augustine Outlet Center in East Brunswick, New JerseyMay 2018.

Unrealized loss on marketable equity securities

During the six months ended June 30, 2019, we recorded an unrealized loss on marketable equity securities of $1.7 million and during the six months ended June 30, 2018, we recorded an unrealized loss on marketable equity securities of $0.3 million which we acquired at a discountrepresents the change in 2011. See Note 4. the fair value of our marketable equity securities during the six months ended June 30, 2019 and 2018, respectively.

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Noncontrolling interests

 

The net earnings allocated to noncontrolling interests relates to (i) parties of the interestsCompany that hold units in the Operating Partnership, held by our Sponsor as well as common units held by our limited partners (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, and (iii) the ownership interests in 50-01 2nd St2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates.affiliates, (iii) the ownership interest in the 162nd Street Joint Venture I held by an affiliate of our Sponsor, (iv) the ownership interest in the 162nd Street Joint Venture II held by an affiliate of our Sponsor and (v) the ownership interest in the Greenpoint Joint Venture held by an affiliate of our Sponsor. 

 

Segment Results of Operations for the Nine Months Ended September 30, 2017 compared to September 30, 2016

Retail Segment

  For the Nine Months Ended September 30,  Variance Increase/(Decrease) 
  2017  2016  $  % 
  (unaudited)       
Revenues $7,805  $8,546  $(741)  -8.7%
NOI  3,774   4,765   (991)  -20.8%
Average Occupancy Rate for period  97.0%  86.6%      11.0%

Revenues and NOI decreased for the nine months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the lower average occupancy rate during the 2017 period.

Multi-Family Residential Segment

  For the Nine Months Ended September 30,  Variance Increase/(Decrease) 
  2017  2016  $  % 
  (unaudited)       
Revenues $6,443  $10,405  $(3,962)  -38.1%
NOI  4,925   6,824   (1,899)  -27.8%
Average Occupancy Rate for period  86.4%  86.0%      0.4%

Revenues and NOI decreased for the nine months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the disposition of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties during 2016. Revenues and NOI decreased by approximately $3.9 million and $1.8 million, respectively, for the nine months ended September 30, 2017 compared to the same period in 2016 for the Southeastern Michigan Multi-Family Properties. Revenues and NOI were relatively flat for Gantry Park, our only remaining multi-family residential property.

Industrial Segment

  For the Nine Months Ended September 30,  Variance Increase/(Decrease) 
  2017  2016  $  % 
  (unaudited)       
Revenues $4,683  $4,115  $568   13.8%
NOI  2,459   1,878   581   30.9%
Average Occupancy Rate for period  71.8%  62.1%      9.7%

As of September 30, 2017, we did not have any tenants whose GLA was 5% or more of the total GLA in our Industrial Segment.

Revenues and NOI increased for the nine months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the higher average occupancy rate during the 2017 period.

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Hospitality Segment

  For the Nine Months Ended September 30,  Variance Increase/(Decrease) 
  2017  2016  $  % 
  (unaudited)       
Revenues $16,161  $17,104  $(943)  -5.5%
NOI  3,098   3,008   90   3.0%
Average Occupancy Rate for period  70.2%  67.6%      2.6%
Rev PAR $92.12  $86.61  $5.51   6.4%

Revenues decreased and NOI increased slightly during the nine months ended September 30, 2017 compared to the same period in 2016 resulting from the disposition of the DoubleTree – Danvers on September 7, 2017 partially offset by increased occupancy levels and RevPAR at the DoubleTree – Danvers, which was our only remaining hospitality property.

Financial Condition, Liquidity and Capital Resources

 

Overview:

 

Rental revenue,income, interest and dividend income and borrowings are our principal source of funds to pay operating expenses, scheduled debt service, capital expenditures and distributions, excluding non-recurring capital expenditures.

 

We expect to meet our short-term liquidity requirements, including the costs of our expected non-recurring capital expenditures, including development activities, generally through working capital, redemptions of our Preferred Investments, the remaining availability on the Bowery Mortgage ($1.9 million as of June 30, 2019) and new borrowings. As of June 30, 2019, we had approximately $43.6 million of cash and cash equivalents on hand and $58.9 million of marketable securities, available for sale. 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.

 

Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called “balloon” payment and are at a fixed interest rate.

Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan and line of credit collateralized by the securities held with the financial institution that provided the margin loan and line of credit as well as a portion of our Marco OP Units. These loans are due on demand and any outstanding balance must be paid upon the liquidation of securities.

The Exterior Street Loan (outstanding principal balance of $35.0 million as of June 30, 2019) initially matures on April 9, 2020 but has two, six-month extension options, subject to certain conditions. The Company intends to seek to exercise the extension options or refinance the Exterior Street Loan on or before its applicable stated maturity date. The mortgage loan (the “DePaul Plaza Mortgage”) collateralized by the DePaul Plaza retail property (outstanding principal balance of $13.9 million as of June 30, 2019) matures on June 1, 2020. We currently have $159.7 millionexpect to refinance all or a portion of the DePaul Plaza Mortgage on or before its scheduled maturity date. However, if we are unable to refinance the outstanding indebtedness at favorable terms, we will look to repay the then outstanding balance with available cash and/or proceeds from selective asset sales. The Company has no additional significant maturities of mortgage debt and an $18.6 million outstanding under a line of credit. We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% ofover the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness, having a maturity of two years or less.next 12 months.

 

Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, 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 and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As of SeptemberJune 30, 2017,2019, our total borrowings of $178.3$155.3 million represented 50%45% of net assets.

Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called “balloon” payment and are at a fixed interest rate.

Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we borrowed using a margin loan collateralized by the securities held with the financial institution that provided the margin loan. This loan is due on demand and will be paid upon the liquidation of securities.

 

Any future properties that we may acquire or investments we may make may be funded through a combination of borrowings, proceeds generated from the sale and redemption of our marketable securities, available for sale, proceeds received from the selective disposition of our properties and proceeds received from the redemption of our preferred investments in related parties. These 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 addition, we may 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 properties with debt, which will be on a non-recourse basis. 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 responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.

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We may also obtain lines of credit to be used to acquire properties or real estate-related assets. These lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital or permanent financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so.

 

In addition to meeting working capital needs and distributions, if any, to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager, including payments related to asset acquisition fees, development fees and leasing commissions, asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor.

 

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

 

 Three Months Ended September 30,  Nine Months Ended September 30,  Three Months Ended June 30,  Six Months Ended June 30, 
 2017  2016  2017  2016  2019  2018  2019  2018 
Acquisition fees (capitalized and are reflected in the carrying value of the investment) $-  $-  $1,823  $- 
Asset management fees (general and administrative costs) $556  $562  $1,684  $1,804   301   427   638   891 
Property management fees (property operating expenses)  199   190   576   739   76   136   155   289 
Development fees and leasing commissions*  125   29   706   80   93   42   167   120 
Total $880  $781  $2,966  $2,623  $470  $605  $2,783  $1,300 

 

* Generally, capitalized and amortized over the estimated useful life of the associated asset.

*Generally, capitalized and amortized over the estimated useful life of the associated asset.

 

As of September 30, 2017, we had approximately $127.4 million of cash and cash equivalents on hand and $54.0 million of marketable securities, available for sale.

Summary of Cash Flows

 

The following summary discussion of our cash flows is based on the consolidated 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  2016 
  (unaudited) 
Cash flows provided by operating activities $18,491  $20,471 
Cash flows provided by investing activities  21,702   85,252 
Cash flows used in financing activities  (18,351)  (69,730)
Net change in cash and cash equivalents  21,842   35,993 
         
Cash and cash equivalents, beginning of the year  105,539   68,459 
Cash and cash equivalents, end of the period $127,381  $104,452 
  For the Six Months Ended June 30, 
  2019  2018 
    
Net cash flows provided by operating activities $10,788  $9,278 
Net cash flows used in investing activities  (29,353)  (15,960)
Net cash flows provided by/(used in) financing activities  27,942   (33,846)
Net change in cash, cash equivalents and restricted cash  9,377   (40,528)
         
Cash, cash equivalents and restricted cash, beginning of year  36,582   119,219 
Cash, cash equivalents and restricted cash, end of the period $45,959  $78,691 

 

Our principal sources of cash flow are derived from the operation of our rental properties, interest and dividend income on our marketable securities and real estate-related investments, as well as loan proceeds investment income, and proceeds from redemptions of preferred investments in related parties. We intend that our properties and real estate-related investments will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly distributions.distributions if authorized by our board of directors.

 

Our principal demands for liquidity are (i) our property operating expenses, (ii) real estate taxes, (iii) insurance costs, (iv) leasing costs and related tenant improvements, (v) capital expenditures, (vi) acquisition investment and development activities, including our investments in related parties (vii) scheduled debt service and (viii) distributions to our stockholders and noncontrolling interests. The principal sources of funding for our operations are operating cash flows and proceeds from (i) the sale and redemption of marketable securities, (ii) the selective disposition of properties or interests in properties, (iii) redemptions of our preferred investments in related parties, (iv) the issuance of equity and debt securities and (v) the placement of mortgage loans or other indebtedness.

Operating activities

 

Net cash flows provided by operating activities of $18.5$10.8 million for the ninesix months ended SeptemberJune 30, 20172019 consists of the following:

 

·cash inflows of approximately $16.0$10.9 million from our net income after adjustment for non-cash items; and

 

·cash inflowsoutflows of approximately $2.5$0.1 million associated with the net changes in operating assets and liabilities.liabilities and net cash used in discontinued operations.

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Investing activities

 

The net cash provided byused in investing activities of $21.7$29.4 million for the ninesix months ended SeptemberJune 30, 20172019 consists primarily of the following:

 

·net purchases of investment property of approximately $2.3$78.9 million;

 

·net preferred investments in related partiesfunding of $11.4notes receivable of $23.0 million;

 

·net purchasesproceeds from preferred investments in related parties of marketable securities of $4.1$24.7 million;

 

·funding of restricted escrows of $1.4 million;

·net proceeds from the dispositionsale and purchase of investment property and other real estate assetsmarketable securities of $32.7$48.0 million; and

 

·collectionnet cash used in discontinued operation of mortgage receivable of $8.1$0.2 million.

 

Financing activities

 

The net cash usedprovided by financing activities of approximately $18.4$27.9 million for the ninesix months ended SeptemberJune 30, 20172019 is primarily related to the following:

 

·distributions to our common shareholdersproceeds from mortgage financing, net of $13.1fees and expenses of $33.7 million;

·debt principal payments $0.8 million;

·contributions received from noncontrolling interests of $12.0 million;

 

·redemptions and cancellation of common stock of $2.1$7.0 million;

 

·aggregate distributions to our noncontrolling interests of $2.9$1.7 million; and

 

·debt principal payments $0.3distributions to our common shareholders of $8.1 million.

 

Development Activities

Lower East Side Moxy Hotel

On December 3, 2018, we, through a subsidiary of the Operating Partnership, acquired three parcels of land located at 147-151 Bowery, New York, New York (collectively, the “Bowery Land”) from 151 Emmut Properties LLC and 145-149 Bowery LLC, both unaffiliated third parties, for aggregate consideration of approximately $56.5 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). Additionally, on December 6, 2018, we, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, New York, New York (the “Air Rights”) from B.R.P. Realty Corp., an unaffiliated third party, for approximately $2.4 million, excluding closing and other acquisition related costs. We intend to use the Air Rights in connection with the development and construction of the Lower East Side Moxy Hotel.

On December 3, 2018, we entered into a mortgage loan collateralized by the Bowery Land and the Air Rights (the “Bowery Mortgage”) for approximately $35.6 million. The Bowery Mortgage has a term of two years, bears interest at LIBOR+4.25% and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity. Through June 30, 2019, the Company received aggregate proceeds of $33.7 million under the Bowery Mortgage. As a result, the Bowery Mortgage had an outstanding balance and remaining availability of $33.7 million and $1.9 million, respectively, as of June 30, 2019.

As of June 30, 2019 and December 31, 2018, we incurred and capitalized to construction in progress an aggregate of $67.2 million and $63.3 million, respectively, consisting of acquisition and other development costs attributable to the Lower East Side Moxy Hotel.

Exterior Street Project

On February 27, 2019, we, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York (collectively, the “Exterior Street Land”), from Borden Realty Corp and 399 Exterior Street Associates LLC, unaffiliated third parties, for an aggregate purchase price of approximately $59.0 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a multi-family residential property (the “Exterior Street Project”).

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On March 29, 2019, we entered into a $35.0 million loan (the “Exterior Street Loan”) which bears interest and 4.50% and is scheduled to initially mature on April 9, 2020, but may be further extended through the exercise of two, six-month extension options, subject to certain conditions. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land.

As of June 30, 2019, we incurred and capitalized to construction in progress an aggregate of $62.8 million consisting of acquisition and other development costs attributable to the Exterior Street Project.

Santa Clara Data Center

On January 10, 2019, we, through subsidiaries of the Operating Partnership, acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, CA (the “Martin Avenue Land”) from The Chioini Living Trust, an unaffiliated third party, for approximately $10.6 million, excluding closing and other acquisition related costs, on which we are developing a data center (the “Santa Clara Data Center”).

As of June 30, 2019, we have incurred and capitalized to construction in progress an aggregate of $12.2 million consisting of acquisition of the Martin Avenue Land and other development costs attributable to the Santa Clara Data Center.

We believe our capital resources are sufficient to fund our expected development activities related to the Lower East Side Moxy Hotel, the Exterior Land and the Santa Clara Data Center for the next 12 months. However, we ultimately expect to finance a substantial portion of our development costs through construction loans. There can be no assurance we will be successful in obtaining construction financing at favorable terms, if at all.

Preferred Investments

 

We have entered into several agreements with various related party entities that provide for us to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle us to monthly preferred distributions. The Preferred Investments had an aggregate balance of $152.7$76.0 million and $141.3$100.7 million as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments.

During the three and ninesix months ended SeptemberJune 30, 2017,2019, we (i) redeemed an aggregate of $17.0 million of the Company recognized investment incomeEast 11th Street Preferred Investment and the entire 30-02 39th Street Preferred Investment of $4.6$10.0 million and $12.9(ii) made aggregate contributions of $2.3 million respectively,for the Miami Moxy Preferred Investment and during the three and nine months ended Septemberas of June 30, 2016, the Company recognized investment income of $4.0 million and $12.2 million, respectively, which is included in interest and dividend income on the consolidated statements of operations.2019, there were no unfunded contributions.

 

The Preferred Investments are summarized as follows:

 

   Preferred Investment Balance  Unfunded Contributions  Investment Income     Preferred Investment Balance  Unfunded Contributions  Investment Income 
 Dividend As of
September 30,		 As of
December 31,		 As of
September 30,		 Three Months Ended September 30, Six Months Ended September 30,     As of As of As of Three Months Ended June 30, Six Months Ended June 30, 
Preferred Investments Rate 2017  2016  2017  2017  2016  2017  2016  Dividend Rate  June 30, 2019  December 31, 2018  June 30,2019  2019  2018  2019  2018 
365 Bond Street 12% $-  $-  $-  $-  $-  $-  $2,252 
40 East End Avenue 8% to 12%  30,000   30,000   -   920   613   2,463   1,795   12% $30,000  $30,000  $-  $910  $910  $1,810  $1,810 
30-02 39th Avenue 9% to 12%  10,000   12,300   40,000   307   436   946   1,009   12%  -   10,000   -   -   303   140   603 
485 7th Avenue 12%  60,000   60,000   -   1,840   1,840   5,460   5,480   12%  -   -   -   -   70   -   1,095 
East 11th Street 12%  40,994   31,271   16,506   1,155   1,073   3,135   1,675   12%  26,000   43,000   -   807   1,726   1,907   3,207 
Miami Moxy 12%  11,699   7,682   8,302   346   -   905   -   12%  20,000   17,733   -   558   398   1,090   772 
Total Preferred Investments   $152,693  $141,253  $64,808  $4,568  $3,962  $12,909  $12,211      $76,000  $100,733  $-  $2,275  $3,407  $4,947  $7,487 

 

Distribution Reinvestment PlanProgram (“DRIP”) and, Share Repurchase Program and Tender Offer

 

Our DRIP provides our stockholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to restrictions. From our inception through December 31, 20162018 we repurchased approximately 3.15.0 million shares of common stock. For the ninesix months ended SeptemberJune 30, 2017,2019, we repurchased 205,189606,747 shares of common stock for $10.00$10.87 per share, pursuant to our share repurchase program. We funded share repurchases for the periods noted above from the cumulative proceeds of the sale of our shares pursuant to our DRIP.DRIP and from our operating funds.

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On May 10, 2018, the Board of Directors amended the share repurchase program to (i) change to the price for all purchases under our share repurchase program from $10.00 per share to 92% of the estimated net asset value per share of the Company’s common stock (previously the purchase price was $10.00 per share) and (ii) increase the number of shares repurchased during any calendar year from two (2.0%) of the weighted average number of shares outstanding during the prior calendar year to five (5.0%) of the weighted average number of shares outstanding during the previous twelve months.

On January 19, 2015, the Board of Directors suspended our DRIP effective April 15, 2015. For so long

On October 16, 2018, the Company mailed a prospectus related to its amended and restated DRIP to its existing stockholders. The DRIP was reactivated as amended and restated effective on October 25, 2018.

Pursuant to the DRIP remains suspended,following its reactivation, the Company’s stockholders who elect to participate may invest all futureor a portion of the cash distributions that the Company pays them on shares of the Company’s common stock in additional shares of the Company’s common stock without paying any fees or commissions. The purchase price for shares under the DRIP will be equal to 95% of the Company’s current estimated per-share net asset value (the “Estimated Per-Share NAV”), as determined by the Company’s board of directors and reported by the Company from time to time. On December 13, 2018, our Board of Directors determined our NAV per Share of $11.82 as of September 30, 2018, which resulted in a purchase price for shares under the formDRIP of cash.$11.23 per share. As of June 30, 2019, we had approximately 10.0 million shares available for issuance under our DRIP. 

 

Our Board of Directors reserves the right to terminate either program for any reason without cause by providing written notice of termination of the DRIP to all participants or written notice of termination of the share repurchase program to all stockholders.

 

Tender Offer

The Company commenced a tender offer on April 19, 2019, pursuant to which it is offered to acquire up to 0.5 million shares of its common stock at a purchase price of $7.00 per share, or $3.5 million in the aggregate (the “Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on June 14, 2019, the Company repurchased approximately 60,420 of its shares of common stock at $7.00 per share, or an aggregate of approximately $0.4 million.

Contractual Obligations

 

The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of SeptemberJune 30, 2017.2019.

 

Contractual
Obligations		 Remainder of 2017  2018  2019  2020  2021  Thereafter  Total  2019  2020  2021  2022  2023  Thereafter  Total 
               
Mortgage Payable $50,307  $21,967  $1,621  $14,924  $1,328  $69,540  $159,687  $813  $83,600  $1,328  $1,389  $1,454  $66,697  $155,281 
Interest Payments1  1,286   4,727   3,867   3,534   3,191   9,112   25,717   3,819   6,443   3,191   3,130   3,065   2,917   22,565 
                                                        
Total Contractual Obligations $51,593  $26,694  $5,488  $18,458  $4,519  $78,652  $185,404  $4,632  $90,043  $4,519  $4,519  $4,519  $69,614  $177,846 

 

1)The non-recourse mortgage associated with the Gulf Coast Industrial Portfolio is due on demand and therefore, noThese amounts represent future interest payments related to mortgage payable obligations based on this mortgage is includedthe fixed and variable interest rates specified in this amounts.the associated debt agreement. All variable rate debt agreements are based on the one month LIBOR rate. For purposes of calculating future interest amounts on variable interest rate debt the one month LIBOR rate as of June 30, 2019 was used.

 

Certain of our debt agreements require the maintenance of certain ratios, including debt service coverage. We are currently in compliance with all of its financial debt covenants other than the debt associated with the Gulf Coast Industrial Portfolio as discussed below.

As a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio (the “Gulf Coast Industrial Portfolio Mortgage”), the lender elected to retain the excess cash flow from these properties beginning in July 2011.  During the third quarter of 2012, the Gulf Coast Industrial Portfolio Mortgage was transferred to a special servicer, who discontinued scheduled debt service payments and notified the Company that the Gulf Coast Industrial Portfolio Mortgage was in default and although originally due in February 2017 became due on demand. We believe the continued loss of excess cash flow from the Gulf Coast Industrial Portfolio will not have a material impact on our results of operations or financial position.

Our non-recourse mortgage loan (the “Oakview Plaza Mortgage”) secured by a retail power center located in Omaha, Nebraska (“Oakview Plaza”) matured in January 2017 and was not repaid which constituted a maturity default. The Oakview Plaza Mortgage was transferred to a special servicer and on September 15, 2017, ownership of Oakview Plaza was transferred to the lender via the Oakview Plaza Foreclosure”. The carrying value of the assets transferred and the liabilities extinguished in connection with the Oakview Plaza Foreclosure both approximated $27.0 million. The balance of the Oakview Plaza Mortgage as of the date of foreclosure was $25.6 million and the associated accrued default interest was $1.0 million.

Although the lender is not currently charging or being paid interest at the stated default rate, we are accruing default interest expense on the Gulf Coast Industrial Portfolio Mortgage pursuant to the terms of its loan agreement. Additionally, we accrued default interest expense on the Oakview Plaza Mortgage pursuant to the terms of its loan agreement from January 2017 through the date of the Oakview Plaza Foreclosure (September 15, 2017). Default interest expense of $0.8 million and $2.5 million was accrued during the three and nine months ended September 30, 2017 and default interest expense of $0.5 million and $1.5 million was accrued during the three and nine months ended September 30, 2016. Additionally, as disclosed above, in connection with the Oakview Plaza Foreclosure, approximately $1.0 million of default interest related to the Oakview Plaza Mortgage was extinguished. As a result, cumulative accrued default interest expense (solely related the Gulf Coast Industrial Portfolio Mortgage) of $10.7 million and $9.2 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively.  However, we do not expect to pay any of the accrued default interest expense as this mortgage loan is non-recourse to it.

In addition, our recourse mortgage loan secured by the St. Augustine Outlet Center located in St. Augustine, Florida (outstanding principal balance of $20.4 million as of September 30, 2017) initially matures in August 2018 and has two one-year extension options, subject to satisfaction of certain conditions. We currently intend to seek to exercise the extension option before the initial maturity. Other than these financings, we have no additional significant maturities of mortgage debt over the next 12 months.

Notes Payable

  

Margin Loan

 

We have access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of our marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (2.09%(3.25% as of SeptemberJune 30, 2017)2019) and is collateralized by the marketable securities in our account. The amounts available to us under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. There were no amounts outstanding under the Margin Loan as of SeptemberJune 30, 20172019 and December 31, 2016.2018.

 

Line of Credit

 

On September 14, 2012, we entered intoWe have a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $25.0$20.0 million. The Line of Credit expires on June 19, 20192021 and bears interest at Libor plus 1.35% (2.59%(3.75% as of SeptemberJune 30, 2017)2019). The Line of Credit is collateralized by approximately 252,000209,000 Marco OP Units and PRO has guaranteed the Line of Credit. The amountNo amounts were outstanding under the Line of Credit was $18.6 million as of SeptemberJune 30, 20172019 and is included in Notes Payable on the consolidated balance sheets. We currently intend to seek to extend or replace the Line of Credit on or before its expiration. If we are unable to extend or replace the Line of Credit, we will repay the then outstanding balance in full at the expiration date using cash proceeds from the sale of assets or redemptions of our preferred investments in related parties.December 31, 2018.

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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 definecalculate FFO, a non-GAAP measure, consistent with the standards set forthestablished over time by the Board of Governors of NAREIT, as restated in thea White Paper on FFO approved by the Board of Governors of NAREIT as revisedeffective in February 2004December 2018 (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 related to real estate, gains and after adjustments for unconsolidated partnershipslosses from the sale of certain real estate assets, gains and joint ventures.losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT's definition.

 

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

 

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT'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 and excludeacquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to straight line 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.

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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  For the Nine Months Ended 
  September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016 
Net income $12,202  $7,357  $20,057  $31,877 
FFO adjustments:                
Depreciation and amortization:                
Depreciation and amortization of real estate assets  2,738   2,705   8,252   8,595 
Equity in depreciation and amortization for unconsolidated affiliated real estate entities  -   -   -   - 
Adjustments to equity in earnings from unconsolidated entities, net  -   -   -   - 
Gain on disposal of investment property  (10,483)  (3,799)  (10,483)  (23,705)
Gain on satisfaction of mortgage receivable  -   -   (3,216)  - 
                 
FFO  4,457   6,263   14,610   16,767 
MFFO adjustments:                
Other Adjustment                
Acquisition and other transaction related costs expensed(1)  -   -   -   20 
Amortization of above or below market leases and liabilities(2)  (33)  (28)  (97)  (84)
Loss on debt extinguishment  -   -   -   2 
Accretion of discounts and amortization of premiums on debt investments  -   -   -   - 
Mark-to-market adjustments(3)  (26)  (130)  (83)  282 
Non-recurring (losses)/gains from extinguishment/sale of debt, derivatives or securities holdings(4)  -   -   -   - 
Loss on sale of marketable securities  18   15   67   952 
                 
MFFO  4,416   6,120   14,497   17,939 
Straight-line rent(5) $12  $65  $(44) $101 
MFFO - IPA recommended format(6) $4,428  $6,185  $14,453  $18,040 
                 
Net income $12,202  $7,357  $20,057  $31,877 
Less: loss attributable to noncontrolling interests  (392)  (310)  (915)  (1,166)
Net income applicable to Company's common shares $11,810  $7,047  $19,142  $30,711 
Net income  per common share, basic and diluted $0.47  $0.28  $0.77  $1.21 
                 
FFO $4,457  $6,263  $14,610  $16,767 
Less: FFO attributable to noncontrolling interests  (404)  (449)  (1,296)  (1,359)
FFO attributable to Company's common shares $4,053  $5,814  $13,314  $15,408 
FFO per common share, basic and diluted $0.16  $0.23  $0.53  $0.60 
                 
MFFO - IPA recommended format $4,428  $6,185  $14,453  $18,040 
Less: MFFO attributable to noncontrolling interests  (411)  (442)  (1,289)  (1,372)
MFFO attributable to Company's common shares $4,017  $5,743  $13,164  $16,668 
                 
Weighted average number of common shares outstanding, basic and diluted  24,931   25,379   24,993   25,479 

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  For the Three Months Ended  For the Six Months Ended 
  June 30, 2019  June 30, 2018  June 30, 2019  June 30, 2018 
Net (loss)/income $(1,113) $12,913  $19,114  $12,118 
FFO adjustments:                
Depreciation and amortization:                
Depreciation and amortization of real estate assets  1,302   1,376   2,581   2,687 
Equity in depreciation and amortization for unconsolidated affiliated real estate entities  -   -   -   - 
Discontinued operations                
Depreciation and amortization of real estate assets  -   429   121   891 
Gain on disposal of investment property  -   (7,137)  (70)  (7,137)
FFO  189   7,581   21,746   8,559 
MFFO adjustments:                
Other Adjustment                
Acquisition and other transaction related costs expensed(1)  -   -   (22)  - 
Amortization of above or below market leases and liabilities(2)  (35)  (35)  (70)  (70)
Discontinued operations:                
Loss/(gain) on debt extinguishment  -   117   (13,615)  117 
Accretion of discounts and amortization of premiums on debt investments  -   -   -   - 
Mark-to-market adjustments(3)  4,867   (3,510)  1,799   189 
Non-recurring gains from extinguishment/sale of debt, derivatives or securities holdings(4)  314   75   625   78 
MFFO  5,335   4,228   10,463   8,873 
Straight-line rent(5) $8  $97  $4  $112 
MFFO - IPA recommended format(6) $5,343  $4,325  $10,467  $8,985 
                 
Net (loss)/income $(1,113) $12,913  $19,114  $12,118 
Less: income attributable to noncontrolling interests  (300)  (753)  (1,154)  (643)
Net (loss)/income applicable to Company's common shares $(1,413) $12,160  $17,960  $11,475 
Net (loss)/income  per common share, basic and diluted $(0.06) $0.49  $0.77  $0.46 
                 
FFO $189  $7,581  $21,746  $8,559 
Less: FFO attributable to noncontrolling interests  (492)  (806)  (1,539)  (894)
FFO attributable to Company's common shares $(303) $6,775  $20,207  $7,665 
FFO per common share, basic and diluted $(0.01) $0.27  $0.87  $0.31 
                 
MFFO - IPA recommended format $5,343  $4,325  $10,467  $8,985 
Less: MFFO attributable to noncontrolling interests  (798)  (471)  (1,375)  (921)
MFFO attributable to Company's common shares $4,545  $3,854  $9,092  $8,064 
                 
Weighted average number of common shares outstanding, basic and diluted  23,174   24,650   23,325   24,715 

 

Notes:

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

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(3)Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable equity securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.

35

(4)Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods.
(5)Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.
(6)Our MFFO results include certain unusual items as set forth in the table below. We believe it is helpful to our investors in understanding our operating results to both highlight them and present adjusted MFFO excluding their impact (as shown below).

  For the Three Months Ended  For the Nine Months Ended 
  September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016 
Gulf Coast Industrial Portfolio - Default interest expense(a) $(514) $(541) $(1,523) $(1,538)
Oakview Plaza - Default interest expenes(b)  (273)  -   (991)  - 
Total default interest expense  (787)  (541)  (2,514)  (1,538)
Allocations to noncontrolling interests  15   10   48   30 
Total after allocations to noncontrolling interests $(772) $(531) $(2,466) $(1,508)

(a)Represents the accrual of default interest expense on our non-recourse mortgage loan collateralized by our Gulf Coast Industrial Portfolio Although the lender for the Gulf Coast Industrial Portfolio is currently not charging us or being paid interest at the stated default rate, we have accrued interest at the default rate pursuant to the terms of the respective loan agreement. Additionally, we have had various discussions with the special servicer to restructure the terms of the non-recourse mortgage loan and do not expect to pay any of the accrued default interest.
(b)Represents the accrual of default interest expense on our non-recourse mortgage loan secured by Oakview Plaza. The Oakview Plaza Mortgage Loan matured in January 2017 and was not repaid which constituted a maturity default. In connection with the Oakview Plaza Foreclosure which occurred on September 15, 2017, approximately $1.0 million of accrued default interest was extinguished.

Excluding the impact of these unusual items from our MFFO, after taking into consideration allocations to noncontrolling interests, our adjusted MFFO would have been  $5,642 and $6,274 for the three months ended September 30, 2017 and 2016, respectively and $16,483 and $18,176 for the nine months ended September 30, 2017 and 2016, respectively.

 

The table below presents our cumulative distributions paid and cumulative FFO attributable to the Company’s common shares:

 

 From inception through  From inception through 
 September 30, 2017  June 30, 2019 
      
FFO attributable to Company’s common shares $190,420  $228,266 
Distributions paid $194,172  $223,994 

 

On October 16, 2017,July 15, 2019, the distribution for the three-month period ending SeptemberJune 30, 20172019 of $4.4$4.0 million was paid in cash.full using a combination of cash and approximately 7,000 shares of the Company’s common stock issued pursuant to the Company’s DRIP, at a discounted price of $11.23 per share.

 

The amount of distributions paid to our stockholders in the future will be determined by our Board 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.

 

New Accounting Pronouncements

 

See Note 2 to the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been adopted during 2017,2019, if any, and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.

Subsequent Events

See Note 12 of the Notes to Consolidated Financial Statements for further information related to subsequent events during the period from October 1, 2017 through the date of this filing.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund the expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes.

As of September 30, 2017, we held various marketable securities with a fair value of approximately $54.0 million, which are available for sale for general investment return purposes. We regularly review the market prices of these investments for impairment purposes. As of September 30, 2017, a hypothetical adverse 10% movement in market values would result in a hypothetical loss in fair value of approximately $5.4 million.

The following table shows the contractually scheduled principal maturities of our mortgage debt during the next five years and thereafter as of September 30, 2017:

Remainder of

2017

  2018  2019  2020  2021  Thereafter  Total 
                    
$50,307  $21,967  $1,621  $14,924  $1,328  $69,540  $159,687 

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ accounts receivable, accounts payable and accrued expenses and due to related parties approximated their fair values because of the short maturity of these instruments. The estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate.

The estimated fair value of the Company’s mortgage debt is summarized as follows:

  As of September 30, 2017  As of December 31, 2016 
  Carrying Amount  Estimated Fair
Value		  Carrying Amount  Estimated Fair
Value		 
Mortgages payable $159.7  $158.0  $185.6  $183.2 

The fair value of the mortgage payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.

In addition to changes in interest rates, the value of our real estate and real estate related investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance our debt if necessary.

We cannot predict the effect of adverse changes in interest rates on our debt and, therefore, our exposure to market risk, nor can we provide any assurance that long-term debt will be available at advantageous pricing. Consequently, future results may differ materially from the estimated adverse changes discussed above.

 

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 our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.

PART II. OTHER INFORMATION:

 

ITEM 1. LEGAL PROCEEDINGS

 

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

 

As of the date hereof, 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.

ITEM 1A. RISK FACTORS

We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. For the quarter ended September 30, 2017, there were no such material developments.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit

Number

 Description
   
31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15 d-14(a) of the Securities Exchange Act, as amended.
32.1* Certification of Chief Executive 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.”
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 Value Plus Real Estate Investment Trust, Inc. on Form 10-Q for the quarter ended SeptemberJune 30, 2017,2019, filed with the SEC on NovemberAugust 14, 2017,2019, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows and (6) the Notes to the Consolidated Financial Statement.

 

*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 VALUE PLUS REAL ESTATE

INVESTMENT TRUST, INC.

  
Date:     NovemberAugust 14, 20172019By:/s/ David Lichtenstein
 David Lichtenstein
 

Chairman and Chief Executive Officer

(Principal (Principal Executive Officer)

  
Date:     NovemberAugust 14, 20172019By:/s/ Donna BrandinSeth Molod
 Donna BrandinSeth Molod
 

Chief Financial Officer and Treasurer

(Duly Authorized Officer and Principal Financial and Accounting Officer)

 

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