UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018March 31, 2019

Commission File Number: 000-53650

Lightstone Value Plus Real Estate Investment Trust V, Inc.

(Exact Name of Registrant as Specified in Its Charter)

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

(Address of principal executive offices) (Zip Code)

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

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

Indicate by check mark whether the Registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yesx No¨

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

Yesx Noo¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso¨ Nox

As of NovemberMay 1, 2018,2019, the Registrant had approximately 23.523.4 million shares of common stock outstanding.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST V, INC.

INDEX

PART I

FINANCIAL INFORMATION

Item 1.             Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Operations and Comprehensive Loss

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

(Unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statement of Stockholders’ Equity

(dollars and shares in thousands)

(Unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Business

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

We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, we have focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines.  We have acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily.  We have purchased existing, income-producing properties, and newly-constructed properties. We have also invested in other real estate-related investments such as mortgage and mezzanine loans. We intend to hold the various real properties in which we have invested until such time as our board of directors determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met. As of September 30, 2018, we had eight real estate investments, seven of which were consolidated (one wholly owned property and six properties consolidated through investments in joint ventures) and one real estate investment which we account for under the equity method. 

Substantially all of our business is conducted through Lightstone REIT V OP LP, which was previously named Behringer Harvard Opportunity OP II LP prior to November 1, 2017, a limited partnership organized in Delaware (the “Operating Partnership”).  As of September 30, 2018,March 31, 2019, our wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a 0.1% partnership interest in the Operating Partnership as its sole general partner.  As of September 30, 2018,March 31, 2019, our wholly-owned subsidiary, BHO Business Trust II, a Maryland business trust, was the sole limited partner of the Operating Partnership and owned the remaining 99.9% interest in the Operating Partnership.

Our business has beenis managed by an external advisor since the commencement of our initial public offering, and we

have no employees. From January 4, 2008 through February 10, 2017, an affiliate of Stratera Services, LLC, formerly known as “Behringer Harvard Holdings, LLC” (“Behringer”), acted as our external advisor (the “Behringer Advisor”). OnEffective February 10, 2017, we terminated our engagement of the Behringer Advisor and engaged affiliates of the Lightstone Group (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide advisory services to us. TheSubject to the oversight of our board of directors, our external advisor is responsible for managing our day-to-day affairs and for services related to the management of our assets.

Organization

In connection with our initial capitalization, we issued 22.5 thousand shares of our common stock and 1.0 thousand shares of our convertible stock to Behringerour previous advisor on January 19, 2007.  Behringer transferred itsThese shares of convertible stock to one of its affiliates on April 2, 2010. Behringer's affiliatewere transferred its shares of convertible stock to an affiliate of Lightstone on February 10, 2017. As of September 30, 2018,March 31, 2019, we had 23.523.4 million shares of common stock outstanding and 1.0 thousand shares of convertible stock outstanding. The outstanding convertible stock is held by an affiliate of Lightstone.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Our commonThe Company’s stock is not currently listed on a national securities exchange. The timingCompany 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.

Noncontrolling Interests

Noncontrolling interests represents the noncontrolling ownership interest’s proportionate share of the equity in our consolidated real estate investments.  Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage.   If a liquidity eventproperty reaches a defined return threshold, then it will result in distributions to noncontrolling interests which is different from the standard pro-rata allocation percentage. In certain instances, our joint venture agreements provide for our stockholders will depend upon then prevailing market conditions. We previously targeted the commencement of a liquidity event within six years after the termination of our initial public offering, which occurred on July 3, 2011. On June 29, 2017, our board of directors elected to extend the targeted timeline an additional six years until June 30, 2023liquidating distributions based on their assessment of our investment objectives and liquidity options for our stockholders. However, we can provide no assurances as to the actual timing of the commencement of a liquidity event for our stockholders or the ultimate liquidation of the Company. We will seek stockholder approval prior to liquidating our entire portfolio.achieving certain return metrics (“promoted interest”).

Interim Unaudited Financial Information

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017,2018, which was filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2018.April 1, 2019.  The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust V, Inc. have been prepared in accordance with generally accepted accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The consolidated balance sheet as of December 31, 2017 included herein has been derived from the consolidated balance sheet included in the Company's Annual Report on Form 10-K.

Use of Estimates in the Preparation of Financial Statements

Lightstone Value Plus Real Estate Investment Trust V, Inc.

The preparation of financial statementsNotes to Consolidated Financial Statements (Unaudited)

(Dollar and share amounts in conformity with GAAP requires management to make estimatesthousands, except per share/unit data and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The most significant assumptions and estimates relate to the valuation of real estate including impairment and depreciable lives. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.where indicated in millions)

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control. All inter-company transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and entities deemed to be variable interest entities (“VIE”) in which we 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 or entities which we are not deemed to be the primary beneficiary, 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 areThe consolidated balance sheet as of December 31, 2018 included herein has been derived from the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility, and using a discount rate to determine the net present value of those future losses. A changeconsolidated balance sheet included in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that 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 consolidated financial statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Restricted Cash

As required by our lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate

taxes, and other reserves for our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. On occasion, restricted cash may also include certain funds temporarily placed in escrows with qualified intermediaries in order to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended.Company's Annual Report on Form 10-K.

The following is a summary of our cash, cash equivalents, and restricted cash total as presented in ourunaudited consolidated statements of cash flowsoperations for interim periods are not necessarily indicative of results for the nine months ended September 30, 2018 and 2017:full year or any other period.

Noncontrolling InterestsReclassifications 

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

Marketable Securities

Marketable securities currently consist of debt securities that are designated as available-for-sale and are recorded at fair value. Unrealized holding gains or losses for debt securities are reported as a component of accumulated other comprehensive income/(loss). Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold.

An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below our amortized cost basis, any adverse changes in the financial condition of the issuers’ and its intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.current year presentation.

Earnings per Share

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

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“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 new 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 the Company on January 1, 2019.

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 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.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Recently Adopted Accounting Pronouncements

Effective January 1, 2018, the Company adopted guidance issued by the Financial Accounting Standards Board (“FASB”) that that 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, using a modified-retrospective transition method. Since the Company had no investments in equity securities, except those accounted for under the equity method prior to January 1, 2018, theThe adoption of this standard had no effect on its consolidated financial statements when adopted.

Effective January 1, 2018, the Company adopted guidance issued by the FASB that clarifies the definition ofdid not have a business and assists in the evaluation of whether a transaction will be accounted for as an acquisition of an asset or as a business combination. The guidance provides a test to determine when a set of assets and activities acquired is not a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values.  The Company anticipates future acquisitions of real estate assets, if any, will likely qualify as an asset acquisition. Therefore, any future transaction costs associated with an asset acquisition will be capitalized and accounted for in accordance with this guidance.

Effective January 1, 2018, the Company adopted guidance issued by the FASB that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.  The new guidance requires companies to apply a five-step model in accounting for revenue arising from contracts with customers, as well as enhance disclosures regarding revenue recognition. Lease contracts are excluded from this revenue recognition criteria; however, the sale of real estate is required to follow the new model. The Company has adopted this standard using the modified retrospective transition method. The adoption of this pronouncement had nomaterial effect on our consolidated financial statements since, with the disposalposition or our results of the Courtyard Kauai Coconut Beach Hotel in August 2017, all revenues now consist of rental income from leasing arrangements, which is specifically excluded from the standard.operations.

New Accounting Pronouncements

In August 2018, the SEC 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 statement. The rule was effective on November 5, 2018and 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 will result in the inclusion of a quarter to date consolidated statement of stockholders equity in our second and third quarter interim financial statement filings and the inclusion of corresponding prior periods statement of stockholders’ equity for all periods presented.

In June 2016, the FASB issued an accounting standards updatenew guidance which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The new guidance is effective for fiscal years beginning after December 15, 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 February 2016, the FASB issued an accounting standards update which supersedes the existing lease accounting model, and modifies both lessee and lessor accounting. The new guidance will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing leases, with classification affecting the pattern of expense recognition in the statement of operations. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. The standard offers several practical expedients for transition and certain expedients specific to lessees or lessors. Both lessees and lessors are permitted to make an election to apply a package of practical expedients available for implementation under the standard. The Company intendshas 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 apply the package of practical expedients and certain other transition expedients. For transition,its current operations.

On February 14, 2019, the Company intends to recognize all effectscompleted the acquisition of transitiona 384-unit multifamily property located in Ann Arbor, Michigan (the “Valley Ranch Apartments”) from an unrelated third party, for an aggregate purchase price of approximately $70.3 million, excluding closing and other related transaction costs. In connection with the beginningacquisition, our Advisor received an aggregate of approximately $1.3 million in acquisition fees and acquisition expense reimbursements.

In connection with the acquisition of the adoption reporting periodValley Ranch Apartments, the Company simultaneously entered into a $43.4 million nonrecourse mortgage loan (the “Valley Ranch Apartments Loan”) collateralized by the Valley Ranch Apartments (See Note 7).

The Company determined this acquisition was an asset acquisition and allocated the total purchase price, including acquisition fees and expenses, to the assets acquired based on January 1, 2019.We expect thattheir relative fair value. Approximately $24.1 million was allocated to land and improvements, $46.3 million was allocated to building and improvements, and $1.1 million was allocated to in-place lease intangibles.

The capitalization rate for the adoptionacquisition of the Valley Ranch Apartments was approximately 5.35%. The Company calculates the capitalization rate for a real property by dividing the net operating income (“NOI”) of the property by the purchase price of the property, excluding costs. For purposes of this standard will resultcalculation, NOI was based upon the year ended November 30, 2018. Additionally, NOI is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.

500 West 22nd Street Mezzanine Loan

On February 28, 2019, the Company entered into a $12.0 million Mezzanine Loan Promissory Note (the “500 West 22nd Street Mezzanine Loan”) with an unaffiliated third party (the “500 West 22nd Street Mezzanine Loan Borrower”). On the same date, the Company funded $8.0 million of the 500 West 22nd Street Mezzanine Loan. The 500 West 22nd Street Mezzanine Loan is recorded in the recognition of right-of-use assets and related lease liability accountsnote receivable, net on the consolidated balance sheet butsheet. In connection with the funding of $8.0 million of the 500 West 22nd Street Mezzanine Loan, our Advisor received an aggregate of approximately $0.1 million in acquisition fees from the Company. The acquisition fee is not expectedaccounted for as adirect deduction from the carrying value of the500 West 22^nd Street Mezzanine Loanand is being amortized over the initial term of the500 West 22^nd Street Mezzanine Loan and amortized to haveinterest expense using a material effect on our consolidated financial position or our resultsstraight-line method that approximates the effective interest method.

The 500 West 22^nd Street Mezzanine Loan, is due August 31, 2021 and is collateralized by the ownership interests of operations,however, the ultimate impact500 West 22^nd Street Mezzanine Loan Borrower. The 500 West 22nd Street Mezzanine Loan Borrower owns a parcel of adopting this standard will depend on the Company’s lease portfolioland located at 500 West 22^nd Street, New York, New York. The 500 West 22^nd Street Mezzanine Loan bears interest at a rate of LIBOR + 11.0% per annum with a floor of 13.493% (13.493% as of March 31, 2019). The Company received an origination fee of 1.0% of the adoption date.loan balance, or approximately $0.1 million, which ispresented in the consolidated balance sheets as a direct deduction from the carrying value of the500 West 22^nd Street Mezzanine Loanand will be amortized,to interest income using a straight-line method that approximates the effective interest method,over the initial term of the500 West 22nd Street Mezzanine Loan. The 500 West 22^nd Street Mezzanine Loan may be extended two additional six- month periods by the 500 West 22^nd Street Mezzanine Loan Borrower provided certain conditions are met, including the establishment of an additional reserve for interest and the payment of an extension fee equal to 0.25% of the outstanding loan balance.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Upon funding of the 500 West 22^nd Street Mezzanine Loan, the Company retained approximately $2.1 million of the proceeds to establish a reserve for interest and other items, which ispresented in the consolidated balance sheets as a direct deduction from the carrying value of the500 West 22^nd Street Mezzanine Loanand will beapplied against the first 8.0% of monthly interest due during the initial term of the 500 West 22nd Street Mezzanine Loan. The Company has reviewedadditional monthly interest due is added to the balance of the 500 West 22nd Street Mezzanine Loan 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.payable at maturity.

Reclassifications 

Certain prior period amounts have been reclassified to conformDuring the three months ended March 31, 2019, the Company recorded $0.1 million of interest income related to the current year presentation.note receivable and as of March 31, 2019, the balance of the 500 West 22nd Street Mezzanine Loan was $8.0 million and the remaining reserves for interest and other items aggregated $2.0 million.

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

As of September 30, 2018March 31, 2019 and December 31, 2017,2018, management estimated that the carrying value of cash and cash equivalents, restricted cash, prepaid expenses and other assets, accounts payable, accrued and other liabilities, accrued property tax and payables to related parties and distributions payable to noncontrolling interests were at amounts that reasonably approximated their fair value based on their highly-liquid nature and short-term maturities. The carrying amount of the note receivable approximates fair value because the interest rate is variable and reflective of the market rate. The fair value of the notes payable is categorized as a Level 2 in the fair value hierarchy. The fair value was estimated using a discounted cash flow analysis valuation on the borrowing rates currently available for loans with similar terms and maturities. The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate. Disclosure about fair value of financial instruments is based on pertinent information available to management as of September 30, 2018March 31, 2019 and December 31, 2017.2018. Carrying amounts of our notes payable and the related estimated fair value is summarized as follows:

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Marketable Securities

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

When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. As of September 30, 2018,March 31, 2019, the Company did not recognize any impairment charges.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

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:

The fair values of the Company’s investments in Corporate Bondsdebt securities are measured using quoted prices for these investments; however, the markets for these assets are not active. As of September 30, 2018,March 31, 2019, all of the Company’s Corporate Bondsdebt securities were classified as Level 2 assets and there were no transfers between the level classifications during the ninethree months ended September 30, 2018.March 31, 2019.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

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:

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

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Notes payable consists of the following:

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

On May 1, 2018,February 14, 2019, the Company entered into a non-recourseseven-year $43.4 million mortgage loan (the “River Club Mortgage”“Valley Ranch Apartments Loan”) in the amount of $30.4 million.scheduled to mature on March 1, 2026. The River Club Mortgage has a term of seven years,Valley Ranch Apartments Loan bears interest at Libor plus 1.78%4.16% and requires monthly interest-only payments during the first five years and interest and principal payments pursuant to a 30-year amortization schedule for the remaining two years through its stated maturity with the entire unpaid balance due upon maturity. The River Club Mortgage is cross-collateralized by the River Club and the Townhomes at River Club. At closing, approximately $23.4 million of the proceeds from the River Club Mortgage were used to repay in full the existing non-recourse mortgage loan on the River Club and Townhomes at River Club.

On June 1, 2018, the Company entered into a non-recourse mortgage loan (the “Parkside Mortgage”) in the amount of $18.0 million. The Parkside Mortgage has a term of seven years, bears interest at 4.45% and requires monthly interest and principal payments pursuant to a 30-year amortization schedule through its stated maturity with the entire unpaid balance due upon maturity. The Parkside MortgageValley Ranch Apartments Loan is collateralized by the ParksideValley Ranch Apartments (“Parkside”). At closing,and is non-recourse to the Company. In connection with the Valley Ranch Apartments Loan, our Advisor received an aggregate of approximately $9.6$0.4 million in financing fees.

The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of March 31, 2019.

In addition, the proceeds from the Parkside Mortgage were used to repay in full the existingCompany’s non-recourse mortgage loan on the Parkside.

On June 28, 2018, the Company entered into a non-recourse mortgage loan (the “Gardens Medical Mortgage”) in the amount of $13.0 million. The Gardens Medical Mortgage has a term of three years, bears interest at Libor plus 1.90% and requires monthly interest and principal payments through its stated maturity with the entire unpaid balance due upon maturity. The Gardens Medical Mortgage is collateralizedsecured by the Gardens Medical Pavilion.

We are subject to various customary financial covenants, including maintaining minimum debt service coverage ratios, loan to value ratios and liquidity. We did not meet the debt service coverage requirements for our 22 Exchange loan for allLakes of the quarterly periods in 2017 andMargate (outstanding principal balance of $13.6 million as a result, the lender elected to sweep the cash from operations beginningof March 31, 2019) matures in January 2018. Additionally,2020. We currently expect to refinance all or a portion of this maturing indebtedness on or before its scheduled maturity. 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 flowand/or proceeds from operations was not sufficient to fully pay the scheduled monthly debt service due on January 5, 2018, which constituted an event of default, and therefore the 22 Exchange loan which was scheduled to mature in May 2023 became due on demand. We received notice on January 9, 2018 that the 22 Exchange loan had been transferred to a special servicer effective immediately. Subsequently, the special servicer placed the property in receivership and has commenced foreclosure proceedings.selective asset sales.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

The Company is accruing default interest expenseCompany’s office, multi-family and student housing properties are leased to tenants under operating leases. Substantially all of our multi-family and student housing leases have initial terms of 12 months or less. Our office leases expire between 2019 and 2025.

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 the 22 Exchange loan pursuant toa straight-line basis over the terms of its loan agreement. Default interestthe 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 $0.2the 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 March 31, 2019, the approximate fixed future minimum rental payments, excluding variable lease consideration, from the Company’s office property, Gardens Medical Pavilion, due to us under non-cancelable are as follows:

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 rental revenues on the accompanying consolidated statements of operations. Rental revenue of approximately $0.8 million and $0.7$0.5 million was accrued duringfor the three and nine months ended September 30, 2018. As a result, accrued default interest expense of $0.7 million isMarch 31, 2019 and 2018, respectively, related to variable lease payments was included in accounts payable, accrued and other liabilitiesrental revenues on ourthe accompanying consolidated balance sheet asstatements of September 30, 2018. However, the Company does not expect to pay any of the accrued default interest expense as the 22 Exchange loan is non-recourse to it. Additionally, the Company believes the continued loss of excess cash flow, the expected loss of this property and the special servicer’s placement of the non-recourse mortgage indebtedness in default will not have a material impact on our consolidated results of operations or financial position.operations.

The followingCompany has excluded our multi-family and student housing leases from this table provides information with respect to the contractual maturitiesas substantially all of its multi-family and scheduled principal repaymentsstudent housing leases have initial terms of our indebtedness as12 months of September 30, 2018.

Besides the 22 Exchange loan, as of September 30, 2018, the Company’s only other debt maturing over the next twelve months is debt of approximately $23.8 million associated with Arbors Harbor Town, which matures in January 2019. We currently expect to refinance or repay in full with available cash this debt on or before its maturity date.less.

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

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Advisor

Our external advisor and certain of its affiliates may receive fees and compensation in connection with the management and sale of our assets based on an advisory management agreement, as amended and restated.

From January 4, 2008 through February 10, 2017, we were party to various advisory management agreements, each with a term of one year or less, with the Behringer Advisor. On February 10, 2017, we and the Behringer Advisor terminated the then existing advisory management agreement effective as of the close of business.

Concurrently, we engaged the Advisor to provide us with advisory services pursuant to various advisory management agreements, each with an initial term of one year. The fees earned by and expenses reimbursed to the Advisor are substantially the same as the fees earned by and expenses reimbursed to the Behringer Advisor. The following discussion describes the fees and expenses payable to our external advisor and its respective affiliates under the various advisory management agreements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

We pay our external advisor acquisition and advisory fees of 1.5% of the amount paid in respect of the purchase, development, construction, or improvement of each asset we acquire, including any debt attributable to those assets. In addition, we pay acquisition and advisory fees of 1.5% of the funds advanced in respect of a loan investment. For the three months ended March 31, 2019 we incurred acquisition and advisory fees payable to our external advisor of approximately $1.4 million. We incurred no acquisition and advisory fees payable to either of our external advisors for the three and nine months ended September 30,March 31, 2018 and 2017 because we had no acquisitions during these periods.this period.

We also pay our external advisor an acquisition expense reimbursement in the amount of (i) 0.25% of the funds paid for purchasing an asset, including any debt attributable to the asset, plus 0.25% of the funds budgeted for development, construction, or improvement in the case of assets that we acquire and intend to develop, construct, or improve or (ii) 0.25% of the funds advanced in respect of a loan investment. We also pay third parties, or reimburse our external advisor or its affiliates, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses, and other closing costs.

Our external advisor and its affiliates are also responsible for paying all of the investment-related expenses that we or the external advisor or its affiliates incur that are due to third parties or related to the additional services provided by our external advisor as described above with respect to investments we do not make, other than certain non-refundable payments made in connection with any acquisition. For the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, we incurred no acquisition expense reimbursements.

Prior to June 10, 2018 we paid our external advisor a debt financing fee of 0.5% of the amount available under any loan or line of credit made available to us and pay directly all third-party costs associated with obtaining the debt financing, on June 10, 2018 we amended the advisory management agreement with our advisor and increased the debt financing fee to 1.0% of the amount available under any loan or line of credit made available to us.us and pay directly all third-party costs associated with obtaining the debt financing. For the ninethree months ended September 30, 2018 and 2017,March 31, 2019, we incurred $0.3$0.4 million and $0.2 million, respectively, of debt financing fees. NoWe incurred no debt financing fees were incurred for the three months ended September 30, 2018 and 2017.March 31, 2018.

We pay our external advisor a development fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project if such affiliate provides the development services and if a majority of our independent directors determines that such development fee is fair and reasonable to us.  We incurred no development fees for the three and nine months ended September 30, 2018March 31, 2019 and 2017.2018.

We pay our external advisor a monthly asset management fee of one-twelfth of 0.7% of the value of each asset. The value of our assets will be the value as determined in connection with the establishment and publication of an estimated net asset value (“NAV”) per share unless the asset was acquired after our publication of a NAV per share (in which case the value of the asset will be the contractual purchase price of the asset). For the three and nine months ended September 30,March 31, 2019 and 2018, we expensed $0.5 million and $0.4 million, and $1.2 millionrespectively, of asset management fees payable to our external advisoradvisor.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(Dollar and for the threeshare amounts in thousands, except per share/unit data and nine months ended September 30, 2017 we expensed $0.4 million and $1.4 million of asset management fees payable to each of our external advisors.where indicated in millions)

Our external advisor is responsible for paying all of the expenses it incurs associated with persons employed by the external advisor to the extent that they provide services to us for which our external advisor receives an acquisition, asset management, or debt financing fee, including wages and benefits of the applicable personnel. Instead of reimbursing our external advisor for specific expenses paid or incurred in connection with providing services to us, we pay our external advisor an administrative services fee, also referredwhich is an allocation of a portion of the actual costs that the external advisor paid or incurred providing these services to as an administrative services reimbursementus (the “Administrative Services Fee”Reimbursement”). The Administrative Services FeeReimbursement is intended to reimburse the external advisor for all its costs associated with providing services to us. For the calendar year ending December 31, 2017,2018, the Administrative Services FeeReimbursement was up to $1.325 million annually, pro-rated for the first six months of the year and up to $1.30 million annually, pro-rated for the second six months of the year. On February 10, 2018, the advisory management agreements were extended an additional four months through June 10, 2018. For the period January 1, 2018 through June 10, 2018, the Administrative Services FeeReimbursement is up to $1.3 million annually, pro-rated for the period. On June 10, 2018, the advisory management agreements were extended an additional year through June 10, 2019. For the period June 10, 2018 through June 10, 2019, the Administrative Services FeeReimbursement is up to $1.29 million. The Administrative Service FeeServices Reimbursement is payable in four equal quarterly installments within 45 days of the end of each calendar quarter. In addition, under the various advisory management agreements, we are to reimburse the external advisor for certain due diligence services provided in connection with asset acquisitions and dispositions and debt financings separately from the Administrative Services Fee.Reimbursement. We incurred and expensed $0.3 million and $1.0 million for both the three and nine months ended September 30,March 31, 2019 and 2018 respectively, and $0.5 million and $1.2 million for the three and nine months ended September 30, 2017, respectively, of such costs for administrative services and due diligence services.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

Notwithstanding the fees and cost reimbursements payable to our external advisor pursuant to our advisory management agreement, under our charter we may not reimburse the external advisor for any amount by which our operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (i) 2% of our average invested assets, or (ii) 25% of our net income determined without reduction for any additions to reserves for depreciation, bad debts, or other similar non-cash reserves and excluding any gain from the sale of our assets for that period unless a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the four fiscal quarters ended September 30, 2018,March 31, 2019, our total operating expenses (including the asset management fee) exceeded the limit on total operating expenses; however, our independent directors determined the excess expenses were justified primarily as a result of the timing of the redeployment of our cash proceeds from asset sales and financings.

Property Manager

From January 4, 2008 through February 10, 2017, we were party to various property management and leasing agreements between us, our operating partnership, and certain affiliates of Behringer (collectively, the “Behringer Manager”). On February 10, 2017, we and the Behringer Manager terminated the then existing property management and leasing agreements effective as of the close of business.

Concurrently, weThe Company engaged an affiliate of Lightstone (the “Lightstone Manager”) pursuant to a property management and leasing agreement. The fees earned by and expenses reimbursed to the Lightstone Manager are substantially the same as the fees earned by and expenses reimbursed to the Behringer Manager. The following discussion describes the fees and expenses payable to our affiliated property manager and its respective affiliates under both the various property management and leasing agreements.

We pay our property manager and affiliate of our external advisor, fees for the management, leasing, and construction supervision of our properties which is 4.0% of gross revenues of the properties managed by our property manager. We pay our property manager an oversight fee equal to 0.5% of the gross revenues of the property managed for any property for which we contract directly with a third-party property manager.  In no event will our property manager or its affiliates receive both a property management fee and an oversight fee with respect to any particular property.  In the event we own a property through a joint venture that does not pay our property manager directly for its services, we will pay our property manager a management fee or oversight fee, as applicable, based only on our economic interest in the property.   For both the three and nine months ended September 30,March 31, 2019 and 2018, we incurred and expensed property management fees or oversight fees to the related-party property manager of less than $0.1 million and $0.1 million, respectively, compared to $0.1 million and $0.1 million in the same periods in 2017, respectively.million.

We pay our property manager a construction management fee in an amount not to exceed 5% of all hard construction costs incurred in connection with, but not limited to capital repairs and improvements, major building reconstruction and tenant improvements, if such affiliate supervises construction performed by or on behalf of us or our affiliates. We incurred no construction management fees for the three months ended September 30, 2018March 31, 2019 and 2017.2018.

As of both September 30, 2018March 31, 2019 and December 31, 2017,2018, we had a payable to our external advisor and its affiliates of less than $0.1 million. These balances consist of accrued fees, including asset management fees, administrative service expenses, property management fees, and other miscellaneous costs payable to our external advisor and property manager.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

We are dependent on our external advisor and our property manager for certain services that are essential to us, including asset disposition decisions, property management and leasing services, and other general administrative responsibilities.  In the event that these companies were unable to provide us with their respective services, we would be required to obtain such services from other sources.

Share Redemption Program

On November 9, 2018, our board of directors approved redemptions for the third quarter of 2018 totaling 104,299 with an aggregate redemption payment of approximately $0.8 million. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for a full description of the price at which we redeem shares under our share redemption program.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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

We provided mezzanine financing totaling $15.3 million to an unaffiliated third-party entity (the “Borrower”) that owned an apartment complex in Denver, Colorado (the “Prospect Park”). The Borrower also had a senior construction loan with a third-party construction lender (the “Senior Lender”) in an aggregate original principal amount of $40.0 million. The senior construction loan was guaranteed by the owners of the developer. We also had a personal guaranty from the owners of the developer guaranteeing completion of Prospect Park and payment of any cost overruns. Our mezzanine loan was secured by all of the membership interests of the Borrower and was subordinate to the senior construction loan. Our advances of $15.3 million initially had annual stated interest rates ranging from 10% to 18%.

Pursuant to the terms of the mezzanine loan, we participate in the residual interests of Prospect Park attributable to a sale or refinancing even though we had no actual ownership interest. We previously evaluated this ADC Arrangement and determined that its characteristics were similar to a jointly-owned investment or partnership. Accordingly, our investment, which was a variable interest entity (“VIE”) was accounted for as an unconsolidated joint venture under the equity method of accounting instead of loan accounting.

On December 15, 2017, the Borrower sold Prospect Park to an unrelated third-party for a contractual sales price of approximately $100.5 million. In connection with the sale, the Borrower repaid the Senior Construction Loan in full and we received aggregate proceeds of approximately $21.6 million representing the repayment in full of the outstanding principal and accrued interest due on our mezzanine loan. Additionally, the Borrower placed approximately $15.1 million of the net proceeds from the sale into an escrow account to be used for settlement of the amount due to us for our participation in the residual interests of Prospect Park. The carrying value of our unconsolidated investment in Prospect Park, which represented the minimum amount payable to us for our participation in the residual interests of Prospect Park, was $10.9 million as of December 31, 2018.

On January 4, 2019, the Company and the Borrower received payments of $10.9 million and $1.9 million, respectively, from the escrow account. As a result, the carrying value of our unconsolidated investment in Prospect Park has been reduced to zero and approximately $2.3 million remains in the escrow account to be used for settlement of any potential remaining amount due to us for our participation in the residual interests of Prospect Park and any additional amounts received will be recognized upon receipt.

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

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

Forward-Looking Statements

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

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy, and other future conditions.  These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements.  Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described herein and under “Item 1A, Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2018 and the factors described below:

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

Cautionary Note

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

Executive Overview

We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis.  In particular, we have focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who were distressed or faced time-sensitive deadlines.  In addition, our opportunistic and value-add investment strategy has included investments in real estate-related assets that present opportunities for higher current income. Since inception, we have acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily. We have purchased existing, income-producing properties and newly constructed properties. We have also invested in other real estate-related investments such as mortgage and mezzanine loans. We have made our investments in or in respect of real estate assets located in the United States and other countries based on our view of existing market conditions. Currently, our investments include multifamily and student housing communities, and an office building. All of our current investments are located in the United States.

Our common stock is not currently listed on a national securities exchange.  The timing of a liquidity event for our stockholders will depend upon then prevailing market conditions. We previously targeted the commencement of a liquidity event within six years after the termination of our initial public offering, which occurred on July 3, 2011. On June 29, 2017, our board of directors elected to extend the targeted timeline an additional six years until June 30, 2023 based on their assessment of our investment objectives and liquidity options for our stockholders. However, we can provide no assurances as to the actual timing of the commencement of a liquidity event for our stockholders or the ultimate liquidation of the Company. We will seek stockholder approval prior to liquidating our entire portfolio.

Liquidity and Capital Resources

We had unrestricted cash and cash equivalents of $52.4$18.7 million as of September 30, 2018.March 31, 2019. Our principal demands for funds going forward will be for the payment of (a) operating expenses, (b) interest and principal payments on our outstanding indebtedness, (c) share redemptions and (d) distributions, if any, authorized by our board of directors. Generally, we expect to meet cash needs for the payment of operating expenses, interest on our outstanding indebtedness and share redemptions with our cash flow from operations and to fund authorized distributions (if any) from available cash flow from operations and/or proceeds received from asset sales. To the extent that our cash flow from operations is not sufficient to cover these items, we expect to use cash generated from borrowings and selective asset sales to fund such needs.

We intend to hold our various real properties until such time as our board of directors determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met.

In addition to our debt obligations, we consider other factors in evaluating our liquidity. For example, to the extent our portfolio is concentrated in certain geographic regions and types of assets, downturns relating generally to such regions and assets may result in tenants defaulting on their lease obligations at a number of our properties within a short time period.  Such defaults could negatively affect our liquidity and adversely affect our ability to fund our ongoing operations.

We may, but are not required to, establish capital reserves from cash flow generated by operating properties and other investments, or net sales proceeds from the sale of our properties and other investments.  Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, and major capital expenditures.  Alternatively, a lender may establish its own criteria for escrow of capital reserves.

We have borrowed and may continue to borrow money to acquire properties and make other investments.  Under our charter, the maximum amount of our indebtedness is limited to 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors.  In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests.  Our policy limitation, however, does not apply to individual real estate assets.

Commercial real estate debt markets may experience volatility and uncertainty as a result of certain related factors, including the tightening of underwriting standards by lenders and credit rating agencies, macro-economic issues related to fiscal, tax and regulatory policies, and global financial issues.  Should the overall cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our developments and investments.  This may result in our investment operations generating lower overall economic returns and a reduced level of cash flow, which could potentially impact our ability to make distributions to our stockholders.  In addition, disruptions in the debt markets may reduce the amount of capital that is available to finance real estate, which in turn could: (i) lead to a decline in real estate values generally; (ii) slow real estate transaction activity; (iii) reduce the loan to value ratio upon which lenders are willing to extend debt; and (iv) result in difficulty in refinancing debt as it becomes due, all of which may reasonably be expected to have a material adverse impact on the value of real estate investments and the revenues, income or cash flow from the operations of real properties and mortgage loans.

Debt Financings

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

On May 1, 2018, we entered into a non-recourse mortgage loan (the “River Club Mortgage”) in the amount of $30.4 million. The River Club Mortgage has a term of seven years, bears interest at Libor plus 1.78% and requires monthly interest-only payments during the first five years and interest and principal payments pursuant to a 30-year amortization schedule for the remaining two years through its stated maturity with the entire unpaid balance due upon maturity. The River Club Mortgage is cross-collateralized by the River Club and the Townhomes at River Club. At closing, approximately $23.4 million of the proceeds from the River Club Mortgage were used to repay in full the existing non-recourse mortgage loan on the River Club and Townhomes at River Club.

On June 1, 2018, we entered into a non-recourse mortgage loan (the “Parkside Mortgage”) in the amount of $18.0 million. The Parkside Mortgage has a term of seven years, bears interest at 4.45% and requires monthly interest and principal payments pursuant to a 30-year amortization schedule through its stated maturity with the entire unpaid balance due upon maturity. The Parkside Mortgage is collateralized by Parkside. At closing, approximately $9.6 million of the proceeds from the Parkside Mortgage were used to repay in full the existing non-recourse mortgage loan on Parkside.

On June 28, 2018, we entered into a non-recourse mortgage loan (the “Gardens Medical Mortgage”) in the amount of $13.0 million. The Gardens Medical Mortgage has a term of three years, bears interest at Libor plus 1.90% and requires monthly interest and principal payments through its stated maturity with the entire unpaid balance due upon maturity. The Gardens Medical Mortgage is collateralized by the Gardens Medical Pavilion.

As of September 30, 2018,March 31, 2019, our outstanding notes payable were $116.2$181.5 million, net of deferred financing fees of $1.6$3.1 million, and had a weighted average interest rate of 5.0%4.4%. As of December 31, 2017,2018, the Company had notes payable of $89.9$139.0 million, net of deferred financing fees of $0.4$2.4 million, with a weighted average interest rate of 5.0%4.3%. For loans in place as of September 30, 2018, we have guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forth in the guaranties in favor of the unaffiliated lenders with respect to the 22 Exchange.

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

Our non-recourse mortgage loan secured by the debt associated with 22 ExchangeLakes of Margate (outstanding principal balance of approximately $18.9$13.6 million as of September 30, 2018) as discussed below.

We did not meet the debt service coverage requirements for our 22 Exchange loan for all of the quarterly periods in 2017 and, as a result, the lender elected to sweep the cash from operations beginning in January 2018. Additionally, the cash from operations was not sufficient to fully pay the scheduled monthly debt service due on January 5, 2018, which constituted an event of default, and therefore the 22 Exchange loan which was scheduled to mature in May 2023 became due on demand. We received notice on January 9, 2018 that the 22 Exchange loan had been transferred to a special servicer effective immediately. Subsequently, the special servicer placed the property in receivership and has commenced foreclosure proceedings.

Default interest expense of $0.2 million and $0.7 million was accrued during the three and nine months ended September 30, 2018. As a result, accrued default interest expense of $0.7 million is included in accounts payable, accrued and other liabilities on our consolidated balance sheet as of September 30, 2018. However, we do not expect to pay any of the accrued default interest expense as the 22 Exchange loan is non-recourse to it. Additionally, we believe the loss of cash flow and the expected loss of this property will not have a material impact on our consolidated results of operations or financial condition.

Besides the 22 Exchange loan, as of September 30, 2018, our only other debt maturing over the next twelve months is debt of approximately $23.8 million associated with Arbors Harbor Town, whichMarch 31, 2019) matures in January 2019.2020. We currently expect to refinance all or repay in full with available casha portion of this debtmaturing indebtedness on or before its maturity date.scheduled maturity. However, if we are unable to refinance the outstanding indebtedness at favorable terms, we will look to repay the outstanding balance with available cash and/or proceeds from selective asset sales.

One of our principal short-term and long-term liquidity requirements includes the repayment of maturing debt.  The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of September 30, 2018March 31, 2019 (dollars in thousands).

Results of Operations

As of September 30,March 31, 2019, we had eight consolidated real estate investments (four wholly owned properties and four properties consolidated through investments in joint ventures). 

On February 14, 2019, we acquired the Valley Ranch Apartments (the “2019 Acquisition”) and on November 27, 2018 we acquired the Axis at Westmont (the “2018 Acquisition” and collectively, the “Acquisitions”) Additionally, on January 4, 2019 we received proceeds of approximately $10.9 million representing the minimum amount payable for our participation in the residual interests of our equity method investment in Prospect Park. Any additional amounts received will be recognized upon receipt.

On December 28, 2018, we disposed of 22 Exchange (the “Disposition”) and the disposition of this property did not qualify to be reported as discontinued operations since it did not represent a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of this property are reflected in our results from continuing operations for all periods presented through its date of disposition.

As of March 31, 2018, we had eight real estate investments, seven of which were consolidated (one wholly owned property and six properties consolidated through investments in joint ventures) and one real estateour equity method investment which we account for under the equity method.  On November 30, 2017, we acquired the Flats at Fishers Marketplace (“Flats at Fishers” or the “2017 Acquisition”.) As of September 30, 2017, we had seven real estate investments, six of which were consolidated through investments in joint ventures and one real estate investment which we account for under the equity method.Prospect Park. 

Our results of operations for the respective periods presented reflect decreasesincreases in most categories principally resulting from our acquisition and disposition of Courtyard Kauai Coconut Beach Hotel in August 2017 (the “2017 Disposition”).activities. The effects ofincreases from the 2017 DispositionAcquisitions are partially offset by increasesthe decrease resulting from the 2017 Acquisition.Disposition. Properties owned by us during the entire periods presented are referred to as our “Same Store” properties.

The disposition of the Courtyard Kauai Coconut Beach Hotel did not qualify to be reported as discontinued operations since the disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Courtyard Kauai Coconut Beach Hotel are reflected in the Company’s results from continuing operations for all periods presented through its respective date of disposition.

Three months ended September 30, 2018March 31, 2019 as compared to the three months ended September 30, 2017.March 31, 2018.

The following table provides summary information about our results of operations for the three months ended September 30,March 31, 2019 and 2018 and 2017 (dollars in thousands):