UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 2016
Commission File Number: 000-53650
Lightstone Value Plus Real Estate Investment Trust V, Inc.
(Formerly Behringer Harvard Opportunity REIT II, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| Maryland | 20-8198863 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1985 Cedar Bridge Avenue, Suite 600, Addison, Texas 75001
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
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 Noý¨ No o
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).
YesYes x Noý¨ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer¨ | Accelerated filer¨ | |
Non-accelerated filer | Smaller reporting company¨ | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesYes ¨ Noox No ý
As of October 31, 2016, Behringer Harvard Opportunity REIT II, Inc.August 9, 2017, the Registrant had 25,218,77024,996,586 shares of common stock outstanding.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST V, INC.
(FORMERLY BEHRINGER HARVARD OPPORTUNITY REIT II, INC.
INDEX
FINANCIAL INFORMATION
(Formerly Behringer Harvard Opportunity REIT II, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
| September 30, 2016 | December 31, 2015 | |||||||
| Assets | ||||||||
| Real estate | ||||||||
| Land and improvements, net | $ | 42,862 | $ | 51,382 | ||||
| Buildings and improvements, net | 133,829 | 185,213 | ||||||
| Real estate under development | — | 176 | ||||||
| Total real estate | 176,691 | 236,771 | ||||||
| Cash and cash equivalents | 69,687 | 76,815 | ||||||
| Restricted cash | 6,994 | 4,581 | ||||||
| Accounts receivable, net | 1,511 | 2,426 | ||||||
| Prepaid expenses and other assets | 1,212 | 1,078 | ||||||
| Investment in unconsolidated joint venture | 14,658 | 14,482 | ||||||
| Furniture, fixtures and equipment, net | 3,582 | 5,702 | ||||||
| Lease intangibles, net | 327 | 334 | ||||||
| Total assets | $ | 274,662 | $ | 342,189 | ||||
| Liabilities and Equity | ||||||||
| Notes payable, net | $ | 142,789 | $ | 177,036 | ||||
| Accounts payable | 370 | 479 | ||||||
| Payables to related parties | 310 | 433 | ||||||
| Acquired below-market leases, net | 69 | 80 | ||||||
| Distributions payable to common shareholders | — | 38,378 | ||||||
| Distributions payable to noncontrolling interest | 21 | 52 | ||||||
| Income taxes payable | 841 | 986 | ||||||
| Deferred gain | 1,247 | — | ||||||
| Accrued and other liabilities | 7,055 | 8,166 | ||||||
| Total liabilities | 152,702 | 225,610 | ||||||
| Commitments and contingencies | — | — | ||||||
| Equity | ||||||||
| Preferred stock, $.0001 par value per share; 50,000,000 shares authorized, none outstanding | — | — | ||||||
| Convertible stock, $.0001 par value per share; 1,000 shares authorized, 1,000 outstanding | — | — | ||||||
| Common stock, $.0001 par value per share; 350,000,000 shares authorized, 25,360,610 and 25,585,198 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively | 3 | 3 | ||||||
| Additional paid-in capital | 228,630 | 229,796 | ||||||
| Accumulated distributions and net loss | (112,464 | ) | (119,609 | ) | ||||
| Accumulated other comprehensive loss | (266 | ) | (372 | ) | ||||
| Total Behringer Harvard Opportunity REIT II, Inc. equity | 115,903 | 109,818 | ||||||
| Noncontrolling interest | 6,057 | 6,761 | ||||||
| Total equity | 121,960 | 116,579 | ||||||
| Total liabilities and equity | $ | 274,662 | $ | 342,189 | ||||
| June 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Real estate | ||||||||
| Land and improvements, net | $ | 42,437 | $ | 42,710 | ||||
| Building and improvements, net | 129,096 | 132,359 | ||||||
| Total real estate | 171,533 | 175,069 | ||||||
| Cash and cash equivalents | 64,890 | 67,111 | ||||||
| Restricted cash | 4,886 | 6,101 | ||||||
| Accounts receivable, net | 2,309 | 1,415 | ||||||
| Prepaid expenses and other assets | 847 | 1,051 | ||||||
| Investment in unconsolidated joint venture | 14,658 | 14,658 | ||||||
| Furniture, fixtures and equipment, net | 2,371 | 3,148 | ||||||
| Lease intangibles, net | 308 | 352 | ||||||
| Total Assets | $ | 261,802 | $ | 268,905 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Notes payable, net | $ | 138,004 | $ | 142,332 | ||||
| Accounts payable | 474 | 491 | ||||||
| Payables to related parties | 145 | 370 | ||||||
| Acquired below-market leases, net | 59 | 65 | ||||||
| Distributions payable to noncontrolling interest | 18 | 21 | ||||||
| Income taxes payable | 46 | 38 | ||||||
| Deferred gain | 964 | 1,247 | ||||||
| Accrued and other liabilities | 6,790 | 5,702 | ||||||
| Total liabilities | 146,500 | 150,266 | ||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, $.0001 par value per share; 50,000,000 shares authorized, none issued and outstanding | ||||||||
| Convertible stock, $.0001 par value per share; 1,000 shares authorized, 1,000 issued and outstanding | - | - | ||||||
| Common stock, $.0001 par value per share; 350,000,000 shares authorized, 24,996,586 and 25,218,770 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively | 3 | 3 | ||||||
| Additional paid-in-capital | 226,744 | 227,891 | ||||||
| Accumulated other comprehensive loss | (208 | ) | (495 | ) | ||||
| Accumulated deficit | (117,061 | ) | (114,666 | ) | ||||
| Total Company stockholders' equity | 109,478 | 112,733 | ||||||
| Noncontrolling interest | 5,824 | 5,906 | ||||||
| Total Stockholder's Equity | 115,302 | 118,639 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 261,802 | $ | 268,905 | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
| 3 |
(Formerly Behringer Harvard Opportunity REIT II, Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share amounts) (Unaudited) See Notes to Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc. Consolidated (in thousands) (Unaudited) See Notes to Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc. Consolidated Statements of Cash Flows (in thousands) (Unaudited) See Notes to Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc. Notes to (Unaudited) Business Behringer Harvard Opportunity REIT II, Inc., which changed its name to Lightstone Value Plus Real Estate Investment Trust V, Inc. effective July 20, 2017 (which may be referred to as the “Company,” “we,” “us,” or “our”), 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 a mortgage loan and a mezzanine loan. We Substantially all of our business is conducted through Behringer Harvard Opportunity OP II LP, a limited partnership organized in Delaware (the “Operating Partnership”). As of Our business has been managed by an external advisor since the commencement of our initial public offering, and have no employees. From January 4, 2008 through February 10, 2017, an affiliate of Stratera Services, LLC, formerly known as “Behringer Harvard Organization In connection with our initial capitalization, we issued Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) 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. The accompanying The consolidated balance sheet as of December 31, 2016 included herein has been The unaudited consolidated statements of In the Notes to Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Principles of Consolidation and Basis of Presentation Our Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) 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 consolidated financial statements. Real Estate Accumulated depreciation and amortization related to our consolidated investments in real estate assets and intangibles were as follows: We amortize the value of in-place leases, in-place tenant improvements, and in-place leasing commissions to expense over the initial term of the respective leases. In no event does the amortization period for intangible assets or liabilities exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the acquired lease intangibles related to that tenant would be charged to expense. Real Estate Held for Sale We classify properties as held for sale when certain criteria are met in accordance with GAAP. At that time, we present the assets and obligations of the property held for sale separately in our consolidated balance sheet and we cease recording depreciation and amortization expense related to that property. Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell. We did not have any real estate assets classified as held for sale as of 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. Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) We early adopted the new Financial Accounting Standards Board (“FASB”) guidance on December 31, 2016, which changed the presentation of our statements of cash flows and related disclosures for all periods presented and accordingly, the following is a summary of our cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the six months ended June 30, 2016: Investment Impairment For all of our real estate and real estate-related investments, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. Examples of the types of events and circumstances that would cause management to assess our assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase In evaluating our investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership, and the projected sales price of each of the properties. A future change in these estimates and assumptions could result in understating or overstating the carrying value of our investments, which could be material to our financial statements. In addition, we may incur impairment charges on assets classified as held for sale in the future if the carrying amount of the asset upon classification as held for sale exceeds the estimated fair value, less costs to sell. We also evaluate our investments in unconsolidated joint ventures at each reporting date. If we believe there is an other than temporary decline in market value, we will record an impairment charge based on these evaluations. We assess potential impairment by comparing our portion of estimated future undiscounted operating cash flows expected to be generated by the joint venture over the life of the joint venture’s assets to the carrying amount of the joint venture. In the event that the carrying amount exceeds our portion of estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the joint venture to its estimated fair value. Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) We believe the carrying value of our operating real estate assets and our investment in an unconsolidated joint venture is currently recoverable. There were no impairment charges for the Investment in Unconsolidated Joint Venture We provide funding to third-party developers for the acquisition, development, and construction of real estate (“ADC Arrangement”). Under an ADC Arrangement, we may participate in the residual profits of the project through the sale or refinancing of the property. We evaluate this arrangement to determine if it has characteristics similar to a loan or if the characteristics are more similar to a joint venture or partnership such as participating in the risks and rewards of the project as an owner or an investment partner. When we determine that the characteristics are more similar to a jointly-owned investment or partnership, we account for the arrangement as an investment in an unconsolidated joint venture under the equity method of accounting or a direct investment (consolidated basis of accounting) instead of applying loan accounting. The ADC Arrangement is reassessed at each reporting period. See Note Revenue Recognition We recognize rental income generated from leases of our operating properties on a straight-line basis over the terms of the respective leases, including the effect of rent holidays, if any. Hotel revenue is derived from the operations of the Courtyard Kauai Coconut Beach Hotel and consists primarily of guest room, food and beverage, and other ancillary revenues such as laundry and parking. Hotel revenue is recognized as the services are rendered. Accounts Receivable Accounts receivable primarily consist of receivables related to our consolidated properties of Furniture, Fixtures, and Equipment Furniture, fixtures, and equipment are recorded at cost and are depreciated according to the Company’s capitalization policy, which uses the straight-line method over their estimated useful lives of Deferred Financing Fees Deferred financing fees are recorded at cost, accounted for as a reduction to notes payable, and are amortized to interest expense using a straight-line method that approximates the effective interest method over the life of the related debt. Deferred financing fees, net Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial (Unaudited) Income Taxes We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and have qualified as a REIT since the year ended December 31, 2008. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least We did not record any income tax during the We have reviewed our tax positions under GAAP guidance that clarify the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position Foreign Currency Translation For our international investments where the functional currency is other than the U.S. dollar, assets and liabilities are translated using period-end exchange rates, while the statement of operations amounts are translated using the average exchange rates for the respective period. Gains and losses resulting from the change in exchange rates from period to period are reported separately as a component of other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in the Upon the The Euro was the Concentration of Credit Risk As of June 30, Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) Geographic and Asset Type Concentration Our investments may at times be concentrated in certain asset types that are subject to higher risk of foreclosure, or secured by assets concentrated in a limited number of geographic locations. For the Noncontrolling Interest Noncontrolling interest represents the noncontrolling ownership interest’s proportionate share of the equity in our consolidated real estate investments. Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage. Earnings per Share The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, earnings per share is calculated New Accounting Pronouncements In May 2014, the FASB issued an update (“ASU 2014-09”) to ASC Topic 606, Revenue from Contracts with Customers. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. The new guidance will require companies to apply a five-step model in accounting for revenue arising from contracts with customers, as well as enhance disclosures regarding revenue recognition. Lease contracts will be excluded from this revenue recognition criteria; however, the sale of real estate will be required to follow the new model. ASU 2014-09 is effective for public companies for interim and annual reporting periods beginning after December 15, 2017. During the quarter ended June 30, 2016, the FASB issued subsequent updates to ASU 2014-09. In April 2016, the FASB issued an update (“ASU 2016-10”) to ASC Topic 606, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing. In May 2016, the FASB issued an update (“ASU 2016-12”) to ASC Topic 606, Revenue from Contracts with Customers, Narrow-Scope Improvement and Practical Expedients. The amendments in these updates did not change the core principle of the guidance in Topic 606; rather, they added improvements to reduce the diversity in practice at initial application and the cost and complexity of applying Topic 606 both at transition and an ongoing basis. The areas affected include: assessing the collectability criteria; presentation of sales taxes and other similar taxes collected from customers; noncash consideration; contract modification and completed contracts at transition; and technical correction as it relates to retrospective application and disclosure. The new guidance is effective January 1, 2018 Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to (Unaudited) In February 2016, the FASB issued an update (“ASU 2016-02”) to ASC Topic 842, Leases. ASU 2016-02 supersedes the existing lease accounting model, and modifies both lessee and lessor accounting. The new guidance will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing In In January 2017, the FASB issued an update (“ASU 2017-01”) to ASC Topic 805, Business Combinations, Clarifying the Definition of a Business. The guidance clarifies the definition of a business and assists in the evaluation of whether a transaction will be accounted for as an acquisition of an asset or as a business combination. The guidance provides a test to determine when a set of assets and activities acquired is not a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Under the updated guidance, an acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and associated transaction costs will be capitalized rather than expensed as incurred. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted, including for interim or annual periods for which financial statements have not yet been issued. Upon adoption Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established. Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Recurring Fair Value Measurements Currently, we use interest rate swaps and caps to manage our interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, implied volatilities, and foreign currency exchange rates. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. However, as of As of Derivative financial instruments classified as assets are included in prepaid expenses and other assets on the accompanying consolidated balance Nonrecurring Fair Value Measurements 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. Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) As of Carrying amounts of our notes payable and the related estimated fair value as of 7. As of We provided mezzanine financing totaling Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) Both the senior loan and our mezzanine loan were in technical default at We considered the impact of these events on In connection with The following table sets forth our ownership interest in Summarized balance sheet information for the unconsolidated joint venture as of June 30, 2017 and December 31, 2016, shown at 100%, is as follows: Summarized statement of operations information for the unconsolidated joint venture for the periods indicated, shown at 100%, is as follows: Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc. Notes to (Unaudited) Effective January 1, 2016, we Consolidated VIEs The Company consolidates the Operating Partnership, 22 Exchange, LLC, Gardens Medical Pavilion, LLC through BH-AW-Florida MOB Venture, LLC, and SL Parkside Apartments, LLC, which are variable interest entities, or VIEs, for which we are the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership, or legal entities such as an LLC, are considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions. Unconsolidated VIEs Included in the Company’s joint venture investments Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc. Notes to (Unaudited) The following table sets forth information on our notes payable as of (2) Includes approximately $0.2 million of unamortized premium As of We are subject to various customary Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) The following table summarizes our contractual obligations for principal payments, based on initial scheduled maturity dates and does not reflect the exercise of any extension options, as of Courtyard Kauai Coconut Beach Hotel Debt The debt secured by Courtyard Kauai Coconut Beach Hotel, with an outstanding balance of $38 million was scheduled to mature on May 9, 2017. On May 8, 2017, we, through our 80% ownership interest in a joint venture between our indirect wholly owned subsidiary and JMI Realty, LLC, an unaffiliated third party (the “Kauai Joint Venture”), entered into a new mortgage facility of up to $44 million (the “Courtyard Kauai Loan”) with TH Commercial Investment Corp. Initial borrowings of $36 million were advanced under the Courtyard Kauai Loan and those funds plus additional cash were used to repay the then outstanding balance under the previous loan with Wells Fargo Bank. The Courtyard Kauai Loan bears interest at 30-day LIBOR plus 4.7% and matures in three years with two one-year extensions available. 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 lender. Future minimum base rental payments of our The schedule above does not include rental payments due to us from our multifamily, hotel, and student housing properties, as leases associated with these properties typically are for periods of Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc. Notes to (Unaudited) We may be exposed to the risk associated with variability of interest rates that might impact our cash flows and the results of operations. The hedging strategy of entering into interest rate caps and swaps, therefore, is to eliminate or reduce, to the extent possible, the volatility of cash flows. As of Our derivative financial instruments had a nominal effect on the 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. 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 From January 4, 2008 through February 10, 2017, we Concurrently with our entry into the Advisory Termination Agreement, we engaged the Advisor to provide us with advisory services pursuant to two separate advisory management agreements (collectively, the “Lightstone Advisory Agreement”). With the exception of the Administrative Services Fee, the fees earned by and expenses reimbursed to the Advisor pursuant to the Lightstone Advisory Agreement are identical to the fees earned by and expenses reimbursed to the Behringer Advisor pursuant to the Fifth Advisory Agreement. The 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, Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) We also Our external advisor and its affiliates are also responsible for paying all of the investment-related expenses that we or the We pay We pay We pay Our external advisor is responsible for paying all of the expenses it incurs associated with persons employed by the Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) Notwithstanding the fees and cost reimbursements payable to our Property Manager From January 4, 2008 through February 10, 2017, we were party to a property management and leasing agreement (as amended and restated, the “Behringer Property Management Agreement”) between us, our operating partnership, Behringer Harvard Opportunity Management Services, LLC, and Behringer Harvard Real Estate Services, LLC (collectively, the “Behringer Manager”). On February 10, 2017, we entered into a Termination of Property Management and Leasing Agreement with the Behringer Manager and (solely with respect to certain sections) Behringer (the “Property Management Termination Agreement”) pursuant to which the Behringer Property Management Agreement was terminated as of the close of business on February 10, 2017. Concurrently with our entry into the Property Management Termination Agreement, we engaged LSG-BH II Property Manager LLC (the “Lightstone Manager”) pursuant to a property management and leasing agreement (the “Lightstone Property Management Agreement”). The fees earned by and expenses reimbursed to the Lightstone Manager pursuant to the Lightstone Property Management Agreement are identical to the fees earned by and expenses reimbursed to the Behringer Manager pursuant to the Behringer Property Management Agreement. The following discussion describes the fees and expenses payable to our affiliated property manager and its respective affiliates under both the Behringer Property Management Agreement (in effect from August 13, 2008 through February 10, 2017) and the Lightstone Property Management Agreement (in effect as of February 10, 2017). We pay our property manager and affiliate of We pay our As of June 30, 2017 and December 31, 2016, we had a payable to our external advisor and Lightstone Value Plus Real Estate Investment Trust V, Inc. (Formerly Behringer Harvard Opportunity REIT II, Inc.) Notes to Consolidated Financial Statements (Unaudited) We are dependent on Share Redemption Program On The following discussion and analysis should be read in conjunction with the accompanying 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 These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy, and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described herein and under “Item 1A, Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 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 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 a mortgage loan and a mezzanine loan. 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, an office building, a hotel, and a mezzanine loan. 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 Liquidity and Capital Resources We had unrestricted cash and cash equivalents of 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. On January 5, 2016, we paid a special cash distribution of $38.4 million, or $1.50 per share of common The debt As of June 30, 2017, the Company had debt of approximately $12.7 million associated with Gardens Medical Pavilion, approximately $23.7 million associated with River Club and Townhomes at River Club, and $9.9 million associated with Parkside maturing in the next twelve months. If we have not disposed of We may, but are not required to, establish capital reserves from cash flow generated by operating properties and other investments, or net sales proceeds from the sale of our properties and other investments. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may establish its own criteria for escrow of capital reserves. We have borrowed money to acquire properties and make other investments. Under our charter, the maximum amount of our indebtedness is limited to 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors. In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. Our policy limitation, however, does not apply to individual real estate assets. Commercial real estate debt markets may experience 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 Debt Financings From time to time, we have obtained mortgage, bridge, or mezzanine loans for acquisitions and investments, as well as property development. In the future, we may obtain financing for property development or refinance our existing real estate assets, depending on multiple factors. As of June 30, We are subject to 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 Results of Operations As of Our results of operations for the respective periods presented reflect decreases in Three months ended The following table provides summary information about our results of operations for the three months ended The following table reflects rental revenue and property operating expenses for the three months ended The tables below reflect occupancy and effective monthly rental rates for our Same Store operating properties and occupancy and average daily rate (“ADR”) for Courtyard Kauai Coconut Beach Hotel: Revenues. The increase in Same Store total revenues of $1.4 million primarily attributable to an increase in hotel Property Operating Expenses. Property operating expenses for the three months ended Hotel Operating Expenses. Interest Expense, net. Real Estate Taxes Property Management Fees Asset Management Fees General and Administrative Expenses. Depreciation and Six months ended The following table provides summary information about our results of operations for the The following table reflects rental revenue and property operating expenses for the The tables below reflect occupancy and effective monthly rental rates for our Same Store operating properties and occupancy and Revenues. Total revenues for the The increase in Same Store total revenues of $1.9 million primarily attributable to an increase in hotel Property Operating Expenses. Property operating expenses for the Hotel Operating Expenses. Interest Expense, net. Real Estate Taxes Property Management Fees Asset Management Fees General and Administrative Expenses. Depreciation and Amortization. Gain on Sale of Real Estate. Cash Flow Analysis Six months ended During the During the During the six months ended Funds from Operations Funds from operations (“FFO”) is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We use FFO as defined by the National Association of Real Estate Investment Trusts (“NAREIT”) in the April 2002 “White Paper of Funds From Operations” which is net income (loss), computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property and impairments of depreciable real estate (including impairments of investments in unconsolidated joint ventures and partnerships which resulted from measurable decreases in the fair value of the depreciable real estate held by the joint venture or partnership), plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures, Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance. We believe that FFO is helpful to investors and our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, impairments of depreciable assets, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which is not immediately apparent from net income. FFO should not be considered as an alternative to net income (loss), as an indication of our liquidity, nor as an indication of funds available to fund our cash needs, including our ability to make distributions and should be reviewed in connection with other GAAP measurements. Additionally, the exclusion of impairments limits the usefulness of FFO as a historical operating performance measure since an impairment charge indicates that operating performance has been permanently affected. FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO. Our FFO as presented may not be comparable to amounts calculated by other REITs that do not define these terms in accordance with the current NAREIT definition or that interpret the definition differently. Our calculation of FFO for the three and Provided below is additional information related to selected items included in net income above, which may be helpful in assessing our operating results. In addition, cash flows generated from FFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO, such as capital expenditures and payments of principal on debt, each of which may impact the amount of cash available for special distributions to our stockholders. Distributions 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. The On November 20, 2015, our board of directors authorized a special cash distribution of $1.50 per share of common stock, payable to stockholders of record as of December 31, 2015. The Company paid this special cash distribution Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. Critical Accounting Policies and Estimates Management’s discussion and analysis of financial condition and results of operations is based upon our Our critical accounting policies and estimates have not changed significantly from the discussion found in the Management Discussion and Analysis and Results of Operations in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, Foreign Currency Exchange Risk The Euro Interest Rate Risk We may be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments. Our management’s objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates. With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We may enter into derivative financial instruments such as options, forwards, interest rate swaps, caps, or floors to mitigate our interest rate risk on a related financial instrument or to effectively lock the interest rate portion of our variable rate debt. Of our Our interest rate cap, which is classified as an asset, had a nominal fair value within prepaid expenses and other assets Evaluation of Disclosure Controls and Procedures As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our principal executive officer and principal financial officer, evaluated, as of We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected. Changes in Internal Control over Financial Reporting There has been no change in internal control over financial reporting that occurred during the quarter ended Other Matters We are managed by an external advisor and have no employees. We engaged a new advisor in February 2017 and as a result the advisory services previously provided by the former advisor were fully transitioned to the new advisor as of June 30, 2017. OTHER INFORMATION We are not a party to, and none of our properties are subject to, any material pending legal proceedings. There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, Recent Sales of Unregistered Securities During the period covered by this quarterly report, we did not sell any equity securities that were not registered under the Securities Act of 1933. Share Redemption Program Our board of directors has adopted a share redemption program that permits stockholders to sell their shares back to us, subject to the significant conditions and limitations of the program. Our board of directors can amend the provisions of our share redemption program at any time without the approval of our stockholders. The terms on which we redeem shares may differ between redemptions upon a stockholder’s death, “qualifying disability” (as defined in the share redemption program) or confinement to a long-term care facility (collectively, Exceptional Redemptions) and all other redemptions, or Ordinary Redemptions. Any shares approved for redemption will be redeemed on a periodic basis as determined from time to time by our board of directors, and no less frequently than annually. We will not redeem, during any 12-month period, more than 5% of the weighted average number of shares outstanding during the 12-month period immediately prior to the date of redemption. In addition, the cash available for redemptions is limited to no more than $10 million in any twelve-month period. The redemption limitations apply to all redemptions, whether Ordinary or Exceptional Redemptions. The per share redemption price for Ordinary Redemptions and Exceptional Redemptions is equal to the lesser of 80% and 90%, respectively, of (i) the current estimated per share value and (ii) the average price per share the investor paid for all of his shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) less the Special Distributions (as defined in the share redemption program). Effective November Notwithstanding the redemption prices set forth above, our board of directors may determine, whether pursuant to formulas or processes approved or set by our board of directors, the redemption price of the shares, which may differ between Ordinary Redemptions and Exceptional Redemptions; provided, however, that we must provide at least 30 days’ notice to stockholders before applying this new price determined by our board of directors. Any redemption requests are honored pro rata among all requests received based on funds available and are not honored on a first come, first served basis. During the During the None. None. Effective August 9, 2017, following the transition of advisory management services from the Behringer Advisor to the Advisor, we adopted a new Code of Business Conduct and Ethics (the “Code”) that applies to all of our directors, officers and employees (should we ever have employees). Previously, our directors, officers and any employees were subject to a code of business conduct policy that applied to all Behringer-sponsored companies. Our board of directors adopted the Code in connection with the completion of the transition of advisory management services to the Advisor. The new Code covers topics such as business ethics, compliance standards and procedures, confidential information, conflicts of interest, corporate opportunities, protection and proper use of our assets, fair dealing, compliance with laws, insider trading and waivers of the Code, among other things. The information set forth herein does not purport to be complete in scope and is qualified in its entirety by the full text of the Code, which has been filed as an exhibit to this Quarterly Report on Form 10-Q and is also posted to the our website atwww.lightstoneshareholderservices.com The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Index to Exhibits Purchase and Sale Agreement among Kauai Coconut Beach, LLC and Kauai Coconut Beach Operator, LLC, as seller, and KS, LLC, as purchaser, effective as of June 19, 2017.Condensed )(unaudited) Nine Months Ended
September 30, 2016 2015 2016 2015 Revenues Rental revenue $ 6,740 $ 8,349 $ 21,590 $ 25,300 Hotel revenue 4,653 4,190 13,946 13,332 Total revenues 11,393 12,539 35,536 38,632 Expenses Property operating expenses 2,635 3,172 7,128 8,836 Hotel operating expenses 3,509 3,166 10,219 9,440 Interest expense, net 1,561 1,711 4,692 5,278 Real estate taxes 1,197 1,637 4,113 4,793 Property management fees 374 415 1,164 1,279 Asset management fees 554 657 1,773 2,099 General and administrative 705 1,061 2,246 2,772 Depreciation and amortization 2,616 3,467 8,396 11,869 Total expenses 13,151 15,286 39,731 46,366 Interest income, net 39 28 72 107 Loss on early extinguishment of debt (500 ) (613 ) (500 ) (732 ) Other income (loss) 52 74 263 (95 ) Loss before gain on sale of real estate and income taxes (2,167 ) (3,258 ) (4,360 ) (8,454 ) Gain on sale of real estate 11,462 17,451 11,462 22,771 Income tax benefit (expense) 29 (1,076 ) 29 (2,740 ) Net income 9,324 13,117 7,131 11,577 Net (income) loss attributable to the noncontrolling interest 59 (262 ) 14 (855 ) Net income attributable to the Company $ 9,383 $ 12,855 $ 7,145 $ 10,722 Weighted average shares outstanding: Basic and diluted 25,391 25,667 25,470 25,715 Basic and diluted income per share $ 0.37 $ 0.50 0.28 $ 0.42 Distributions declared per common share $ — $ — $ — $ 1.00 Comprehensive income (loss): Net income $ 9,324 $ 13,117 $ 7,131 $ 11,577 Other comprehensive income (loss): Reclassification of unrealized (gain) loss on currency translation to net income — (346 ) — 250 Foreign currency translation gain (loss) 37 124 106 (248 ) Total other comprehensive income (loss) 37 (222 ) 106 2 Comprehensive income 9,361 12,895 7,237 11,579 Comprehensive (income) loss attributable to noncontrolling interest 59 (262 ) 14 (855 ) Comprehensive income attributable to the Company $ 9,420 $ 12,633 $ 7,251 $ 10,724 For the Three Months Ended June 30, For the Six Months Ended June 30, 2017 2016 2017 2016 Revenues Rental revenues $ 6,151 $ 7,531 $ 12,223 $ 14,850 Hotel revenues 5,209 4,162 10,554 9,293 Total revenues 11,360 11,693 22,777 24,143 Expenses Property operating expenses 1,974 2,210 4,061 4,493 Hotel operating expenses 3,676 3,262 7,246 6,710 Interest expense, net 1,773 1,607 3,242 3,131 Real estate taxes 1,118 1,451 2,225 2,916 Property management fees 363 376 758 790 Asset management fees 510 605 1,019 1,219 General and administrative 963 739 1,761 1,541 Depreciation and amortization 2,568 2,615 5,146 5,780 Total expenses 12,945 12,865 25,458 26,580 Interest income, net 65 19 127 33 Other income (expense) 3 (73 ) 4 211 Loss before gain on sale of real estate (1,517 ) (1,226 ) (2,550 ) (2,193 ) Gain on sale of real estate - - 282 - Net loss (1,517 ) (1,226 ) (2,268 ) (2,193 ) Net (income) loss attributable to the noncontrolling interest (22 ) 61 (127 ) (45 ) Net loss attributable to the Company's shares $ (1,539 ) $ (1,165 ) $ (2,395 ) $ (2,238 ) Weighted average shares outstanding: Basic and diluted 25,026 25,466 25,098 25,510 Basic and diluted loss per share $ (0.06 ) $ (0.05 ) $ (0.10 ) $ (0.09 ) Comprehensive income (loss): Net loss $ (1,517 ) $ (1,226 ) $ (2,268 ) $ (2,193 ) Other comprehensive income (loss): Foreign currency translation gain (loss) 233 (88 ) 287 69 Total other comprehensive income (loss) 233 (88 ) 287 69 Comprehensive loss (1,284 ) (1,314 ) (1,981 ) (2,124 ) Comprehensive (income) loss attributable to noncontrolling interest (22 ) 61 (127 ) (45 ) Comprehensive loss attributable to the Company's shares $ (1,306 ) $ (1,253 ) $ (2,108 ) $ (2,169 ) Unaudited Condensed Consolidated Financial Statements.4 Condensed )StatementsStatement of Stockholders’ Equity(unaudited) Convertible Stock Common Stock Accumulated Distributions and Net Income (Loss) Accumulated Other Comprehensive Income (Loss) Number of Shares Par Value Number of Shares Par Value Additional Paid-in Capital Noncontrolling Interest Total Equity Balance at January 1, 2015 1 $ — 25,802 $ 3 $ 231,240 $ (62,477 ) $ (246 ) $ 8,036 $ 176,556 Net income 10,722 855 11,577 Redemption of common stock (147 ) (997 ) (997 ) Distributions declared on common stock (25,732 ) (25,732 ) Contributions from noncontrolling interest 499 499 Distributions to noncontrolling interest (2,383 ) (2,383 ) Other comprehensive income (loss): Reclassification of unrealized loss on currency translation to net income 250 250 Foreign currency translation loss (248 ) (248 ) Balance at September 30, 2015 1 $ — 25,655 $ 3 $ 230,243 $ (77,487 ) $ (244 ) $ 7,007 $ 159,522 Balance at January 1, 2016 1 $ — 25,585 $ 3 $ 229,796 $ (119,609 ) $ (372 ) $ 6,761 $ 116,579 Net income 7,145 (14 ) 7,131 Redemption of common stock (224 ) (1,166 ) (1,166 ) Contributions from noncontrolling interest 92 92 Distributions to noncontrolling interest (782 ) (782 ) Other comprehensive income: Foreign currency translation gain 106 106 Balance at September 30, 2016 1 $ — 25,361 $ 3 $ 228,630 $ (112,464 ) $ (266 ) $ 6,057 $ 121,960 Additional Total Convertible Stock Common Stock Paid-In Accumulated Other Noncontrolling Stockholders' Shares Amount Shares Amount Capital Comprehensive Loss Accumulated Deficit Interests Equity BALANCE, December 31, 2016 1 $ - 25,219 $ 3 $ 227,891 $ (495 ) $ (114,666 ) $ 5,906 $ 118,639 Net (loss) income - - - - - - (2,395 ) 127 (2,268 ) Contributions from noncontrolling interest holders - - - - - - 30 30 Distributions to noncontrolling interest holders - - - - - - - (239 ) (239 ) Redemption and cancellation of shares - - (222 ) - (1,147 ) - - - (1,147 ) Foreign currency translation gain - - - - - 287 - - 287 BALANCE, June 30, 2017 1 $ - 24,997 $ 3 $ 226,744 $ (208 ) $ (117,061 ) $ 5,824 $ 115,302 Unaudited Condensed Consolidated Financial Statements.5 Condensed )(unaudited) Nine Months Ended
September 30, 2016 2015 Cash flows from operating activities: Net income $ 7,131 $ 11,577 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization 8,277 11,721 Amortization of deferred financing fees 394 540 Gain on sale of real estate (11,462 ) (22,771 ) Loss on early extinguishment of debt 500 732 Loss on derivatives 2 15 Change in operating assets and liabilities: Accounts receivable 890 232 Prepaid expenses and other assets (137 ) 22 Accounts payable (109 ) (239 ) Income taxes payable (171 ) 1,951 Accrued and other liabilities (1,001 ) 1,460 Payables to related parties (123 ) (112 ) Addition of lease intangibles (65 ) (28 ) Cash provided by operating activities 4,126 5,100 Cash flows from investing activities: Investment in unconsolidated joint venture (176 ) (377 ) Proceeds from sale of real estate 68,520 79,075 Additions of property and equipment (2,062 ) (3,399 ) Change in restricted cash (1,166 ) (404 ) Net proceeds from the sale of real estate placed into escrow (1,247 ) — Cash provided by investing activities 63,869 74,895 Cash flows from financing activities: Financing costs (135 ) (379 ) Payments on notes payable (34,880 ) (44,674 ) Redemptions of common stock (1,166 ) (997 ) Distributions paid on common stock (38,378 ) (25,732 ) Contributions from noncontrolling interest holders 92 499 Distributions to noncontrolling interest holders (813 ) (2,362 ) Cash used in financing activities (75,280 ) (73,645 ) Effect of exchange rate changes on cash and cash equivalents 157 (291 ) Net change in cash and cash equivalents (7,128 ) 6,059 Cash and cash equivalents at beginning of period 76,815 72,949 Cash and cash equivalents at end of period $ 69,687 $ 79,008 For the Six Months Ended June 30, 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,268 ) $ (2,193 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 5,065 5,701 Amortization of deferred financing fees 289 275 Loss on derivatives 2 Gain on sale of real estate (282 ) - Changes in operating assets and liabilities: Accounts receivable (762 ) 772 Prepaid expenses and other assets 204 503 Accounts payable (16 ) 198 Income taxes payable 9 (35 ) Accrued and other liabilities 1,147 (411 ) Payables to related parties (356 ) (124 ) Lease intangibles (10 ) (51 ) Net cash provided by operating activities 3,020 4,637 CASH FLOWS FROM INVESTING ACTIVITIES: Investment in unconsolidated joint venture - (176 ) Additions of real estate and furniture, fixtures, and equipment (851 ) (1,266 ) Net cash used in investing activities (851 ) (1,442 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable (39,068 ) (872 ) Proceeds from notes payable 36,000 - Financing costs (1,465 ) - Redemptions of common stock (1,147 ) (680 ) Distributions paid on common stock - (38,378 ) Contributions from noncontrolling interest holders 30 60 Distributions to noncontrolling interest holders (242 ) (691 ) Net cash used in financing activities (5,892 ) (40,561 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash 287 96 Net change in cash, cash equivalents restricted cash (3,436 ) (37,270 ) Cash, cash equivalents restricted cash, beginning of year 73,212 81,396 Cash, cash equivalents restricted cash, end of period $ 69,776 $ 44,126 Supplemental cash flow information for the periods indicated is as follows: Cash paid for interest, net of amounts capitalized $ 1,484 $ 2,947 Income taxes paid, net $ - $ 60 Capital expenditures for real estate in accounts payable $ - $ 9 Capital expenditures for real estate in accrued liabilities $ - $ 72 Accrued distributions to noncontrolling interest $ 18 $ 18 Unaudited Condensed Consolidated Financial Statements.6 Condensed Consolidated Financial Statements(unaudited)1.1. Business and Organization and OrganizationBusinessare not actively seeking to purchase additional assets at this time, but may invest capital in our current assets in order to position them for sale in the normal course of business. 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. Consistent with our investment objectives of commencing a liquidation within three to six years after the termination of our initial public offering, we have entered our disposition phase and our board of directors is in the process of considering the orderly disposition of our assets. As of SeptemberJune 30, 2016,2017, we had eight real estate investments, seven of which were consolidated. One of our consolidated properties is wholly owned and six properties are consolidated through investments in joint ventures.SeptemberJune 30, 2016,2017, our wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a SeptemberJune 30, 2016,2017, 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.We are externallyadvised by BehringerweOpportunity Advisors II, LLCHoldings, LLC” (“Behringer”), acted as our external advisor (the “Advisor”“Behringer Advisor”). On 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. The Advisorexternal advisor is responsible for managing our day-to-day affairs and for services related to the salemanagement of our assets. Harvard Holdings, LLC (“Behringer”) on January 19, 2007. Behringer transferred its shares of convertible stock to one of its affiliates on April 2, 2010. Behringer transferred its shares of convertible stock to an affiliate of Lightstone on February 10, 2017. As of SeptemberJune 30, 2016,2017, we had 25.425.0 million shares of common stock outstanding and 1,000 shares of convertible stock outstanding. The outstanding convertible stock is held by an affiliate of Behringer.Lightstone.7 OurWe 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 is inelected to extend the process of considering the orderly dispositiontargeted timeline an additional six years until June 30, 2023 based on their assessment of our assetsinvestment 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. As we sell assets, we expectliquidation of the Company. We will seek stockholder approval prior to distribute net proceeds toliquidating our stockholders.7Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)2.Interim Unaudited Financial Information2. Interim Unaudited Financial Information condensedunaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes thereto includedas contained in ourthe Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015,2016, which was filed with the SECSecurities and Exchange Commission (the “SEC”) on March 16, 2016. Certain information2017. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and footnote disclosures normally includedaccruals 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 accounting principles generally accepted in the United States of America (“GAAP”) havefor 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.condensed or omittedderived from the consolidated balance sheet included in this reportthe Company's Annual Report on Form 10-Q pursuant to the rules and regulations10-K.the Securities and Exchange Commission (“SEC”).The resultsoperations for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying condensed consolidated balance sheet as of September 30, 2016, the condensed consolidated statements of operations and comprehensive incomeresults for the three and nine months ended September 30, 2016 and 2015 and the condensed consolidated statements of equity and cash flows for the nine months ended September 30, 2016 and 2015 have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to fairly present our condensed consolidated financial position as of September 30, 2016 and December 31, 2015 and our condensed consolidated results of operations and cash flows for the periods ended September 30, 2016 and 2015. Such adjustments are of a normal recurring nature. Condensed Consolidated Financial Statements, all dollar and share amounts in tabulation are in thousands of dollars and shares, respectively, unless otherwise noted.3.Summary of Significant Accounting PoliciesDescribed below are certain of our significant accounting policies. The disclosures regarding several of the policies have been condensed or omitted in accordance with interim reporting regulations specified by Form 10-Q. Please see our Annual Report on Form 10-K for a complete listing of all of our significant accounting policies.3. Summary of Significant Accounting Policies TheseThe most significant assumptions and estimates include such itemsrelate to the valuation of real estate, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as impairment of long-lived assets, depreciationto future uncertainties and, amortization, and allowance for doubtful accounts. Actualas a result, actual results could differ from thosethese estimates. condensed consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control. All inter-company transactions, balances, profits, and the accounts of variable interest entities, if any, in which we are the primary beneficiaryprofits have been eliminated in consolidation. InterestsIn addition, interests in entities acquired will beare evaluated based on applicable GAAP, which includes the requirement to consolidateand entities deemed to be variable interest entities (“VIE”) in which we are the primary beneficiary.beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity will beis 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.8 8Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)As of September 30, 2016 and December 31, 2015, accumulatedSeptember 30, 2016 Buildings and Improvements Land and Improvements Lease Intangibles Acquired
Below-Market LeasesCost $ 163,620 $ 45,884 $ 1,546 $ (137 ) Less: depreciation and amortization (29,791 ) (3,022 ) (1,219 ) 68 Net $ 133,829 $ 42,862 $ 327 $ (69 ) December 31, 2015 Buildings and Improvements Land and Improvements Lease Intangibles Acquired
Below-Market LeasesCost $ 211,635 $ 54,068 $ 3,083 $ (184 ) Less: depreciation and amortization (26,422 ) (2,686 ) (2,749 ) 104 Net $ 185,213 $ 51,382 $ 334 $ (80 ) June 30, 2017 Buildings and
Improvements Land and
Improvements Lease Intangibles Acquired Below-
Market Leases Cost $ 164,695 $ 45,917 $ 1,610 $ (137 ) Less: depreciation and amortization (35,599 ) (3,480 ) (1,302 ) 78 Net $ 129,096 $ 42,437 $ 308 $ (59 ) December 31, 2016 Buildings and
Improvements Land and
Improvements Lease Intangibles Acquired Below-
Market Leases Cost $ 164,087 $ 45,885 $ 1,599 $ (137 ) Less: depreciation and amortization (31,728 ) (3,175 ) (1,247 ) 72 Net $ 132,359 $ 42,710 $ 352 $ (65 ) Anticipated net amortization expense (accretion) associated with the acquired lease intangibles for each of the following five years as of September 30, 2016 is as follows: Year October 1, 2016 - December 31, 2016 $ 9 2017 20 2018 (14 ) 2019 (12 ) 2020 (10 ) SeptemberJune 30, 20162017 or December 31, 2015.2016.9 June 30, 2016 Cash and cash equivalents $ 38,896 Restricted cash 5,230 Total cash, cash equivalents and restricted cash $ 44,126 offersoffers; and changes in the global and local markets or economic conditions. Our assets may at times be concentrated in limited geographic locations and, toTo the extent that our portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at those properties within a short time period, which may result in asset impairments. When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual9Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)10 three and ninesix months ended SeptemberJune 30, 20162017 and 2015.2016. However, if market conditions worsen unexpectedly or if changes in our strategy significantly affect any key assumptions used in our fair value calculations, we may need to take charges in future periods for impairments related to our existing investments. Any such non-cash charges would have an adverse effect on our consolidated financial position and results of operations.9,8, Investment in Unconsolidated Joint Venture, for further discussion.Straight-line rent was income of less than $0.1 million recognized in rental revenues for the three and nine months ended September 30, 2016 and 2015. Leases associated with our multifamily, student housing, and hotel assets are generally short-term in nature, and thus have no straight-line rent. Net above-market lease amortization was a charge of less than $0.1 million recognized in rental revenues for the three and nine months ended September 30, 2016. Net below-market lease amortization was income of less than $0.1 million recognized in rental revenues for the three and nine months ended September 30, 2015.10Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)$1.5$2.3 million and $2.4$1.4 million as of SeptemberJune 30, 20162017 and December 31, 2015,2016, respectively, and included straight-line rental revenue receivables of $0.3$0.4 million as of SeptemberJune 30, 20162017 and December 31, 2015. years.years. Furniture, fixtures, and equipment associated with properties classified as held for sale are not depreciated. Maintenance and repairs are charged to operations as incurred. Accumulated depreciation associated with our furniture, fixtures, and equipment was $9.4$10.9 million and $8.1$9.9 million as of SeptemberJune 30, 20162017 and December 31, 2015,2016, respectively.of accumulated amortization, were $0.9$2.0 million and $1.7$0.8 million as of SeptemberJune 30, 20162017 and December 31, 2015,2016, respectively. Accumulated amortization of deferred financing fees were $1.8 million and $2.5 million as of September 30, 2016 and December 31, 2015, respectively. In April 2015, the11 Accounting Standards Board (“FASB”) issued an update (“ASU 2015-03”) to ASC Topic 835, Interest - Imputation of Interest, Simplifying the Presentation of Debt Issuance Costs. The adoption of ASU 2015-03, effective January 1, 2016, requires companies to present debt issuance costs related to a recognized debt liability as a direct reduction from the carrying amount of the related debt liability, retrospectively.The adoption of the new standard resulted in the following reclassifications of unamortized deferred financing fees as of December 31, 2015:December 31, 2015 Originally Reported Reclassification Adjusted Deferred financing fees, net $ 1,656 $ (1,656 ) $ — Notes payable 178,692 (1,656 ) 177,036 As a result of the sale of one of our foreign investmentsfirst quarter of 2015, Alte Jakobstraße (“AJS”), we recorded estimated foreign income tax of approximately $2.2 million during the period ended March 31, 2015. During the second quarter of 2015, we recorded a credit of $0.5 million to the provision for income tax based on a change in the estimated taxes payable on the sale of AJS. We recorded a provision for income tax of approximately $1 million in the third quarter of 2015 as a result of estimated foreign income tax related to the sale of Holstenplatz, resulting in a total income tax provision of $2.7 million for the ninethree and six months ended SeptemberJune 30, 2015. During the third quarter of 2016, we recorded a credit of less than $0.1 million to the provision for income tax based on the difference in the actual taxes due2017 and the originally estimated taxes payable on the sale of Holstenplatz. The foreign income tax recorded during 2015 was calculated on gains recognized at the exchange rate in effect on the date of sale and calculated using current tax rates.11Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)condensed consolidated statements of operations and comprehensive income (loss).The Euro isfunctional currency for the operationssubstantial liquidation of AJS and Holstenplatz, which were both sold in 2015. We sold AJS on February 21, 2015 and Holstenplatz on September 1, 2015. We maintain a Euro-denominated bank account that is comprised primarily of the remaining proceeds from the sale of these properties and is translated into U.S. dollars at the current exchange rate at each reporting period. For the three and nine months ended September 30, 2016, the foreign currency translation adjustment was a gain of less than $0.1 million and a gain of $0.1 million, respectively. For the three and nine months ended September 30, 2015, the foreign currency translation adjustment was a gain of $0.1 million and a loss of $0.2 million, respectively.When the Company has substantially liquidated itsour investment in a foreign entity, the cumulative translation adjustment (“CTA”) balance is required to be released into earnings. In accordance with ASUAccounting Standards Update (“ASU”) 2013-05, upon disposal of the property, we would recognize the CTA as an adjustment to the resulting gain or loss on sale. Duringfirst quarterfunctional currency for the operations of 2015, we recognizedAlte Jakobstraße (“AJS”) and Holstenplatz, which were both sold in 2015. As a CTAresult of approximately $0.6 million as a reduction to the gain on sale of our AJS office building, which we sold on February 21, 2015. We sold our wholly owned investment in the Holstenplatz office building on September 1, 2015. We recognized a CTA credit of approximately $0.4 million as an increase to the gain on sale of Holstenplatz. With the sale of AJS and Holstenplatz, we no longer have foreign operations.At September20162017 and December 31, 2015,2016, we had cash and cash equivalents deposited in certain financial institutions in excess of federally insured levels. We have diversified our cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.12 ninesix months ended SeptemberJune 30, 2016, excluding sold assets, 44%2017, 46% and 15% of our total revenues were derived from our properties located in Hawaii and Florida, respectively. Additionally, excluding our property sold in 2016, 44%46%, 30%29%, and 21%20% of our total revenues for the ninesix months ended SeptemberJune 30, 20162017 were from our hotel, multifamily, and student housing investments, respectively. To the extent that our portfolio is concentrated in limited geographic regions or types of assets, downturns relating generally to such region or type of asset may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our common stock and accordingly limit our ability to fund our operations.In certain instances, our joint venture agreement provides for liquidating distributions based on achieving certain return metrics (“promoted interest”). If a property reaches a defined return threshold, then it will result in distributions to noncontrolling interest which is different from the standard pro-rata allocation percentage.Net incomebased onby dividing net income (loss) by the weighted averageweighted-average number of shares of common sharesstock outstanding during eachthe applicable period. The weighted average shares outstanding used to calculate both basic and diluted income per share were the same for12Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)each of the three and nine months ended September 30, 2016 and 2015 as there were no potentially dilutive securities outstanding.Subsequent EventsWe have evaluated subsequent events for recognition or disclosure in our condensed consolidated financial statements.4. 4. New Accounting Pronouncements In addition, early adoption will be permitted beginning after December 15, 2016, including interim reporting periods within those annual periods. Either full retrospective adoption or modified retrospective adoption is permitted. We do not expect that the adoption of this pronouncement will have a material effect on our condensed consolidated financial statements; however, we will continue to evaluate this assessment until the guidance becomes effective.with early adoption permitted beginning January 1, 2017, and allows full or modified retrospective application. We do not expect the adoption of ASU 2016-10 and ASU 2016-12 to have a material effect on our consolidated financial statements; however, we will continue to evaluate this assessment until the guidance becomes effective.13 In August 2014, the FASB issued an update (“ASU 2014-15”ASC Topic 205, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management’s assessment of a company’s ability to continue as a going concern and provide related footnote disclosures when conditions give rise to substantial doubt about a company’s ability to continue as a going concern within one year from the financial statement issuance date. ASU 2014-15 applies to all companies and is effective for the annual period ending after December 15, 2016, and all annual and interim periods thereafter. We do not believe the adoption of this guidance will have a material impact on our disclosures.leases.leases, with classification affecting the pattern of expense recognition in the statement of earnings. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. Under this new pronouncement, lessor accounting will be largely unchanged from existing GAAP. The new standard will be effective January 1, 2019, with early adoption permitted. We do not expect that the adoption of this pronouncement will have a material effect on our condensed consolidated financial statements; however, we will continue to evaluate this assessment until the guidance becomes effective.AugustJune 2016, the FASB issued an update (“ASU 2016-15”2016-13”) to ASC Topic 230, Statement326, Credit Losses. This amended guidance requires measurement and recognition of Cash Flows, Classificationexpected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This is different from the current guidance as this will require immediate recognition of Certain Cash Receipts and Cash Payments. The objectiveestimated credit losses expected to occur over the remaining life of this amendment ismany financial assets. Financial assets that are measured at amortized cost will be required to reducebe presented at the diversity in practice in how certain cash receipts and cash payments are presented and classified innet amount expected to be collected with an allowance for credit losses deducted from the statementsamortized cost basis. Generally, the pronouncement requires a modified retrospective method of cash flows. Of the eight types of cash flows discussed in the new standard, the classification of debt prepayment, distributions received from equity method investees, and debt extinguishment costs as financing outflows may impact the Company. ASU 2016-15adoption. This guidance is effective for public companies forfiscal years and interim and annual reporting periods within those years beginning after December 15, 2017. Early2019, with early adoption permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements when adopted.in13Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)interim period. The amendmentasset acquisition. Therefore, any future transactions costs associated with an asset acquisition will be capitalized and accounted for in the update should be applied using the retrospective transition method for each period presented. We will continue to evaluate the impact untilaccordance with the guidance becomes effective.5.Assets and Liabilities Measured at Fair Value5. Assets and Liabilities Measured at Fair Value 14 SeptemberJune 30, 2016,2017, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.The following fair value hierarchy table presents information about our assets measured at fair value on a recurring basis asDecember 31, 2015:December 31, 2015 Level 1 Level 2 Level 3 Total Assets Derivative financial instruments $ — $ 2 $ — $ 2 as of September 30, 2016 and it had a nominal value.sheet.During the year ended December 31, 2015, we recorded a $1.4 million non-cash impairment charge as a result of a measurable decrease in the fair value of 22 Exchange, one of our student housing investments. In estimating the fair value of 22 Exchange, we used management’s internal discounted cash flow analysis prepared with consideration of the current local market. The discounted cash flow estimate is considered Level 3 under the fair value hierarchy described above.14Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)The following fair value hierarchy table presents information about our assets measured at fair value on a nonrecurring basis during the year ended December 31, 2015:For the year ended December 31, 2015 Level 1 Level 2 Level 3 Loss Assets $ — $ — $ 25,000 $ 25,000 $ (1,417 ) (1)Due to the local market decline in Akron, Ohio during the fourth quarter of 2015, we recorded a non-cash impairment charge of $1.4 million on our investment in 22 Exchange, one of our student housing investments.Quantitative Information about Level 3 Fair Value Measurements Description Valuation
Techniques Unobservable Input Range
(Weighted Average) $ 25,000 Discounted cash flow Discount rate
Terminal capitalization rate 7.5% - 8.0%
6.5% - 7.5%(1)Due to the local market decline in Akron, Ohio during the fourth quarter of 2015, we recorded a non-cash impairment charge of $1.4 million on our investment in 22 Exchange, a student housing property.three and ninesix months ended SeptemberJune 30, 20162017 and 2015.6.Financial Instruments not Reported at Fair Value6. Financial Instruments not Reported at Fair Value 15 SeptemberJune 30, 20162017 and December 31, 2015,2016, management estimated that the carrying value of cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses,and other liabilities, payables/receivables from related parties, and distributions payable to noncontrolling interests were at amounts that reasonably approximated their fair value based on their highly-liquid nature and short-term maturities. The fair value of the notes payable is categorized as a Level 2 in the fair value hierarchy. The fair value was estimated using a discounted cash flow analysis valuation on the borrowing rates currently available for loans with similar terms and maturities. The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate. Disclosure about fair value of financial instruments is based on pertinent information available to management as of SeptemberJune 30, 20162017 and December 31, 2015. SeptemberJune 30, 20162017 and December 31, 20152016 are as follows: September 30, 2016 December 31, 2015 Carrying Amount Fair Value Carrying Amount Fair Value Notes payable $ 143,686 $ 146,175 $ 178,692 $ 179,306 Less: unamortized debt issuance costs (897 ) (1,656 ) Notes payable, net $ 142,789 $ 177,036 15Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited) As of June 30, 2017 As of December 31, 2016 Carrying Amount Estimated Fair
Value Carrying Amount Estimated Fair
Value Mortgages payable $ 139,967 $ 142,721 $ 143,119 $ 146,790 SeptemberJune 30, 2016,2017, we consolidated seven real estate assets in our condensed consolidated balance sheet. The following table presents certain information about our consolidated investments as of SeptemberJune 30, 2016:Property Name Description Location Date Acquired
InterestGardens Medical Pavilion Medical office building Palm Beach Gardens, Florida October 20, 2010 81.8%82 % Courtyard Kauai Coconut Beach Hotel Hotel Kauai, Hawaii October 20, 2010 80%80 % River Club and the Townhomes at River Club Student housing Athens, Georgia April 25, 2011 85%85 % Lakes of Margate Multifamily Margate, Florida October 19, 2011 92.5%92.5 % Arbors Harbor Town Multifamily Memphis, Tennessee December 20, 2011 94%94 % 22 Exchange Student housing Akron, Ohio April 16, 2013 90%90 % Parkside ApartmentsArcadian Sugar Land (“Parkside”) Multifamily Sugar Land, Texas August 8, 2013 90%90 % Real Estate Asset DispositionLakewood FlatsOn August 16, 2016, we sold Lakewood Flats for a contract sales price of approximately $68.8 million, resulting in a gain on sale of real estate of $11.5 million and a deferred gain of approximately $1.2 million. The deferred gain represents the amount of monies held in escrow to be reimbursed upon completion of the property’s outstanding insurance claim. We recorded a loss on early extinguishment of debt of $0.5 million, which was composed of the write-off of deferred financing fees of $0.4 million and an early termination fee of $0.1 million. A portion of the proceeds from the sale were used to pay off in full the existing indebtedness of approximately $33.5 million secured by the property. Lakewood Flats was classified as held for sale on our consolidated balance sheet at June 30, 2016.Sales of Real Estate Reported in Continuing OperationsThe following table presents our sales of real estate for the nine months ended September 30, 2016 and 2015 (in millions):Date of Sale Property Ownership Interest Sales Contract Price Gain on Sale of Real Estate August 16, 2016 Lakewood Flats 100% $ 68.8 $ 68.5 $ 11.5 January 8, 2015 Babcock Self Storage 85% $ 5.4 $ 5.2 $ 2.0 February 21, 2015 Alte Jakobstraße 99.7% $ 14.1 $ 13.0 $ 3.3 September 1, 2015 Holstenplatz 100.0% $ 18.4 $ 18.0 $ 8.6 September 9, 2015 Wimberly at Deerwood 95.0% $ 43.5 $ 42.9 $ 8.9 (1)8.A portion of the net cash proceeds was used to pay off the property-associated debt of $33.5 million, $2.1 million, $6.5 million, and $26.4 million for Lakewood Flats, Babcock Self Storage (“Babcock”), AJS, and Wimberly at Deerwood (“Wimberly”), respectively. The Holstenplatz debt was paid off on April 30, 2015.Investment in Unconsolidated Joint VentureThe Company does not view the 2016 disposal of Lakewood Flats or the 2015 disposals of Babcock, AJS, Holstenplatz, and Wimberly as a strategic shift. Therefore, the results of operations for Lakewood Flats is presented in continuing operations in the consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015. The results of operations for Babcock and AJS are presented in continuing operations in the condensed consolidated statements of operations for the nine months ended September 30, 2015. The results of operations for Holstenplatz and Wimberly are presented in continuing operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2015. Net income attributable to the Company for the nine months ended September 30, 2016 includes the gain on sale of Lakewood Flats of $11.5 million. Net income attributable to the Company for the nine months ended September 30, 2015 related to Babcock, AJS, Holstenplatz, and Wimberly was $17.8 million and includes the gains on sale for a total of $22.8 million.16Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)8.Investment in Unconsolidated Joint Venture$15.3$15.3 million to an unaffiliated third-party entity (the “Borrower”) that owns an apartment complex under development in Denver, Colorado (“Prospect Park”(the “Huron”). The Borrower also has a senior construction loan with a third-party construction lender (the “Senior Lender”) in an aggregate original principal amount up toof $40 million. The senior construction loan is guaranteed by the owners of the developer. We also have a personal guaranty from the owners of the developer guaranteeing completion of the project and payment of cost overruns. Our mezzanine loan is secured by all of the membership interests of the Borrower and is subordinate to the senior construction loan. Our advances of $15.3 million haveinitially had annual stated interest rates ranging from 10% to 18%. We evaluated this ADC Arrangement and determined that the characteristics are similar to a jointly-owned investment or partnership. Accordingly, the investment wasis accounted for as an unconsolidated joint venture under the equity method of accounting instead of loan accounting since we will participate in the residual interests through the sale or refinancing of the property. 16 JulyDecember 31, 2016 due to a delay in completion of the project. The project was subsequently completed in January 2017. On March 23, 2017, the Senior Lender andexecuted a loan amendment extending the Company have decided not to callmaturity date of the loan to March 24, 2018. The Senior Lender loan amendment also increased the interest rate 75 basis points to 30-day LIBOR plus 375 basis points and will amendadded provisions to require the maintenance of certain prescribed minimum occupancy and rental rates at future dates. On May 8, 2017, we amended the mezzanine loan agreements when construction is complete. Completionagreement to mirror the maturity date of the project is expectedsenior loan and changed our interest rate to occur before11% for the endentire balance of 2016.the loan. The amended mezzanine loan agreement was effective as of March 1, 2017. As of SeptemberJune 30, 2016,2017, the outstanding principal balance under the mezzanine loan was $15.3 million. The Borrower has been funding anyfunded all cost overruns.theour accounting treatment and determined the ADC Arrangement willshould still continue to be accounted for as an unconsolidated joint venture under the equity method of accounting. We will continue to monitor this situation and assess any impact these or future events might have on our ability to ultimately realize the carrying value of our investment. The ADC Arrangement is reassessed at each reporting period.thisour investment in the Huron, we capitalized interest capitalized forof $44 and $176 during the three and ninesix months ended SeptemberJune 30, 2016, respectively. There was less than $0.1 million and less than $0.2 million, respectively. Interestno interest capitalized foron our investment in the Huron during the 2017 periods because the project was completed in January 2017. For the three and ninesix months ended SeptemberJune 30, 2015 was $0.1 million2017 and $0.4 million, respectively. For the three months ended September 30, 2016, and 2015, we recorded no equity in earnings (losses) of unconsolidated joint venture related to our investment in Prospect Park.Prospect Park: the Huron: Ownership Interest Carrying Amount Property Name June 30, 2017 December 31, 2016 June 30, 2017 December 31, 2016 The Huron N/A N/A $ 14,658 $ 14,658 June 30, 2017 December 31, 2016 Total assets $ 70,257 $ 72,272 Total debt, net $ 60,325 $ 56,638 Total equity $ 8,506 $ 11,957 For the Three Months Ended June 30, For the Six Months Ended June 30, 2017 2016 2017 2016 Total revenues $ 579 $ 54 $ 1,017 $ 54 Net loss (2,750 ) (1,082 ) (4,835 ) (1,008 ) 17 Ownership Interest Carrying Amount Property Name September 30, 2016 December 31, 2015 September 30, 2016 December 31, 2015 Prospect Park N/A N/A $ 14,658 $ 14,482 17 Condensed Consolidated Financial Statements(unaudited)9. Variable Interest EntitiesAs discussed in Note 3, effective9. Variable Interest Entities have adopted the guidance in ASU 2015-02. As a result, the Operating Partnership (see Note 1) and each of our less than wholly-owned real estate partnerships (22 Exchange, LLC, Gardens Medical Pavilion, LLC, SL Parkside Apartments, LLC, and the ADC Arrangement associated with Prospect Park)the Huron) have been deemed to have the characteristics of a VIE. However, we were not required to consolidate any previously unconsolidated entities or deconsolidate any previously consolidated entities as a result of the change in classification. Accordingly, there has been no change to the amounts reported in our condensed consolidated balance sheets and statements of cash flows or amounts recognized in our condensed consolidated statements of operations.at Septemberas of June 30, 20162017 is the ADC Arrangement associated with Prospect Park,the Huron, which is accounted for as an unconsolidated joint venture and is a VIE. Refer to Note 8 for further details on the ADC Arrangement. This arrangement was established to provide mezzanine financing to an unaffiliated third party that owns Prospect Park,the Huron, an apartment complex under development in Denver, Colorado. Based on our reevaluation under ASU 2015-02, we determined that we are not the primary beneficiary of this VIE based on the rights of the general partner. The arrangement does not allow for substantive kick-out rights over the general partner and we do not have the power to direct the activities of Prospect Parkthe Huron that most significantly affect the entity’s economic performance. Accordingly, we have determined it is appropriate, consistent with past accounting, that the Prospect ParkHuron ADC Arrangement will continue to be accounted for under the equity method.18 As of September 30, 2016 and December 31, 2015, total assets of the property under development were approximately $74 million and $63.9 million, respectively. Total assets as of September 30, 2016 and December 31, 2015 were made up of construction in progress of $63.6 million and $53.5 million, respectively, land of $9.8 million, and other assets of $0.6 million and $0.5 million, respectively. The outstanding balance on the senior construction loan as of September 30, 2016 and December 31, 2015 was $35.7 million and $26.9 million, respectively. At September 30, 2016 and December 31, 2015, the outstanding principal balance of our mezzanine loan was $15.3 million.The Company’s maximum exposure to losses associated with its unconsolidated joint venture is limited to its carrying value in this investment. As of September 30, 2016 and December 31, 2015, the Company’s carrying value and maximum exposure to loss in this investment was $14.7 million and $14.5 million, respectively.18 Condensed Consolidated Financial Statements(unaudited)10.Notes Payable10. Notes Payable SeptemberJune 30, 20162017 and December 31, 2015: Amount Due Notes Payable as of Description Interest Rate Maturity Date at Maturity June 30, 2017 December 31, 2016 Courtyard Kauai Coconut Beach Hotel Repaid in full on 5/8/2017 $ - $ - $ 38,000 Courtyard Kauai Coconut Beach Hotel(1) 30-day LIBOR + 4.7% 5/8/2020 36,000 36,000 - Gardens Medical Pavilion 4.90% 1/1/2018 12,480 12,692 12,899 River Club and the Townhomes at River Club 5.26% 5/1/2018 23,368 23,715 23,917 Lakes of Margate 5.49% and 5.92% 1/1/2020 13,384 14,108 14,243 Arbors Harbor Town 3.99% 1/1/2019 23,632 24,404 24,653 22 Exchange 3.93% 5/5/2023 16,875 19,136 19,307 Parkside(2) 5% 6/1/2018 9,560 9,912 10,100 Total debt $ 135,299 139,967 143,119 Deferred financing fees (1,963 ) (787 ) Total notes payable, net $ 138,004 $ 142,332 Notes Payable as of Description September 30, 2016 Interest Rate Maturity Date Courtyard Kauai Coconut Beach Hotel $ 38,000 $ 38,000 30-day LIBOR + .95% 5/9/2017 Gardens Medical Pavilion 13,001 13,298 4.9% 1/1/2018 River Club and the Townhomes at River Club 24,016 24,299 5.26% 5/1/2018 Lakes of Margate 14,309 14,496 5.49% and 5.92% 1/1/2020 Arbors Harbor Town 24,775 25,130 3.985% 1/1/2019 22 Exchange 19,392 19,500 3.93% 5/5/2023 10,193 10,469 5% 6/1/2018 — 33,500 30-day LIBOR + 1.5% 11/5/2019 Total debt 143,686 178,692 (897 ) (1,656 ) Notes payable, net of deferred financing fees 142,789 177,036 Total notes payable obligations $ 142,789 $ 177,036 (1) 30-day London Interbank Offered Rate (“LIBOR”)Interest rate as of June 30, 2017 was 0.53% at September 30, 2016.5.80%.(2)Includes approximately $0.3 related to debt we assumed at acquisition.(3)On August 16, 2016, we sold Lakewood Flats to an unaffiliated third party. A portion of the proceeds from the sale were used to payoff the existing indebtedness associated with the property.(4) Effective January 1, 2016, we adopted ASU 2015-03, which requires companies to present the debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amountwe assumed at acquisition.the related debt liability. See Note 3, Summary of Significant Accounting Policies, for further details.At SeptemberJune 30, 2016,2017, our outstanding notes payable balance was $142.8were $138.0 million, net of deferred financing fees of $0.9 million. We$2.0 million, and had a weighted-average interest rate of 5.0%. For loans in place as of June 30, 2017, we have guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forth in the guaranties in favor of the unaffiliated lenders with respect to the Courtyard Kauai Coconut Beach Hotel, 22 Exchange, and Parkside notes payable. Interest capitalized in connection with our equity method investment in Prospect Park for the three and nine months ended September 30, 2016 was less than $0.1 million and less than $0.2 million, respectively. Interest capitalized for the three and nine months ended September 30, 2015 was $0.1 million and $0.4 million, respectively.On August 16, 2016, we sold Lakewood Flats to an unaffiliated third party and used a portion of the proceeds from the sale to fully satisfy the existing indebtedness of approximately $33.5 million.19Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited) affirmative, negative, and financial covenants, and representations, warranties, and borrowing conditions, all as set forth in our loan agreements, including, among other things, maintaining minimum debt service coverage ratios, loan to value ratios and liquidity. We did not meet the debt service coverage requirements for our 22 Exchange loan as of both March 31, 2017 and June 30, 2017. As of September 30, 2016,a result, we believe weexpect the lender to begin sweeping the cash from operations; however, the loan is not in default. We were in compliance with the financial covenants under our remaining loan agreements. agreements as of June 30, 2017.19 SeptemberJune 30, 2016: Year Amount Due October 1, 2016 - December 31, 2016 $ 524 2017 40,151 2018 46,807 2019 24,308 2020 13,771 Thereafter 17,845 Total contractual obligations for principal payments 143,406 Unamortized premium 280 Total notes payable 143,686 Less: Deferred financing fees, net (897 ) Notes payable, net $ 142,789 11.Leasing ActivityYear Amount Due July 1, 2017 - December 31, 2017 $ 1,083 2018 46,808 2019 24,308 2020 49,771 2021 404 Thereafter 17,439 Total contractual obligations for principal payments 139,813 Unamortized premium 154 Total notes payable 139,967 Less: Deferred financing fees, net (1,963 ) Notes payable, net $ 138,004 11. Leasing Activity remaining office property, Gardens Medical Pavilion, and the retail space at 22 Exchange due to us under non-cancelable leases in effect as of SeptemberJune 30, 20162017 are as follows:Year Amount Due October 1, 2016 - December 31, 2016 $ 308 2017 1,250 2018 980 2019 919 2020 927 Thereafter 3,000 Total $ 7,384 Year Amount Due Remainder of 2017 $ 817 2018 1,403 2019 1,105 2020 1,000 2021 872 Thereafter 2,413 Total $ 7,610 We have one remaining office property at September 30, 2016, Gardens Medical Pavilion, located in Palm Beach Gardens, Florida.20 20 Condensed Consolidated Financial Statements(unaudited)12.Derivative Instruments and Hedging Activities12. Derivative Instruments and Hedging Activities SeptemberJune 30, 2016,2017, we had one remainingan interest rate cap related to the Courtyard Kauai Loan, which we entered into on May 8, 2017. This interest rate cap was not designated as a hedging instrument. At September 30, 2016instrument, matures on May 9, 2019 and December 31, 2015, the fair value of our derivative instrument hadhas a nominal value and was reported in prepaid expenses and other assets.The following table summarizes the notional value of our derivative financial instrument.$44 million with a strike price of 3% based on 30-day LIBOR. The notional value provides an indication of the extent of our involvement in this instrument, but does not represent exposure to credit, interest rate, or market risks: Type / Description Index Maturity Date Not designated as hedging instrument Interest rate cap - Courtyard Kauai Coconut Beach Hotel $ 38,000 3.00% 30-day LIBOR May 15, 2017 The table below presents the fair value of our derivative financial instrument, as well as its classification on the consolidated balance sheets as of September 30, 2016 and December 31, 2015: Derivative not designated as hedging instrument: Balance Sheet Location September 30, 2016 December 31, 2015 Interest rate derivative contract Prepaid expenses and other assets $ — $ 2 (1)The interest rate cap for Courtyard Kauai Coconut Beach Hotel had a nominal value at September 30, 2016 and 2015.The table below presents the effect of our condensed consolidated statements of operations for the three and ninesix months ended SeptemberJune 30, 20162017 and 2015: Amount of Loss Three months ended September 30, Nine months ended September 30, 2016 2015 2016 2015 $ — $ — $ 2 $ 15 (1)13.Courtyard Kauai Coconut Beach Hotel interest rate cap had a nominal value and was our only remaining asset with an interest rate cap during the three and nine months ended September 30, 2016 and 2015.Distributions13.DistributionsThe board’s decisionOur board of director’s decisions will be substantially influenced by itsthe 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. We expect that any future distributions authorized by our board of directors will be periodic, special distributions as opposed to regular monthly or quarterly distributions.On November 20, 2015, our board of directors authorized a special cash distribution of $1.50 per share of common stock, payable to stockholders of record as of December 31, 2015. The Company paid this special cash distribution of $38.4 million on January 5, 2016. On March 18, 2015, our board of directors authorized a special cash distribution of $1.00 per share of common stock, payable to stockholders of record as of March 30, 2015. This special cash distribution of $25.7 million was paid on March 31, 2015. These special cash distributions represented a portion of proceeds from asset sales.21Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)14.Related Party Transactions14. Related Party Transactions The Advisorthean advisory management agreement, as amended and restated.Fifth Amended and Restated Advisory Management AgreementOn July 25, 2016,entered intowere party to successive advisory management agreements, each with a term of one year or less, with the Behringer Advisor. The most recently executed advisory management agreement was the Fifth Amended and Restated Advisory Management Agreement (the “Fifth Advisory Agreement”) with our Advisor to, among other things, revise the administrative services fee, amend the non-solicitation provision,entered into on July 25, 2016 and extend the term of the agreement to June 6, 2017. The Fifth Advisory Agreement is effective as of June 6, 2016.Advisor orfollowing discussion describes the fees and expenses payable to our external advisor and its respective affiliates receiveunder both the Fifth Advisory Agreement and the Lightstone Advisory Agreement.the Advisor and its affiliates receivewe pay acquisition and advisory fees of 1.5% of the funds advanced in respect of a loan investment. We incurred no acquisition and advisory fees payable to the Advisorour external advisor for the ninethree and six months ended SeptemberJune 30, 2016. We incurred acquisition2017 and advisory fees payable to the Advisor of less than $0.1 million for the nine months ended September 30, 2015 as a result of improvements made to our assets. During the nine months ended September 30, 2016 and 2015,because we had no acquisitions.acquisitions during these periods.21 The Advisor or its affiliatesreceivepay 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 the Advisorour 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'sfinder’s fees, title insurance, premium expenses, and other closing costs.The AdvisorAdvisorexternal advisor or its affiliates incur that are due to third parties or related to the additional services provided by the Advisorour 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 ninethree and six months ended SeptemberJune 30, 2017 and 2016, we incurred no acquisition expense reimbursements. For the nine months ended September 30, 2015, we incurred less than $0.1 million in acquisition expense reimbursements.the Advisor or its affiliatesour external advisor a debt financing fee of 0.5% of the amount available under any loan or line of credit made available to us and pay directly all third-party costs associated with obtaining the debt financing. During the second quarter of 2017, we incurred a debt financing fee of $0.2 million related to the Courtyard Kauai Loan. We incurred no debt financing fees for the ninethree and six months ended SeptemberJune 30, 2016 and 2015.the Advisor or its affiliatesour 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 suchdevelopment fees for the ninethree and six months ended SeptemberJune 30, 20162017 and 2015.the Advisor or its affiliatesour external advisor a monthly asset management fee of one-twelfth of 0.7% of the value of each asset. The value of our assets will be the value as determined in connection with the establishment and publication of an estimated value per share unless the asset was acquired after our publication of an estimated value per share (in which case the value of the asset will be the contractcontractual purchase price of the asset). For the ninethree and six months ended SeptemberJune 30, 2016 and 2015,2017, we expensed $1.6$0.5 million and $2$1.0 million, respectively, of asset management fees payable to the Advisor. The totalsour external advisor compared to $0.5 million and $1.1 million for the nine months ended September 30,same periods in 2016, and 2015 include asset management fees related to our disposed properties.The Advisorrespectively.Advisorexternal advisor to the extent that they provide services related to us for which the Advisorour external advisor receives an acquisition, asset management, or debt financing fee, including wages and benefits of the applicable personnel. Instead of reimbursing the Advisorour external advisor for specific expenses paid or incurred in connection with providing services to us, we pay the Advisorour external advisor an administrative services fee (also referred to as an administrative services reimbursement under the Lightstone Advisory Agreement) based on a budget of expenses prepared by the Advisor.external advisor. The administrative services fee is intended to reimburse for all costs associated with providing services to us. For the calendar year ending December 31, 2017, the administrative services fee is $1.325 million annually, pro-rated for the first six months of the year and $1.30 million annually, pro-rated for the second six months of the year. Under the Fifth Advisory Agreement, for the calendar year ended December 31, 2016, the administrative services fee iswas the lesser of (i) $1.3$1.325 million per calendar year, and (ii) the actual costs of providing administrative services to us under the Fifth Advisory Agreement, payable in22Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)For the calendar year ending December 31, 2015, the administrative services fee was $1.5 million. In addition, under the advisory management agreement,agreements, we are to reimburse the Advisorexternal advisor for certain due diligence services provided in connection with asset acquisitions and dispositions orand debt financings separately from the administrative services fee. For the ninethree and six months ended SeptemberJune 30, 2016 and 2015,2017, we incurred and expensed such costs for administrative services and due diligence services of approximately $0.9$0.4 million and $1.2$0.7 million, respectively, compared to approximately $0.4 million and $0.7 million for the same periods in 2016, respectively. Included in that amount isThese amounts include less than $0.1 million related to certain due diligence services provided in connection with asset dispositions during the nine months ended September 30, 2016 and 2015.respective periods.22 Advisorexternal advisor pursuant to the Fifth Advisory Agreement,our advisory management agreement, under our charter we may not reimburse the Advisorexternal 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 SeptemberJune 30, 2016,2017, our total operating expenses (including the asset management fee) exceeded the limit on total operating expenses; however, our independent directors determined the excess expenses were not excessive.the Advisor, Behringer Harvard Opportunity II Management Services, LLC or its affiliates (collectively, our “Property Manager”),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.property manager. We pay our Property Managerproperty 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 Managerproperty 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 Managerproperty manager directly for its services, we will pay our Property Managerproperty manager a management fee or oversight fee, as applicable, based only on our economic interest in the property. WeFor the three and six months ended June 30, 2017, we incurred and expensed property management fees or oversight fees to our Property Managerthe related-party property manager of approximately $0.4less than $0.1 million and $0.5$0.1 million, forrespectively, compared to $0.2 million and $0.3 million in the nine months ended September 30,same periods in 2016, and 2015, respectively.Property Managerproperty 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 ninethree and six months ended SeptemberJune 30, 2017 and 2016.2015.its affiliates of $0.1 million and $0.4 million, respectively. These balances consist of accrued fees, including asset management fees, administrative service expenses, property management fees, and other miscellaneous costs payable to our external advisor and property manager.23 the Advisorour external advisor and our Property Managerproperty 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.15.Supplemental Cash Flow InformationSupplemental cash flow information is summarized below: Nine months ended September 30, Description 2016 2015 Interest paid, net of amounts capitalized 4,484 $ 4,959 Income taxes paid, net 175 856 Non-cash investing activities and financing activities: Proceeds held in escrow through sale of real estate interests — 912 Capital expenditures for real estate in accrued liabilities 139 414 Accrued distributions to noncontrolling interest 21 40 23Behringer Harvard Opportunity REIT II, Inc.Notes to Condensed Consolidated Financial Statements(unaudited)16. Subsequent Events15. Subsequent Events NovemberAugust 9, 2016,2017, our board of directors approved redemptions for the fourththird quarter of 20162017 totaling 141,841approximately 239,000 shares (whole number of shares) with an aggregate redemption payment of approximately $0.7$1.2 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.24 ******condensed consolidated financial statements and the notes thereto.Behringer Harvard Opportunity REIT II, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us,” or “our”),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 special 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.20162017 and the factors described below:special distributions, if any;personnel of our advisor, ourindividuals who provide advisory and property manager and their affiliates;management services to us; our assets at a price and on a timeline consistent with our investment objectives;25 27A of the Securities Act and Section 21E of the Exchange Act.are not actively seeking to purchase additional assets at this time and have entered our disposition phase. Consistent with our investment objectivespreviously targeted the commencement of commencing a liquidationliquidity event within three to six years after the termination of our initial public offering, we have entered our disposition phase andwhich occurred on July 3, 2011. On June 29, 2017, our board of directors is inelected to extend the process of considering the orderly dispositiontargeted timeline an additional six years until June 30, 2023 based on their assessment of our assets.$69.7$64.9 million at Septemberas of June 30, 2016.2017. Our principal demands for funds going forward will be for the payment of (a) operating expenses, (b) interest and principal on our outstanding indebtedness, (c) share redemptions and (c) special distributions.(d) distributions, if any, authorized by our board of directors. Generally, we expect to meet cash needs for the payment of operating expenses, and interest on our outstanding indebtedness fromand share redemptions with our cash flow from operations and to fund specialauthorized distributions (if any) from ouravailable cash flow from operations and/or proceeds received from asset sales. To the extent that our cash flow from operations is not sufficient to cover our operating expenses, interest on our outstanding indebtedness, or share redemptions, we expect to use cash generated from borrowings and asset sales to fund such needs.We are not actively seeking to purchase additional properties, but may invest capital in our current assets in order to position them for sale in the normal course of business. Our board of directors is in the process of considering the orderly disposition of our assets. We sold Lakewood Flats in the third quarter of 2016 and sold four properties in 2015.26 stock. On March 31, 2015, we paid a special cash distribution of $25.7 million, or $1.00 per share of common stock. Both distributions werestock, which was funded from proceeds ofreceived from asset sales.We continually evaluate our liquidity and ability to fund future operations andobligations. The next debt maturity for the Company is May 2017, related to thesecured by Courtyard Kauai Coconut Beach Hotel. Hotel, with an outstanding balance of $38 million was scheduled to mature on May 9, 2017. On May 8, 2017, we, through our 80% ownership interest in a joint venture between our indirect wholly owned subsidiary and JMI Realty, LLC, an unaffiliated third party (the “Kauai Joint Venture”), entered into a new mortgage facility of up to $44 million (the “Courtyard Kauai Loan”) with TH Commercial Investment Corp. Initial borrowings of $36 million were advanced under the Courtyard Kauai Loan and those funds plus additional cash were used to repay the then outstanding balance under the previous loan with Wells Fargo Bank. The Courtyard Kauai Loan bears interest at 30-day LIBOR plus 4.7% and matures in three years with two one-year extensions available. 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 lender.the propertyGardens Medical Pavilion, River Club and Townhomes at River Club or Parkside by thetheir maturity date,dates, we will eitherexpect to repay the outstanding balancebalances with available cash or refinance all or a portion of the balancebalances outstanding. 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. For the ninesix months ended SeptemberJune 30, 2016, excluding sold assets, 44%2017, 46% and 15% of our total revenues were derived from our properties located in Hawaii and Florida, respectively. Additionally, excluding our property sold in 2016, 44%46%, 29% and 20% of our total revenues were from our hotel, propertymultifamily and 30% were from our multifamily properties. special 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.27 At September2016,2017, our outstanding notes payable balance was $142.8were $138.0 million, net of deferred financing fees of $0.9$2.0 million, and had a weighted average interest rate of 3.8%5.0%. As of December 31, 2015,2016, the Company had notes payable of $177$142.3 million, net of deferred financing fees of $1.7$0.8 million, with a weighted average interest rate of 3.5%3.9%. WeFor loans in place as of June 30, 2017, we have guaranteed payment of certain recourse liabilities with respect to certain customary nonrecourse carveouts as set forth in the guaranties in favor of the unaffiliated lenders with respect to the Courtyard Kauai Coconut Beach Hotel, 22 Exchange, and Parkside notes payable.On August 16, 2016, we sold Lakewood Flatsan unaffiliated third party and used a portion of the proceeds from the sale to pay off in full the existing indebtedness of approximately $33.5 million.Our loan agreements stipulate that we comply with certain reporting andvarious customary financial covenants. These covenants, include, among other things,including, maintaining minimum debt service coverage ratios, loan to value ratios and liquidity. We did not meet the debt service coverage requirements for our 22 Exchange loan as of March 31, 2017 and June 30, 2017. As of September 30, 2016,a result, we believe weexpect the lender to begin sweeping the cash from operations; however, the loan is not in default. We were in compliance with the debtfinancial covenants under our remaining loan agreements.SeptemberJune 30, 2016.2017. Interest payments on variable rate debt are based on rates in effect as of SeptemberJune 30, 2016.2017. The table information is based on initial scheduled maturity dates and does not representreflect the exercise of any extension options (in(dollars in thousands): Remainder of
2017 2018 2019 2020 2021 Thereafter Total Principal payments - fixed rate debt(1) $ 1,083 $ 46,808 $ 24,308 $ 13,771 $ 404 $ 17,439 $ 103,813 Principal payments - variable rate debt - - - 36,000 - - 36,000 Total principal payments 1,083 46,808 24,308 49,771 404 17,439 139,813 Interest payments - fixed rate debt 2,455 3,306 1,581 786 704 967 9,799 Interest payments - variable rate debt 1,061 2,117 2,117 882 - - 6,177 Total interest payments 3,516 5,423 3,698 1,668 704 967 15,976 Total $ 4,599 $ 52,231 $ 28,006 $ 51,439 $ 1,108 $ 18,406 $ 155,789 October 1, 2016 -December 31, 2016 2017 2018 2019 2020 Thereafter Total Principal payments - fixed rate debt $ 524 $ 2,151 $ 46,807 $ 24,308 $ 13,771 $ 17,845 $ 105,406 Principal payments - variable rate debt — 38,000 — — — — 38,000 Interest payments - fixed rate debt 1,244 4,924 3,306 1,581 786 1,670 13,511 Interest payments - variable rate debt 143 204 — — — — 347 $ 1,911 $ 45,279 $ 50,113 $ 25,889 $ 14,557 $ 19,515 $ 157,264 (1) Does not include approximately $0.3$0.2 million of unamortized premium related to debt we assumed on our acquisition of Parkside.(2)28Effective January 1, 2016, we adopted ASU 2015-03, which requires companies to present debt issuance costs related to a recognized debt liability as a direct reduction from the carrying amount of the related debt liability. See Note 3, Summary of Significant Accounting Policies, for further details.(3)Does not include assumptions for any available extension options.SeptemberJune 30, 2016,2017, we had eight real estate investments, seven of which were consolidated (one wholly owned and six properties consolidated through investments in joint ventures). We sold Lakewood Flats on August 16, 2016.SeptemberJune 30, 2015,2016, we had nine real estate investments, eight of which were consolidated, (one wholly owned and seven properties consolidated through investments in joint ventures). We sold four properties during 2015: Babcock and AJSLakewood Flats on August 16, 2016.the first quarter and Holstenplatz and Wimberlymost categories principally resulting from our disposition of Lakewood Flats in the third quarter.SeptemberJune 30, 20162017 as compared to the three months ended SeptemberJune 30, 2015.SeptemberJune 30, 2017 and 2016 and 2015 ($(dollars in thousands): Three Months Ended June 30, Change Change due to Change due to Description 2017 2016 Amount Percentage Disposition(1) Same Store(2) Rental revenues $ 6,151 $ 7,531 $ (1,380 ) $ (18 )% $ (1,657 ) $ 277 Hotel revenues 5,209 4,162 1,047 25.2 % - 1,047 Property operating expenses 1,974 2,210 (236 ) (10.7 )% (332 ) 96 Hotel operating expenses 3,676 3,262 414 12.7 % - 414 Interest expense, net 1,773 1,607 166 10.3 % (192 ) 358 Real estate taxes 1,118 1,451 (333 ) (22.9 )% (396 ) 63 Property management fees 363 376 (13 ) (3.5 )% (49 ) 36 Asset management fees(3) 510 605 (95 ) (15.7 )% - (95 ) General and administrative 963 739 224 30.3 % - 224 Depreciation and amortization 2,568 2,615 (47 ) (1.8 )% - (47 ) Increase (Decrease) Percentage Change 2016 2015 Rental revenue $ 6,740 $ 8,349 $ (1,609 ) (19.3 )% $ (1,907 ) $ 298 Hotel revenue 4,653 4,190 463 11.1 % — 463 Property operating expenses 2,635 3,172 (537 ) (16.9 )% (541 ) 4 Hotel operating expenses 3,509 3,166 343 10.8 % — 343 Interest expense, net 1,561 1,711 (150 ) (8.8 )% (264 ) 114 Real estate taxes 1,197 1,637 (440 ) (26.9 )% (450 ) 10 Property management fees 374 415 (41 ) (9.9 )% (65 ) 24 554 657 (103 ) (15.7 )% (126 ) 23 General and Administrative 705 1,061 (356 ) (33.6 )% n/a n/a Depreciation and amortization 2,616 3,467 (851 ) (24.5 )% (918 ) 67 Loss on early extinguishment of debt (500 ) (613 ) 113 (18.4 )% 113 — Gain on sale of real estate 11,462 17,451 (5,989 ) (34.3 )% (5.989 ) — Income tax benefit (expense) 29 (1,076 ) 1,105 (102.7 )% 1,105 — ______________________(1) Represents the dollar amount of decrease for the three months ended SeptemberJune 30, 20162017 compared to the three months ended SeptemberJune 30, 2015 related to the 2016 as a result of our disposition of Lakewood Flats and the 2015 dispositions of Holstenplatz and Wimberly.in August 2016.(2) Represents the dollar amount increase (decrease)change for the three months ended SeptemberJune 30, 20162017 compared to the three months ended SeptemberJune 30, 2015 with respect to2016 for real estate and real estate-related investments owned by us during the entire periods presented, excluding any we have classified as held for sale (“Same Store”). Same Store for the periods ended SeptemberJune 30, 2017 and 2016 and 2015 includeincludes the operating results of Gardens Medical Pavilion, River Club and the Townhomes at River Club, Lakes of Margate, Arbors Harbor Town, Courtyard Kauai Coconut Beach Hotel, 22 Exchange, and Parkside.(3) Asset management fees payable to the Advisorexternal advisor are an obligation of the Company, and as such, asset management fees associated with all investments owned during the period are classified in continuing operations. Therefore, the amounts above include asset management fees associated with any property owned during a particular period, including those related to our disposed properties.29 SeptemberJune 30, 20162017 and 20152016 for: (i) our Same Store operating portfolio;properties; and (ii) our disposition of Lakewood Flats on August 16, 2016 and our 2015 dispositions of Holstenplatz and Wimberly (in(dollars in thousands): Three Months Ended September 30, Description 2016 2015 Change Rental revenue Same Store $ 5,905 $ 5,607 $ 298 Dispositions 835 2,742 (1,907 ) Total rental revenue $ 6,740 $ 8,349 $ (1,609 ) Property operating expenses Same Store $ 2,308 $ 2,304 $ 4 Dispositions 327 868 (541 ) Total property operating expenses $ 2,635 $ 3,172 $ (537 ) Three Months Ended June 30, Description 2017 2016 Change Rental revenues: Same store $ 6,151 $ 5,874 $ 277 Disposition - 1,657 (1,657 ) Total rental revenues $ 6,151 $ 7,531 $ (1,380 ) Property operating expenses: Same store $ 1,974 $ 1,878 $ 96 Disposition - 332 (332 ) Total property operating expenses $ 1,974 $ 2,210 $ (236 ) Occupancy (%) Effective Monthly Rent per
Square Foot/Unit/Bed ($)(1) As of June 30, As of June 30, Property 2017 2016 2017 2016 Gardens Medical Pavilion 75 % 66 % $ 2.09 $ 2.06 per sq. ft. River Club and the Townhomes at River Club 92 % 92 % 409.50 389.79 per bed Lakes of Margate 95 % 96 % 1,305.40 1,254.28 per unit Arbors Harbor Town 94 % 97 % 1,231.39 1,145.36 per unit 22 Exchange 88 % 88 % 567.17 575.72 per bed Parkside 90 % 88 % 1,180.25 1,094.63 per unit Occupancy (%) As of September 30, As of September 30, Property 2016 2015 2016 2015 Gardens Medical Pavilion 66% 62% $ 2.08 $ 2.10 per sq ft River Club and the Townhomes at River Club 99% 100% 408.06 393.40 per bed Lakes of Margate 95% 93% 1,256.74 1,189.68 per unit Arbors Harbor Town 94% 96% 1,208.90 1,135.16 per unit 22 Exchange 90% 96% 499.45 541.07 per bed Parkside 93% 85% 1,125.63 1,127.96 per unit (1) Effective monthly rent is calculated as in-place contracted monthly rental revenue, including any premiums due for short-term or month-to-month leases, less any concessions or discounts. Occupancy (%)(1) ADR ($) Three Months Ended
June 30, Three Months Ended
June 30, Property 2017 2016 2017 2016 Courtyard Kauai Coconut Beach Hotel 89 % 78 % $ 150.98 $ 135.65 ADR ($) Three Months Ended
September 30, Three Months Ended
September 30,Property 2016 2015 2016 2015 Courtyard Kauai Coconut Beach Hotel 86 % 78 % $ 136.17 $ 139.02 (1) Represents average occupancy for the three months ended SeptemberJune 30. The Courtyard Kauai Coconut Beach Hotel has 311 rooms and approximately 6,200 square feet of meeting space. Occupancy is for the entire three-month period and is based on standard industry metrics, including rooms available for rent.Continuing OperationsOur results of operations for the respective periods presented reflect decreases in most categories. During the three months ended September 30, 2016, we had decreases in rental revenue and property operating expenses of $1.9 million and $0.5 million, respectively, from the impact of our dispositions in 2016 and 2015. Management expects decreases in most categories in the future as we dispose of additional real estate and real estate-related assets. We are not actively seeking to purchase additional assets at this time, but may invest capital in our current assets in order to position them for sale in the normal course of business. Revenues Total revenues for the three months ended SeptemberJune 30, 2016, including Courtyard Kauai Coconut Beach Hotel,2017 were $11.4 million, a decrease of approximately $1.1 million from the three months ended September 30, 2015. Same Store rental revenue (including our hotel revenue) for the three months ended September 30, 2016 and 2015 was $10.6 million and $9.8 million, respectively. Rental revenue from Lakewood Flats, which was sold in the third quarter of 2016, was $0.8 million and $1.6 million for the three months ended September 30, 2016 and 2015, respectively. Rental revenue from Holstenplatz and Wimberly, which were disposed of in 2015, was $1.1 million for the three months ended September 30, 2015.The change in revenue is primarily due to:a decrease in rental revenue of $1.9 million during the third quarter of 2016 as a result of our 2016 and 2015 dispositions. This decrease was partially offset by an increase of approximately $0.3 million, relatedcompared to $11.7 million the same period in 2016. Excluding the effect of the 2016 Disposition, our Same Store operations; andrevenue of $0.5 million, or 11.1%, atrevenues from the Courtyard Kauai Coconut Beach Hotel due to a 9.3% increaseof $1.0 million, or 25.2%, principally resulting from increases in occupancy and average daily rate (“ADR”) in the 2017 period. Occupancy and a 7.1%ADR were 88.6% and $150.98, respectively, during the 2017 period compared to 78.0% and $135.65, respectively, for the same period in 2016. Our non-hotel Same Store properties had an increase in revenue per available room (“RevPar”) period-over-period.of $0.4 million during the 2017 period.30 SeptemberJune 30, 2016 and 20152017 were approximately $2.6$2.0 million, and $3.2 million, respectively. Thea decrease of approximately $0.6$0.2 million, was primarily duecompared to $2.2 million for the same period in 2016. Excluding the effect of our dispositions in 2016 and 2015.SeptemberJune 30, 2016 and 20152017 were $3.5$3.7 million, and $3.2an increase of $0.4 million, respectively.compared to $3.3 million for the same period in 2016. The increase in hotel operating expenses was primarily due to an increase of $0.2 million in food and beverage costs incurredthe aforementioned increased occupancy during the three months ended September 30, 2016 at2017 period for the Courtyard Kauai Coconut Beach Hotel.SeptemberJune 30, 2016 and 20152017 was $1.6$1.8 million, and $1.7 million, respectively. The approximate $0.1 million decrease was primarily due to a decreasean increase of $0.2 million, relatedcompared to $1.6 million for the same period in 2016. Excluding the effect of the 2016 Disposition, our dispositions in 2016 and 2015. For the three months ended September 30, 2016 and 2015, we capitalized interest of approximately $0.1 million in connection with our equity method investment in Prospect Park, whichexpense increased by $0.4 million. The increase is currently under development. were $1.2 million and $1.6 million for the three months ended SeptemberJune 30, 2016 and 2015, respectively. Our dispositions in 2016 and 2015 accounted for2017 were $1.1 million, a decrease of approximately $0.4$0.3 million, and was partially offsetcompared to $1.4 million for the same period in 2016. Excluding the effect of the 2016 Disposition, our real estate taxes slightly increased by increases of less than $0.1 million infor our Same Store operations.SeptemberJune 30, 2017 and 2016, and 2015, and were composedcomprised of property management fees paid to unaffiliated third parties and our Property Manager.SeptemberJune 30, 2017 and 2016 and 2015 were $0.6$0.5 million and $0.7$0.6 million, respectively, and were composedcomprised of asset management fees paid to our Advisorexternal advisor and third parties with respect to our investments. Asset management fees for the three months ended SeptemberJune 30, 2016 and 2015 include fees related to our disposed propertiesthe 2016 Disposition of less than $0.1 million, each.forwhich increased slightly by $0.2 million during the three months ended SeptemberJune 30, 2017 compared to the same period in 2016, and 2015 were $0.7 million and $1.1 million, respectively, and were composedconsists of audit fees, legal fees, board of directors’ fees, and other administrative expenses. Decreases in legal fees, audit fees,administrative service fees payable to the Advisor duringAmortization. Depreciation and amortization was constant at $2.6 million for both the three months ended SeptemberJune 30, 2017 and 2016, accounted for approximately $0.3 million of the overall $0.4 million decrease.31 Depreciation and Amortization. Depreciation and amortization for the threeSeptemberJune 30, 2016 and 2015 was approximately $2.6 million and $3.5 million, respectively. The decrease of $0.9 million during the third quarter of 2016 was primarily due to our 2016 and 2015 dispositions.Loss on Early Extinguishment of Debt. We recorded a loss on early extinguishment of debt of $0.5 million in the third quarter of 2016 as a result of the pay off in full of Lakewood Flat’s existing indebtedness when we sold the property in September 2016. The $0.5 million loss was composed of the write-off of deferred financing fees of $0.4 million and an early termination fee of $0.1 million. We recorded a loss on early extinguishment of debt of $0.6 million in the third quarter of 2015 as a result of the pay off in full of Wimberly’s existing indebtedness when we sold the property in September 2015. The $0.6 million loss was composed of the write-off of deferred financing fees of $0.3 million and an early termination fee of $0.3 million.Gain on Sale of Real Estate. During the third quarter of 2016, we recorded gains on sale of approximately $11.5 million and a deferred gain of approximately $1.2 million for Lakewood Flats, which sold on August 16, 2016. During the three months ended September 30, 2015, we recorded gains on sale of approximately $17.5 million, which consists of $8.6 million for Holstenplatz, which was sold on September 1, 2015, and $8.9 million for Wimberly, which was sold on September 9, 2015. As discussed in Note 7, Real Estate and Real Estate-Related Investments, the Company did not view the disposals of Lakewood Flats, Holstenplatz, or Wimberly as a strategic shift and the results of operations are presented in continuing operations.Income Tax Expense. During the third quarter of 2015, we recorded a provision for income tax of approximately $1 million as a result of foreign income tax related to the sale of Holstenplatz. The foreign income tax was calculated on gains recognized at the exchange rate in effect on the sale date of September 1, 2015 and calculated using current tax rates. We had less than $0.1 million income tax benefit in the third quarter of 2016, related to the difference in actual income taxes due and the originally estimated income taxes payable on the sale of Holstenplatz.Nine months ended September 30, 20162017 as compared to the ninesix months ended SeptemberJune 30, 2015.ninesix months ended SeptemberJune 30, 2017 and 2016 and 2015 ($(dollars in thousands): Six Months Ended June 30, Change Change due to Change due to Description 2017 2016 Amount Percentage Disposition(1) Same Store(2) Rental revenues $ 12,223 $ 14,850 $ (2,627 ) (18 )% $ (3,241 ) $ 614 Hotel revenues 10,554 9,293 1,261 13.6 % - 1,261 Property operating expenses 4,061 4,493 (432 ) (9.6 )% (665 ) 233 Hotel operating expenses 7,246 6,710 536 8.0 % - 536 Interest expense, net 3,242 3,131 111 3.5 % (384 ) 495 Real estate taxes 2,225 2,916 (691 ) (23.7 )% (792 ) 101 Property management fees 758 790 (32 ) (4.1 )% (96 ) 64 Asset management fees(3) 1,019 1,219 (200 ) (16.4 )% - (200 ) General and administrative 1,761 1,541 220 14.3 % - 220 Depreciation and amortization 5,146 5,780 (634 ) (11.0 )% (577 ) (57 ) Increase (Decrease) Percentage Change 2016 2015 Rental revenue $ 21,590 $ 25,300 $ (3,710 ) (14.7 )% $ (4,715 ) $ 1,005 Hotel revenue $ 13,946 13,332 614 4.6 % — 614 Property operating expenses 7,128 8,836 (1,708 ) (19.3 )% (1,570 ) (138 ) Hotel operating expenses 10,219 9,440 779 8.3 % — 779 Interest expense, net 4,692 5,278 (586 ) (11.1 )% (745 ) 159 Real estate taxes 4,113 4,793 (680 ) (14.2 )% (734 ) 54 Property management fees 1,164 1,279 (115 ) (9.0 )% (169 ) 54 1,773 2,099 (326 ) (15.5 )% (343 ) 17 General and Administrative 2,246 2,772 (526 ) (19.0 )% n/a n/a Depreciation and amortization 8,396 11,869 (3,473 ) (29.3 )% (3,804 ) 331 Loss on early extinguishment of debt (500 ) (732 ) 232 (31.7 )% 232 — Gain on sale of real estate 11,462 22,771 (11,309 ) (49.7 )% (11,309 ) — Income tax benefit (expense) 29 (2,740 ) 2,769 (102.7 )% 2,769 — ______________________(1) Represents the dollar amount of decrease for the ninesix months ended SeptemberJune 30, 20162017 compared to the ninesix months ended SeptemberJune 30, 2015 related to the 2016 as a result of our disposition of Lakewood Flats and the 2015 dispositions of AJS, Babcock, Holstenplatz, and Wimberly.in August 2016.(2) Represents the dollar amount increase (decrease)change for the ninesix months ended SeptemberJune 30, 20162017 compared to the ninesix months ended SeptemberJune 30, 2015 with respect to2016 for real estate and real estate-related investments owned by us during the entire periods presented, excluding any we have classified as held for sale (“Same Store”). Same Store for the periods ended SeptemberJune 30, 2017 and 2016 and 2015 includeincludes the operating results of Gardens Medical Pavilion, River Club and the Townhomes at River Club, Lakes of Margate, Arbors Harbor Town, Courtyard Kauai Coconut Beach Hotel, 22 Exchange, and Parkside.(3) Asset management fees payable to the Advisorexternal advisor are an obligation of the Company, and as such, asset management fees associated with all investments owned during the period are classified in continuing operations. Therefore, the amounts above include asset management fees associated with any property owned during a particular period, including those related to our disposed properties.32 ninesix months ended SeptemberJune 30, 20162017 and 20152016 for: (i) our Same Store operating portfolio;properties; and (ii) our 2016 disposition of Lakewood Flats and our 2015 dispositions of Babcock, AJS, Holstenplatz and Wimberly (inon August 16, 2016 (dollars in thousands): Nine Months Ended September 30, Description 2016 2015 Change Rental revenue Same Store $ 17,458 $ 16,453 $ 1,005 Dispositions 4,132 8,847 (4,715 ) Total rental revenue $ 21,590 $ 25,300 $ (3,710 ) Property operating expenses Same Store $ 6,120 $ 6,258 $ (138 ) Dispositions 1,008 2,578 (1,570 ) Total property operating expenses $ 7,128 $ 8,836 $ (1,708 ) Six Months Ended June 30, Description 2017 2016 Change Rental revenues: Same store $ 12,223 $ 11,609 $ 614 Disposition - 3,241 (3,241 ) Total rental revenues $ 12,223 $ 14,850 $ (2,627 ) Property operating expenses: Same store $ 4,061 $ 3,828 $ 233 Disposition - 665 (665 ) Total property operating expenses $ 4,061 $ 4,493 $ (432 ) average daily rate (“ADR”)ADR for Courtyard Kauai Coconut Beach Hotel: Occupancy (%) Effective Monthly Rent per
Square Foot/Unit/Bed ($)(1) As of June 30, As of June 30, Property 2017 2016 2017 2016 Gardens Medical Pavilion 75 % 66 % $ 2.09 $ 2.06 per sq. ft. River Club and the Townhomes at River Club 92 % 92 % 409.50 389.79 per bed Lakes of Margate 95 % 96 % 1,305.40 1,254.28 per unit Arbors Harbor Town 94 % 97 % 1,231.39 1,145.36 per unit 22 Exchange 88 % 88 % 567.17 575.72 per bed Parkside 90 % 88 % 1,180.25 1,094.63 per unit Occupancy (%) As of September 30, As of September 30, Property 2016 2015 2016 2015 Gardens Medical Pavilion 66% 62% $ 2.08 $ 2.10 per sq ft River Club and the Townhomes at River Club 99% 100% 408.06 393.40 per bed Lakes of Margate 95% 93% 1,256.74 1,189.68 per unit Arbors Harbor Town 94% 96% 1,208.90 1,135.16 per unit 22 Exchange 90% 96% 499.45 541.07 per bed Parkside 93% 85% 1,125.63 1,127.96 per unit (1) Effective monthly rent is calculated as in-place contracted monthly rental revenue, including any premiums due for short-term or month-to-month leases, less any concessions or discounts. Occupancy (%)(1) ADR ($) Six Months Ended
June 30, Six Months Ended
June 30, Property 2017 2016 2017 2016 Courtyard Kauai Coconut Beach Hotel 89 % 84 % $ 156.53 $ 143.88 ADR ($) Nine Months Ended
September 30, Nine Months Ended
September 30,Property 2016 2015 2016 2015 Courtyard Kauai Coconut Beach Hotel 84 % 83 % $ 141.26 $ 140.88 (1) Represents average occupancy for the ninesix months ended SeptemberJune 30. The Courtyard Kauai Coconut Beach Hotel has 311 rooms and approximately 6,200 square feet of meeting space. Occupancy is for the entire nine-monthsix-month period and is based on standard industry metrics, including rooms available for rent.Continuing OperationsOur results of operationsrespective periods presented reflect decreases in most categories. During the ninesix months ended SeptemberJune 30, 2016, we had decreases in rental revenue and property operating expenses of $4.7 million and $1.6 million, respectively, from the impact of our dispositions in 2016 and 2015. Management expects decreases in most categories in the future as we dispose of additional real estate and real estate-related assets. We are not actively seeking to purchase additional assets at this time, but may invest capital in our current assets in order to position them for sale in the normal course of business.Revenues. Revenues for the nine months ended September 30, 2016, including Courtyard Kauai Coconut Beach Hotel,2017 were $35.5$22.8 million, a decrease of approximately $3.1$1.3 million, from the nine months ended September 30, 2015. Same Store rental revenue (including our hotel revenue) for the nine months ended September 30, 2016 and 2015 was $31.4 million and $29.8 million, respectively. Rental revenue from Lakewood Flats, disposed of in 2016, was $4.1 million and $4.7compared to $24.1 million for the nine months ended September 30,same period in 2016. Excluding the effect of the 2016 and 2015, respectively. Rental revenue from Babcock, AJS, Holstenplatz, and Wimberly, disposed of in 2015, was $4.1 million for the nine months ended September 30, 2015.The change in revenue is primarily due to:a decrease in rental revenue of $4.7 million for the nine months ended September 30, 2016 as a result of our 2016 and 2015 dispositions. This decrease was partially offset by an increase of approximately $1 million related toDisposition, our Same Store operations; andrevenue of $0.6 million, or 4.6%, atrevenues from the Courtyard Kauai Coconut Beach Hotel due to a 0.3% increase inof $1.3 million, or 13.6%, principally resulting from increased occupancy and ADR resulting in a 1.4% increase in RevPar period-over-period.during the 2017 period. Occupancy increased 1.2% inand ADR were 89% and $156.53, respectively, during the first nine months of 20162017 period compared to 2015. In addition, food84% and beverage revenue increased $0.4$143.88, respectively, for the same period in 2016. Our non-hotel Same Store properties had an increase of $0.6 million during the nine months ended September 30, 2016.2017 period.33 ninesix months ended SeptemberJune 30, 2016 and 20152017 were approximately $7.1$4.1 million, and $8.8 million, respectively. The decrease of approximately $1.7 million was primarily due to a decrease of $1.6$0.4 million, relatedcompared to $4.5 million for the same period in 2016. Excluding the effect of our dispositions in 2016 and 2015 and a decrease of $0.1Disposition, our property operating expenses increased slightly by $0.2 million related tofor our Same Store operations.ninesix months ended SeptemberJune 30, 2016 and 20152017 were $10.2$7.2 million, and $9.4an increase of $0.5 million, respectively.compared to $6.7 million for the same period in 2016. The increase in hotel operating expenses was primarily due to increases of $0.5 million in food and beverage costs and $0.2 million in sales and marketing costs incurredthe aforementioned increased occupancy during 2016 atthe 2017 period for the Courtyard Kauai Coconut Beach Hotel.ninesix months ended SeptemberJune 30, 2016 and 20152017 was $4.7$3.2 million, and $5.3 million, respectively. The approximate $0.6 million decrease was primarily due to our dispositions in 2016 and 2015. For the nine months ended September 30, 2016 and 2015, we capitalized interestan increase of approximately $0.1 million, and $0.4compared to $3.1 million respectively,for the same period in connection with2016. Excluding the effect of the 2016 Disposition, our equity method investment in Prospect Park, whichinterest expense increased by $0.5 million. The increase is currently under development.were $4.1 million and $4.8 million for the ninesix months ended SeptemberJune 30, 2016 and 2015, respectively. Our dispositions in 2016 and 2015 accounted for2017 were $2.2 million, a decrease of $0.7 million.$1.2 million and $1.3$0.8 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, and 2015, respectively. These were composedcomprised of property management fees paid to unaffiliated third parties and our Property Manager.ninesix months ended SeptemberJune 30, 2017 and 2016 and 2015 were $1.8$1.0 million and $2.1$1.2 million, respectively, and were composedcomprised of asset management fees paid to our Advisorexternal advisor and third parties with respect to our investments. Asset management fees for the ninesix months ended SeptemberJune 30, 2016 and 2015 include fees related to our disposed properties. We expensed $0.3 million in asset management fees related to disposed properties during the nine months ended September 30, 2016 and 2015.forwhich increased slightly by $0.2 million during the ninesix months ended SeptemberJune 30, 2017 compared to the same period in 2016, and 2015 were $2.2 million and $2.8 million, respectively, and were composedconsists of audit fees, legal fees, board of directors’ fees, and other administrative expenses. The decrease of approximately $0.6 million during the first nine months of 2016 was primarily due to decreases of $0.3 million and $0.3 million in legal fees and administrative service fees payable to the Advisor, respectively. nine months ended September 30, 2016 and 2015 was approximately $8.4 million and $11.9 million, respectively. The decreasesame period in 2016. Excluding the effect of $3.5 million during the first nine months of 2016 was primarily due to a $3.8 million decrease related to our 2016 Disposition, our depreciation and 2015 dispositions. This decreaseamortization was partially offset by a period-over-period increase of $0.3 million related torelatively constant for our Same Store operations.Loss on Early Extinguishment of Debt. We recorded a loss on early extinguishment of debt of $0.5 million during the nine months ended September 30, 2016 as a result of the pay off in full of Lakewood Flat’s existing indebtedness when we sold the property in September 2016. During the nine months ended September 30, 2015, we recorded losses on early extinguishment of debt of $0.6 million and $0.1 million as a result of the pay off of debt on our Wimberly and AJS investments, which we sold in September 2015 and February 2015, respectively.During The $0.3 million gain on sale of real estate for the ninesix months ended SeptemberJune 30, 2017 is related to escrow reimbursements received from the Lakewood Flats outstanding insurance claim. On August 16, 2016, we recordedsold Lakewood Flats for a contract sales price of approximately $68.8 million, resulting in a gain on sale of approximatelyreal estate of $11.5 million and a deferred gain of approximately $1.2 million for Lakewood Flats. Duringmillion. The deferred gain represented the nineamount of monies held in escrow to be reimbursed upon completion of the property’s outstanding insurance claim. The remaining deferred gain escrow balance as of June 30, 2017 was $0.9 million.34 SeptemberJune 30, 2015, we recorded gains on sale of $22.8 million related to our 2015 dispositions, which consists of $2 million for Babcock, $3.3 million for AJS, $8.6 million for Holstenplatz, and $8.9 million for Wimberly. The gain on sale of AJS is net of a CTA of $0.6 million. The gain on sale of Holstenplatz includes a CTA credit of $0.4 million. As discussed in Note 7, Real Estate and Real Estate-Related Investments, the Company did not view the disposals of Lakewood Flats, Holstenplatz, Wimberly, Babcock, and AJS as a strategic shift and the results of operations are presented in continuing operations.Income Tax Expense. During the first quarter of 2015, we recorded a provision for income tax of approximately $2.2 million as a result of foreign income tax related to the sale of AJS. The foreign income tax was calculated on gains recognized at the exchange rate in effect on the sale date of February 21, 2015 and calculated using current tax rates. During the second quarter of 2015, we recorded a credit of $0.5 million to the provision for income tax based on a change in the estimated taxes payable on the sale of AJS. During the third quarter of 2015, we recorded a provision for income tax of approximately $1 million as a result of foreign income tax related to the sale of Holstenplatz, resulting in a total income tax provision of $2.7 million for the nine months ended September 30, 2015. The foreign income tax was calculated on gains recognized at the exchange rate in effect on the sale date of September 1, 2015 and calculated using current tax rates. We had less than $0.1 million income tax benefit in the third quarter of 2016, related to the difference in actual income taxes paid and the originally estimated income taxes payable on the sale of Holstenplatz.Cash Flow AnalysisNine months ended September 30, 20162017 as compared to the ninesix months ended SeptemberJune 30, 2015.ninesix months ended SeptemberJune 30, 2016,2017, net cash provided by operating activities was $4.1$3.0 million, a decrease of $1.6 million compared to $5.1$4.6 million for the nine months ended September 30, 2015.same period in 2016. The primary reason for the decrease in cash flow from operating activities was the changes in working capital.ninesix months ended SeptemberJune 30, 2016,2017, net cash provided byused in investing activities was $63.9$0.9 million, a decrease of $0.5 million, compared to $74.9$1.4 million for the ninesame period in 2016. The difference is the result of lower capital expenditures and investments in unconsolidated joint ventures of $0.3 million and $0.2 million, respectively, in the 2017 period.SeptemberJune 30, 2015. The year over year difference is primarily due to the $68.5 million of proceeds from the sale of Lakewood Flats during the first nine months of 2016 compared to $79.1 million from the sales of Babcock, AJS, Holstenplatz, and Wimberly during the first nine months of 2015.During the nine months ended September 30, 2016,2017, net cash used in financing activities was $75.3$5.9 million, a decrease of $34.7 million, compared to $73.6$40.6 million for the same period of 2015. We paid2016. The decrease is primarily attributable to the payment of a special cash distributionsdistribution to our stockholders totaling $38.4 million in the 2016 period partially offset by payments of $2.0 million for principal (payoff of existing loan of $38.0 million offset by proceeds of $36.0 million under new loan), net and $25.7$1.5 million for deferred financing costs in connection with the refinancing of our loan on the Kauai Coconut Beach during the nine months ended September 30, 2016 and 2015, respectively. During the nine months ended September 30, 2016, we paid off the existing indebtedness totaling approximately $33.5 million associated with the Lakewood Flats investment, with proceeds from the sale. During the nine months ended September 30, 2015, we paid off the existing indebtedness totaling approximately $35.2 million associated with the Babcock, AJS, and Wimberly investments, with proceeds from the sales of the three investments. In addition, we paid off the Holstenplatz debt of $8.1 million on April 30, 2015.35 ninesix months ended SeptemberJune 30, 20162017 and 20152016 is presented below (in(dollars in thousands, except per share amounts): Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Amount Per Share Amount Per Share Amount Per Share Amount Per Share Net loss attributable to the Company shares $ (1,539 ) $ (0.06 ) $ (1,165 ) $ (0.05 ) $ (2,395 ) $ (0.10 ) $ (2,238 ) $ (0.09 ) Adjustments for: Real estate depreciation and amortization(1) 2,257 0.09 2,299 0.09 4,524 0.18 5,153 0.20 Gain on sale of real estate(2) - - - - (282 ) (0.01 ) - - NAREIT Defined Funds from Operations (FFO) attributable to common stockholders $ 718 $ 0.03 $ 1,134 $ 0.04 $ 1,847 $ 0.07 $ 2,915 $ 0.11 GAAP weighted average shares: Basic and diluted 25,026 25,466 25,098 25,510 Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Amount Per Share Amount Per Share Amount Per Share Amount Per Share Net income attributable to the Company $ 9,383 $ 0.37 $ 12,855 $ 0.50 $ 7,145 $ 0.28 $ 10,722 $ 0.42 Adjustments for: 2,313 0.09 3,085 0.12 7,466 0.29 10,767 0.42 (11,462 ) (0.45 ) (16,884 ) (0.66 ) (11,462 ) (0.45 ) (21,584 ) (0.84 ) (29 ) — 1,059 0.04 (29 ) — 2,674 0.10 NAREIT Defined Funds from Operations (FFO) attributable to common stockholders $ 205 $ 0.01 $ 115 $ — $ 3,120 $ 0.12 $ 2,579 $ 0.10 GAAP weighted average shares: Basic and diluted 25,391 25,667 25,470 25,715 (1) Includes our consolidated amount, as well as our pro rata share of those unconsolidated investments which we account for under the equity method of accounting, and the noncontrolling interest adjustment for the third-party partners’ share. (2) The gain on sale of real estate for the three and ninesix months ended SeptemberJune 30, 20162017 is related to escrow reimbursements received during the salefirst quarter of 2017 for the Lakewood Flats. For the three months ended September 30, 2015, includes our proportionate shareFlats outstanding insurance claim. On August 16, 2016, we sold Lakewood Flats for a contractual sales price of theapproximately $68.8 million, resulting in a gain on sale of real estate related to our Holstenplatzof $11.5 million and Wimberly investments. Fora deferred gain of approximately $1.2 million. The deferred gain represented the nine months ended September 30, 2015, includes our proportionate shareamount of monies initially held in escrow that will be reimbursed in connection with the completion of the gain on sale of real estate related to the Babcock, AJS, Holstenplatz, and Wimberly investments. The gain on sale of AJS is net of a cumulative foreign currency translation loss of approximately $0.6 million due to the substantial liquidation of AJS. The gain on sale of Holstenplatz includes a CTA credit of approximately $0.4 million due to the substantial liquidation of Holstenplatz.property’s outstanding insurance claim.(3)During the first quarter of 2015, we recorded an estimated provision for income tax of approximately $2.2 million as a result of foreign income tax related to the sale of AJS. During the second quarter of 2015, we recorded a credit of $0.5 million to the provision for income tax based on a change in the estimated taxes payable on the sale of AJS. During the third quarter of 2015, we recorded an estimated provision for income tax of approximately $1 million as a result of foreign income tax related to the sale of Holstenplatz, resulting in a total income tax provision of $2.7 million for the nine months ended September 30, 2015. We had less than $0.1 million income tax benefit in the third quarter of 2016, related to the difference in actual income taxes due and the originally estimated income taxes payable on the sale of Holstenplatz.ninesix months ended SeptemberJune 30, 20162017 and 2015.2016. The noncontrolling interest portion of straight-line rental revenue for the three and ninesix months ended SeptemberJune 30, 20162017 and 20152016 was income of less than $0.1 million.ninesix months ended SeptemberJune 30, 2016. Net below-market lease amortization of less than $0.1 million was recognized as an increase to rental revenue for the three2017 and nine months ended September 30, 2015.2016. The noncontrolling interest portion of the net above-market and net below-market lease amortization for the three and ninesix months ended SeptemberJune 30, 2017 and 2016 and 2015 was also less than $0.1 million.$0.1$0.2 million and $0.4$0.3 million was recognized as interest expense for our notes payable for the three and ninesix months ended SeptemberJune 30, 2016, respectively. Amortization of deferred financing costs of $0.12017 compared to $0.2 million and $0.5$0.3 million was recognized as interest expense for our notes payable for the three and nine months ended September 30, 2015,same periods in 2016, respectively.board’s decisionboard of director’s decisions will be substantially influenced by itsthe 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. We expect that any future distributions authorized by our board of directors will be periodic, special distributions as opposed to regular monthly or quarterly distributions.ofwhich aggregated $38.4 million on January 5, 2016. On March 18, 2015, our board of directors authorized a special cash distribution of $1.00 per share of common stock, payable to stockholders of record as of March 30, 2015. This special cash distribution of $25.7 million was paid on March 31, 2015. These special cash distributions represented a portion of proceeds received from previous asset sales.36 condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, we evaluate these estimates, including investment impairment. These estimates include such items as impairment of long-lived assets, depreciation and amortization, and allowance for doubtful accounts. Actual results could differ from those estimates.2016.2017.37 iswas the functional currency for the operations of AJSAlte Jakobstraße (“AJS”) and Holstenplatz, which were both sold in 2015. As a result of September 30, 2016,the sale of AJS and Holstenplatz, we maintained approximately $8 million inno longer have foreign operations. However, we still maintain a Euro-denominated accounts, which are composedbank account that is comprised primarily of the remaining undistributed proceeds from the sale of these properties. $142.8$140.0 million in notes payable, at Septemberexcluding deferred financing fees, as of June 30, 2016, $382017, $36 million represented debt subject to variable interest rates. If our variable interest rates increased 100 basis points, we estimate that total annual interest cost, including interest expensed and interest capitalized, would increase by $0.4 million.at Septemberas of June 30, 2016.2017. A 100 basis point decrease or increase in interest rates would not result in a decreasechange in the fair value of our remaining interest rate cap. A 100 basis point increase in interest rates would result in an increase of less than $0.1 million in the fair value of our interest rate cap. SeptemberJune 30, 2016,2017, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e) using the criteria established inSeptemberJune 30, 2016,2017, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized, and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.SeptemberJune 30, 20162017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.38 39 2015. 20, 2015,18, 2016, our estimated value per share was $9.19. As of December 31, 2015, the estimated value per share of our common stock was reduced by $1.50 per share, from $9.19 to $7.69, in accordance with the valuation policy to take into account the special cash distribution authorized by our board of directors on November 20, 2015, paid to stockholders of record as of December 31, 2015 on January 5, 2016. As a result, the redemption price for shares redeemed after December 31, 2015 will be based on the estimated value per share, as adjusted, of $7.69.$7.80. For a full description of the methodologies used to estimate the value of our common stock as of October 31, 2015,2016, see Part II, Item 5, “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Market Information” included in our Annual Report on Form 10-K for the year ended December 31, 2015.three monthsquarter ended SeptemberJune 30, 2016,2017, our board of directors redeemedapproved all 44 Ordinary Redemption requests received that complied with the applicable requirements and guidelines of the share redemption program for an aggregate of 84,12888,131 shares redeemed for $0.4approximately $0.5 million (approximately $5.16$5.15 per share). All redemptions were funded with cash on hand.three monthsquarter ended SeptemberJune 30, 2016, our board of directors2017, redeemed all five ExceptionalExtraordinary Redemption requests received that complied with the applicable requirements and guidelines of the share redemption program for an aggregate of 8,9922,062 shares redeemed for less than $0.1 million$12,000 (whole dollars) (approximately $5.84$5.81 per share). All redemptions were funded with cash on hand.40 third quarter ended SeptemberJune 30, 2016,2017, we redeemed shares as follows (including both Ordinary Redemptions and Exceptional Redemptions):2017 Total Number of
Shares Redeemed Average Price
Paid Per Share Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs Maximum
Number of Shares
That May Be
Purchased Under
the Plans or
Programs April — $ — — May 90,193 90,193 (1 ) June — — — 90,193 $ 5.16 90,193 2016 July — $ — — August 93,120 5.22 93,120 (1) September — — — 93,120 $ 5.22 93,120 (1) A description of the maximum number of shares that may be purchased under our redemption program is included in the narrative preceding this table. None.41 LIGHTSTONE VALUE PLUS REAL ESTATE BEHRINGER HARVARD OPPORTUNITY REIT II,INVESTMENT TRUST V, INC. (FORMERLY BEHRINGER HARVARD OPPORTUNITY REIT II, INC.) Dated: NovemberAugust 14, 20162017By: /s/ S. Jason HallDonna Brandin S. Jason HallDonna Brandin Chief Financial Officer Principal Financial Officer 42 Exhibit Number Description 3.1 Third Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to Form 10-Q filed on November 14, 2012) 3.2 Second Amended and Restated Bylaws, as amended by Amendment No. 1. (incorporated by reference to Exhibit 3.2 to Form 10-Q filed on November 13, 2013) 3.3 Articles of Amendment (incorporated by reference to Exhibit 3.1 to Form 8-K filed on July 24, 2017) 4.1 Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.1 to Form 10-K filed on March 28, 2013) 10.1 Reinstatement and Second Amendment to Contract of Sale between 7425 La Vista LLC and DFW Lakewood Flats Apartments LLC dated July 22, 2016 (incorporated by reference to Exhibit 10.3 to Form 8-K filed on July 27, 2016) 10.2 Fifth Amended and Restated Advisory Management Agreement between Behringer Harvard Opportunity REIT II, Inc. and Behringer Harvard Opportunity Advisors II, LLC dated July 25, 2016 (incorporated by reference to Exhibit 10.4 to Form 8-K filed on July 27, 2016) 10.3 Second Amendment to Amended and Restated Property Management and Leasing Agreement by and among Behringer Harvard Opportunity REIT II, Inc., Behringer Harvard Opportunity OP II, LP, and several affiliated special purpose entities and Behringer Harvard Opportunity Management Services, LLC and Behringer Harvard Real Estate Services, LLC dated July 25, 2016 (incorporated by reference to Exhibit 10.5 to Form 8-K filed on July 27, 2016) 10.4 Termination of Advisory Management Agreement among Behringer Harvard Opportunity REIT II, Inc., Behringer Harvard Opportunity Advisors II, LLC, and Stratera Services, LLC effective as of February 10, 2017 (incorporated by reference to Exhibit 10.6 to Form 10-K filed on March 16, 2017) 10.5 Termination of Property Management and Leasing Agreement among Behringer Harvard Opportunity REIT II, Inc., Behringer Harvard Opportunity OP II, LP and several affiliated special purpose entities, Behringer Harvard Opportunity Management Services, LLC, and Behringer Harvard Real Estate Services, LLC, and Stratera Services, LLC effective as of February 10, 2017 (incorporated by reference to Exhibit 10.7 to Form 10-K filed on March 16, 2017) 10.6 Advisory Management Agreement among Behringer Harvard Opportunity REIT II, Inc., Behringer Harvard Opportunity OP II, LP and LSG-BH II Advisor LLC (“LSG-BH II Advisor”) effective as of February 10, 2017 (incorporated by reference to Exhibit 10.8 to Form 10-K filed on March 16, 2017) 10.7 Advisory Agreement among Behringer Harvard Opportunity REIT II, Inc., Behringer Harvard Opportunity OP II, LP and LSG Development Advisor LLC (“LSG-BH II Advisor”) effective as of February 10, 2017 (incorporated by reference to Exhibit 10.9 to Form 10-K filed on March 16, 2017) 10.8 Property Management and Leasing Agreement among Behringer Harvard Opportunity REIT II, Inc., Behringer Harvard Opportunity OP II, LP and several affiliated special purpose entities, and LSG-BH II Property Manager LLC effective as of February 10, 2017 (incorporated by reference to Exhibit 10.10 to Form 10-K filed on March 16, 2017) 10.9* Loan Agreement dated May 8, 2017 with TH Commercial Mortgage LLC 10.10* 14.0* Code of Business Conduct and Ethics 99.1 Third Amended and Restated Share Redemption Program of Behringer Harvard Opportunity REIT II, Inc. adopted as of May 15, 2014 (incorporated by reference to Exhibit 99.2 to Form 8-K filed on May 16, 2014) 31.1* Rule 13a-14(a)/15d-14(a) Certification 31.2* Rule 13a-14(a)/15d-14(a) Certification 32.1* Section 1350 Certification** 32.2* Section 1350 Certification** 101* The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2016,2017, filed on NovemberAugust 14, 2016,2017, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.* Filed or furnished herewith ** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. 43 41