2022, the Company incurred costs of each yearapproximately $1.9 million and $2.1 million, respectively, associated with the Merger. These costs are being accounted for as deferred offering costs in accordance with the termsFASB ASC Topic 340,Other Assets and Deferred Costs and are reflected within deferred offering costs on our Consolidated Balance Sheets.
Note B — Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of the Company are prepared by management on the accrual basis of accounting and in accordance with principles generally accepted in the United States of America ("GAAP"(“GAAP”) for interim financial information as contained in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"),FASB ASC, and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements include accounts and related adjustments, which are, inIn the opinion of management, of aall normal recurring nature andadjustments considered necessary forto give a fair presentation of the Company's financial position,operating results of operations and cash flows for the interim period.periods presented have been included. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three and nine months ended September 30, 2017March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These unaudited condensed consolidated financial statements should be read in conjunction with2023. There were no significant changes to our significant accounting policies during the financial statements and notes thereto included in the Company'sthree months ended March 31, 2023. For a full summary of our accounting policies, refer to our 2022 Annual Report on Form 10-K10-K as originally filed with the SEC on March 22, 2023.
Going Concern
The accompanying consolidated financial statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred net losses since its inception and anticipates net losses for the near future. As of March 31,2023, the Company was not in compliance with all applicable covenants in agreements governing its debt, resulting in events of default. Additionally, based on the Company’s expected financial performance for the twelve-month period subsequent to the filing of the March 31, 2023 Form 10-Q, the Company expects that it will not be in compliance with a financial covenant under the Revolving Credit Facility, which would result in an event of default. Such event allows the lender to accelerate the maturity of the debt under the Revolving Credit Facility which carries a balance of $73.7 million as of March 31,2023. Further, our independent auditor included an explanatory paragraph regarding our ability to continue as a “going concern” in its report on our financial statements for the year ended December 31, 2016.
2022 (as included in our Form 10-K), which constitutes an event of default under our Revolving Credit Facility. The
condensed consolidated balance sheetRevolving Credit Facility also requires the Company to initiate an equity raise in order to achieve a fixed charge coverage ratio (“FCCR”) of 1.4 to 1.0 as of
DecemberMarch, 31, 2016 contained herein has been derived2023. The Company does not currently have sufficient cash on hand, liquidity or projected future cash flows to repay these outstanding amounts upon an event of default. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.In response to these conditions, management’s plans include the following:
| 1. | Capitalizing on recent business development initiatives that we anticipate will improve total revenues through increased utilization of our parking assets and in many cases at higher average ticket rates. |
| 2. | Management is budgeting reduced overhead costs in 2023 through the reduction or elimination of certain controllable expenses. |
| 3. | We are pursuing further amendments and/or extensions with respect to the Revolving Credit Facility, including waivers of noncompliance with covenants. |
| 4. | We have initiated equity raise or liquidity events, including the proposed merger with Fifth Wall Acquisition Corporation III. |
However, there can be no assurance that we will be successful in completing any of these options. As a result, management’s plans cannot be considered probable and thus does not alleviate substantial doubt about our ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts of liabilities that might result from the audited financial statements asoutcome of December 31, 2016, but does not include all disclosures required by GAAP.
this uncertainty.Consolidation
The Company's consolidated financial statements include its accounts and the accounts of its subsidiaries,the Company, the Operating Partnership, each of their wholly owned subsidiaries, and all of the following subsidiaries. All intercompany profits and losses, balances and transactions are eliminated in consolidation.
West 9th Street Properties II, LLC
| Cleveland Lincoln Garage, LLC |
MVP San Jose 88 Garage, LLC | MVP Houston Jefferson Lot, LLC** |
MCI 1372 Street, LLC | MVP Houston Preston Lot, LLC * |
Cincinnati Race Street, LLC | MVP Houston San Jacinto Lot, LLC |
St. Louis Washington, LLC | MVP Detroit Center Garage, LLC |
St. Paul Holiday Garage, LLC | St Louis Broadway, LLC |
Louisville Station Broadway, LLC | St Louis Seventh & Cerre, LLC |
White Front Garage Partners, LLC | MVP Preferred Parking, LLC |
* Entity is consolidated with the Company starting May 1, 2017. See Note E Related Party Transactions for additional information.
** See Note M – Gain on Sale of Investment in Real Estate for additional information
Under GAAP, the Company's consolidated financial statements will also include the accounts of its consolidated subsidiaries and joint ventures in which the Company is the primary beneficiary, orother entities in which the Company has a controlling financial interest. In determining whetherFor entities that meet the Company has a controlling interest in a joint venture and the requirement to consolidate the accountsdefinition of that entity, the Company's management considers factors such as an entity's purpose and design and the Company's ability to direct the activities of the entity that most significantly impacts the entity's economic performance, ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity in which it will absorb the majority of the entity's expected losses, if they occur, or receive the majority of the expected residual returns, if they occur, or both.
Equity investments in which(“VIE”), the Company
exercises significant influence but does not control andconsolidates those entities when the Company is
not the primary beneficiary
are accounted for usingof the
entity. The Company is determined to be the primary beneficiary when it possesses both the power to direct activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company continually evaluates whether it qualifies as the primary beneficiary and reconsiders its determination of whether an entity is a VIE upon reconsideration events. All intercompany activity is eliminated in consolidation.
Noncontrolling interests on our Consolidated Balance Sheets represent the portion of equity method. The Company'sthat we do not own in the entities we consolidate. Net income or loss attributable to non-controlling interest in our Consolidated Statements of Operations represents our partners’ share of its equity method investees' earningsnet income or lossesloss that is included in other income in the accompanying unaudited condensed consolidated statements of operations. Investments in which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.
generally allocated on a pro-rata basis based on ownership percentage.Use of Estimates
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. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition,asset impairment and purchase price allocations to record investments in real estate, and derivative financial instruments and hedging activities, as applicable.
During the last week of August 2017, Houston Texas experienced major flooding due to Hurricane Harvey. This resulted in limited access to the Houston area and a shutdown of most business and government operations. Our parking garage and parking lots located in Houston, TX experienced minimal damage during this time; however, the company is still assessing the long-term impact. As of September 30, 2017, we have not seen a reduction in the base rent from our operator, who will continue to operate these locations under the terms of the current leases.
The Company had eightfifteen and fourteen parking tenants as of September 30, 2017 tenant-operators during the three months ended March 31, 2023 and four parking tenants as of September 30, 2016.2022, respectively. One tenant, Standard Parkingtenant/operator, SP + ("Corporation (Nasdaq: SP) (“SP+"”), represented a 61.3% concentration60.9% and 56.1% of the Company’s revenue, excluding commercial revenue, for the ninethree months ended September 30, 2017, in regards to parking rental revenue. Below is a table that summarizes parking rent by tenant:
| | | For the Nine Months Ended September 30, | |
| Parking Tenant | | 2017 | | | 2016 | |
| SP + | | | 61.3 | % | | | 60.3 | % |
| iPark Services | | | 10.3 | % | | | 0.0 | % |
Premier Parking | | | 8.1 | % | | | 0.0 | % |
| Interstate Parking | | | 6.0 | % | | | 17.3 | % |
| St. Louis Parking | | | 4.1 | % | | | 0.0 | % |
| Lanier Parking | | | 4.0 | % | | | 0.0 | % |
| ABM | | | 3.9 | % | | | 17.4 | % |
| Riverside Parking | | | 2.3 | % | | | 5.0 | % |
| Grand Total | | | 100.0 | % | | | 100.0 | % |
March 31, 2023 and 2022, respectively. Premier Parking Service, LLC represented 12.5% and 15.0% of the Company’s revenue, excluding commercial revenue, for the three months ended March 31, 2023 and 2022, respectively.In addition, the Company had concentrationsconcentrations in various citiesCincinnati (19.2%), Detroit (12.5%), Chicago (8.7%), and Houston (7.8%) based on parking rental revenuegross book value of real estate as of March 31, 2023 and December 31, 2022.
As of March 31, 2023 and December 31, 2022, 49.8% and 59.2% of the Company’s outstanding accounts receivable balance, respectively, was with SP+.
Acquisitions
All assets acquired and liabilities assumed in an acquisition of real estate accounted for as a business combination are measured at their acquisition date fair values. For acquisitions of real estate accounted for as an asset acquisition, the nine months ended September 30, 2017fair value of consideration transferred by the Company (including transaction costs) is allocated to all assets acquired and 2016,liabilities assumed on a relative fair value basis.
In making estimates of fair values for purposes of allocating purchase price, the Company will utilize several sources, including independent third-party valuations that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company will also consider information obtained about each property as a result of the Company’s pre-acquisition due diligence, as well as concentrationssubsequent marketing and leasing activities, in various cities based onestimating the real estate we owned asfair value of September 30, 2017 and December 31, 2016. The below tables summarize this information by city.
| City Concentration for Parking Rent | |
| | | For the Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | |
| Detroit | | | 49.5 | % | | | 0.0 | % |
| Cleveland | | | 12.0 | % | | | 47.4 | % |
| Nashville | | | 8.5 | % | | | 0.0 | % |
| St Paul | | | 6.3 | % | | | 17.3 | % |
| St Louis | | | 6.2 | % | | | 9.8 | % |
| Houston | | | 6.1 | % | | | 0.0 | % |
| San Jose | | | 4.4 | % | | | 10.8 | % |
| Cincinnati | | | 3.9 | % | | | 6.6 | % |
| Louisville | | | 2.4 | % | | | 5.0 | % |
| Canton | | | 0.7 | % | | | 3.1 | % |
| Grand Total | | | 100.0 | % | | | 100.0 | % |
| Real Estate Concentration by City | |
| Based on the Company's Ownership % | |
| | | As of | |
| | | September 30, 2017 | | | December 31, 2016 | |
| Detroit | | | 34.1 | % | | | 0.0 | % |
| Houston | | | 20.2 | % | | | 10.5 | % |
| St Louis | | | 11.2 | % | | | 5.7 | % |
| Cleveland | | | 9.1 | % | | | 22.2 | % |
| Nashville | | | 7.1 | % | | | 17.4 | % |
| St Paul | | | 6.4 | % | | | 15.5 | % |
| Cincinnati | | | 3.5 | % | | | 8.5 | % |
| San Jose | | | 2.8 | % | | | 6.8 | % |
| Louisville | | | 2.4 | % | | | 5.8 | % |
| Minneapolis | | | 1.6 | % | | | 3.8 | % |
| Bridgeport | | | 0.6 | % | | | 1.4 | % |
| Canton | | | 0.5 | % | | | 1.3 | % |
| Denver | | | 0.5 | % | | | 1.1 | % |
| Grand Total | | | 100.0 | % | | | 100.0 | % |
Acquisitions
The Company records the acquired tangible and intangible assets and assumed liabilities of acquisitions of all operating properties and those development and redevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date. The Company assesses and considers fair value based on estimated cash flow projections that utilize available market information and discount and/or capitalization rates that the Company deems appropriate. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to: land, buildings and improvements, construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any. Costs directly associated with all operating property acquisitions and those development and redevelopment acquisitions that meet the accounting criteria to be accounted for as business combinations are expensed as incurred within operating expenses in the consolidated statement of operations. During the three months and nine months ended September 30, 2017, the Company expensed approximately $0 and $1.7 million in related party acquisition costs, respectively. The Company also had $0.1 million and $2.1 million of non-related party acquisition costs, respectively, for the purchase of an interest in four properties (see Note I – Acquisitions). During the three and nine months ended September 30, 2016, the Company expensed approximately $1.0 million and $1.4 million, respectively, in related party acquisition costs. The Company also expensed $0.5 million and $0.7 million in non-related party acquisition costs for the three and nine months ended September 30, 2016. The Company's acquisition expenses are directly related to the Company's acquisition activity and if the Company's acquisition activity was to increase or decrease, so would the Company's acquisition costs.
Impairment of Long Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.
Cash
Cash includes cash in bank accounts. The Company deposits cash with high quality financial institutions with the majority of its cash at KeyBank. These deposits are guaranteed by the Federal Deposit Insurance Company up to an insurance limit up of $250,000. As of September 30, 2017 and December 31, 2016, the Company had approximately $1.2 million and $3.4 million, respectively, in excess of the federally insured limits. As of September 30, 2017, the Company has not experienced any losses on cash deposits.
Restricted Cash
Restricted cash primarily consists of escrowed tenant improvement funds, real estate taxes, capital improvement funds, insurance premiums, and other amounts required to be escrowed pursuant to loan agreements.
Revenue Recognition
The Company's revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since many of the Company's leases will provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Percentage rents will be recorded when earned and certain thresholds have been met.
The Company will continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, the Company will record an increase in the Company's allowance for uncollectible accounts or record a direct write-off of the receivable after exhaustive efforts at collection.
Advertising Costs
Advertising costs incurred in the normal course of operations and are expensed as incurred. During the three and nine months ended September 30, 2017 and 2016, the Company had no advertising costs.
Investments in Real Estate and Fixed Assets
Investments in real estate and fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are primarily 3 to 40 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.
Purchase Price Allocation
assumed.The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respectiverelative fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studiesvaluations performed by independent third parties or on the Company'sCompany’s analysis of comparable properties in the Company'sCompany’s portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable. The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into accountconsidering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company will include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized.
Above-market and below-market in-place lease values for owned properties are recorded based on the presentThe value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles areis amortized as a decrease to rental incomedepreciation and amortization expense in our Consolidated Statements of Operations over the remaining term of the lease.
The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on the Company's evaluation of the specific characteristics of each tenant's lease and the Company's overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of its existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.
The value of in-place leases is amortized to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building.lease. If a tenant terminates its lease
with us, the unamortized portion
of any lease intangible is recognized over the shortened lease term.Impairment of Long-Lived Assets and Indefinite-Lived Intangible Assets
We periodically evaluate our long-lived assets, primarily investments in real estate, for indicators of impairment. When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the assets for potential impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property through future undiscounted cash flows, we recognize an impairment loss to the extent that the carrying value exceeds the estimated fair value of the property.
When we determine that a property should be classified as held for sale, we recognize an impairment loss to the extent the property's carrying value exceeds its fair value less estimated cost to dispose of the asset.
At least annually, we review indefinite-lived intangible assets for indicators of impairment. We first evaluate qualitative factors to determine if it is more likely than not that the carrying value of an indefinite-lived intangible asset exceeds its estimated fair value. Such qualitative factors include the impact of macroeconomic conditions, changes in the industry or market, cost factors, and financial performance. If we then conclude that impairment exists, we will recognize a charge to earnings representing the difference between the carrying amount and the estimated fair value of the indefinite-lived intangible asset.
Immaterial Correction
During the year ended December 31, 2022, the Company identified certain errors impacting our first quarter filing of 2022. A summary of such errors is outlined in the table below and includes errors related to the cut-off and classification of accruals, cash, prepaids and expenses, accounting and record keeping for tenant billings and deposits, accounting related to interest expense, elimination of intercompany receivables and payables, and corrections related to the calculation of noncontrolling interest.
| | | As of March 31, 2022 |
| | | As reported | | Adjustments | | As Corrected |
| | | (in thousands) |
Consolidated Balance Sheet: | | | | | | |
Buildings and improvements | | $ 254,482 | | $ (156) | | $ 254,326 |
Fixed assets, net | | 56 | | (43) | | 13 |
Cash | | 9,418 | | (548) | | 8,870 |
Cash – restricted | | 5,043 | | 333 | | 5,376 |
Prepaid expenses | | 462 | | 194 | | 656 |
Accounts receivable | | 3,312 | | (197) | | 3,115 |
Due from related parties | | - | | 156 | | 156 |
Other assets | | 103 | | (47) | | 56 |
Accounts payable and accrued liabilities | | 15,589 | | (954) | | 14,635 |
Security Deposit | | 166 | | (46) | | 120 |
Deferred revenue | | 99 | | (35) | | 64 |
Accumulated deficit | | (102,855) | | 370 | | (102,485) |
Non-controlling interest | | 104,906 | | 850 | | 105,756 |
| | | Three Months Ended March 31, 2022 |
| | | As reported | | Adjustments | | As Corrected |
| | | (in thousands, except per share data) |
Consolidated Statement of Operations: | | | | | | |
Base rent income | | $ 2,051 | | $ (120) | | $ 1,931 |
Management agreement | | - | | 427 | | 427 |
Percentage rent | | 4,329 | | 127 | | 4,456 |
Property taxes | | 1,836 | | (205) | | 1,631 |
Property operating expense | | 837 | | 16 | | 853 |
General and administrative | | 1,506 | | 9 | | 1,515 |
Professional fees | | 1,988 | | (520) | | 1,468 |
Depreciation and amortization | | 1,967 | | 43 | | 2,010 |
Interest expense | | (2,539) | | 83 | | (2,457) |
Other income | | 15 | | 46 | | 61 |
Net loss | | (4,278) | | 1,220 | | (3,058) |
Net income attributable to non-controlling interest | | (2,472) | | 850 | | (1,622) |
Net loss attributable to Mobile Infrastructure Corporation’s common stockholders | | (2,556) | | 370 | | (2,186) |
Net loss per share attributable to Mobile Infrastructure Corporation’s common stockholders - basic and diluted | | $ (0.33) | | $ 0.05 | | $ (0.28) |
Reportable Segments
Our principal business is the ownership and operation of parking facilities. We do not distinguish our principal business, or group our operations, by geography or size for purposes of measuring performance. Accordingly, we have presented our results as a single reportable segment.
Equity Compensation
Equity compensation is based on the grant date fair value of the equity awards and is recognized as general and administrative expense in our Consolidated Statement of Operations over the requisite service or performance period. Forfeitures are recognized as incurred. Certain equity awards are subject to vesting based upon the satisfaction of various service, market, or performance conditions.
Note C – Acquisitions and Dispositions of Investments in Real Estate
2023
On February 28, 2023, the Company sold a parking lot located in Wildwood, New Jersey for $1.5 million, resulting in a gain on sale of real estate of approximately $0.7 million. The Company received net proceeds of approximately $0.3 million after the repayment of the outstanding mortgage loan, interest and transaction costs.
2022
In June 2022, the Company acquired a 555 space garage located in Oklahoma City, Oklahoma for $17.5 million.
Note D - Intangible Assets
A schedule of the Company’s intangible assets and related accumulated amortization as of March 31, 2023 and December 31, 2022 is as follows (dollars in thousands):
| | | As of March 31, 2023 | | | As of December 31, 2022 | |
| | | Gross carrying amount | | | Accumulated amortization | | | Gross carrying amount | | | Accumulated amortization | |
In-place lease value | | $ | 2,564 | | | $ | 1,702 | | | $ | 2,564 | | | $ | 1,621 | |
Lease commissions | | | 165 | | | | 113 | | | | 165 | | | | 106 | |
Indefinite lived contract | | | 3,160 | | | | — | | | | 3,160 | | | | — | |
Acquired technology | | | 4,240 | | | | 672 | | | | 4,217 | | | | 561 | |
Total intangible assets | | $ | 10,129 | | | $ | 2,487 | | | $ | 10,106 | | | $ | 2,288 | |
Amortization of the in-place lease value, lease commissions and customer relationship intangiblesacquired technology are included in depreciation and amortization in the accompanying Consolidated Statements of Operations. Amortization expense associated with intangible assets totaled approximately $0.2 million for both the threemonths ended March 31, 2023 and 2022.
A schedule of future amortization of acquired intangible assets for the three months ended March 31, 2023 and thereafter is chargedas follows (dollars in thousands):
| | | In-place lease value | | | Lease commissions | | | Acquired technology | |
2023 (Remainder) | | $ | 241 | | | $ | 19 | | | $ | 342 | |
2024 | | | 303 | | | | 20 | | | | 448 | |
2025 | | | 189 | | | | 9 | | | | 448 | |
2026 | | | 102 | | | | 3 | | | | 447 | |
2027 | | | 27 | | | | 1 | | | | 419 | |
Thereafter | | | - | | | | - | | | | 1,464 | |
| | | $ | 862 | | | $ | 52 | | | $ | 3,568 | |
Note E — Notes Payable
As of March 31, 2023, the principal balances on notes payable are as follows (dollars in thousands):
Loan | | Original Debt Amount | | | Monthly Payment | | | Balance as of 3/31/23 | | Lender | | | | | | Interest Rate | | Loan Maturity |
MVP Clarksburg Lot | | $ | 476 | | | I/O | | | $ | 379 | | Vestin Realty Mortgage II | | | | | | | 7.50 | % | 8/25/2023 |
MVP Milwaukee Old World | | $ | 771 | | | I/O | | | $ | 1,871 | | Vestin Realty Mortgage II | | | | | | | 7.50 | % | 8/25/2023 |
MVP Milwaukee Clybourn | | $ | 191 | | | I/O | | | $ | 191 | | Vestin Realty Mortgage II | | | | | | | 7.50 | % | 8/25/2023 |
MVP Cincinnati Race Street, LLC | | $ | 2,550 | | | I/O | | | $ | 3,450 | | Vestin Realty Mortgage II | | | | | | | 7.50 | % | 8/25/2023 |
Minneapolis Venture | | $ | 2,000 | | | I/O | | | $ | 4,000 | | Vestin Realty Mortgage II | | | | | | | 7.50 | % | 8/25/2023 |
MVP Memphis Poplar (3) | | $ | 1,800 | | | I/O | | | $ | 1,800 | | LoanCore | | | | | | | 5.38 | % | 3/6/2024 |
MVP St. Louis (3) | | $ | 3,700 | | | I/O | | | $ | 3,700 | | LoanCore | | | | | | | 5.38 | % | 3/6/2024 |
Mabley Place Garage, LLC | | $ | 9,000 | | | $ | 44 | | | $ | 7,583 | | Barclays | | | | | | | 4.25 | % | 12/6/2024 |
322 Streeter Holdco LLC | | $ | 25,900 | | | $ | 130 | | | $ | 25,184 | | American National Insurance Co. | | | | | | | 3.50 | % | 3/1/2025 |
MVP Houston Saks Garage, LLC | | $ | 3,650 | | | $ | 20 | | | $ | 2,935 | | Barclays Bank PLC | | | | | | | 4.25 | % | 8/6/2025 |
Minneapolis City Parking, LLC | | $ | 5,250 | | | $ | 29 | | | $ | 4,341 | | American National Insurance, of NY | | | | | | | 4.50 | % | 5/1/2026 |
MVP Bridgeport Fairfield Garage, LLC | | $ | 4,400 | | | $ | 23 | | | $ | 3,631 | | FBL Financial Group, Inc. | | | | | | | 4.00 | % | 8/1/2026 |
West 9th Properties II, LLC | | $ | 5,300 | | | $ | 30 | | | $ | 4,459 | | American National Insurance Co. | | | | | | | 4.50 | % | 11/1/2026 |
MVP Fort Worth Taylor, LLC | | $ | 13,150 | | | $ | 73 | | | $ | 11,095 | | American National Insurance, of NY | | | | | | | 4.50 | % | 12/1/2026 |
MVP Detroit Center Garage, LLC | | $ | 31,500 | | | $ | 194 | | | $ | 27,424 | | Bank of America | | | | | | | 5.52 | % | 2/1/2027 |
MVP St. Louis Washington, LLC (1) | | $ | 1,380 | | | $ | 8 | | | $ | 1,266 | | KeyBank | | | * | | | | 4.90 | % | 5/1/2027 |
St. Paul Holiday Garage, LLC (1) | | $ | 4,132 | | | $ | 24 | | | $ | 3,789 | | KeyBank | | | * | | | | 4.90 | % | 5/1/2027 |
Cleveland Lincoln Garage, LLC (1) | | $ | 3,999 | | | $ | 23 | | | $ | 3,666 | | KeyBank | | | * | | | | 4.90 | % | 5/1/2027 |
MVP Denver Sherman, LLC (1) | | $ | 286 | | | $ | 2 | | | $ | 262 | | KeyBank | | | * | | | | 4.90 | % | 5/1/2027 |
MVP Milwaukee Arena Lot, LLC (1) | | $ | 2,142 | | | $ | 12 | | | $ | 1,964 | | KeyBank | | | * | | | | 4.90 | % | 5/1/2027 |
MVP Denver 1935 Sherman, LLC (1) | | $ | 762 | | | $ | 4 | | | $ | 698 | | KeyBank | | | * | | | | 4.90 | % | 5/1/2027 |
MVP Louisville Broadway Station, LLC (2) | | $ | 1,682 | | | I/O | | | $ | 1,682 | | Cantor Commercial Real Estate | | | ** | | | | 5.03 | % | 5/6/2027 |
MVP Whitefront Garage, LLC (2) | | $ | 6,454 | | | I/O | | | $ | 6,454 | | Cantor Commercial Real Estate | | | ** | | | | 5.03 | % | 5/6/2027 |
MVP Houston Preston Lot, LLC (2) | | $ | 1,627 | | | I/O | | | $ | 1,627 | | Cantor Commercial Real Estate | | | ** | | | | 5.03 | % | 5/6/2027 |
MVP Houston San Jacinto Lot, LLC (2) | | $ | 1,820 | | | I/O | | | $ | 1,820 | | Cantor Commercial Real Estate | | | ** | | | | 5.03 | % | 5/6/2027 |
St. Louis Broadway, LLC (2) | | $ | 1,671 | | | I/O | | | $ | 1,671 | | Cantor Commercial Real Estate | | | ** | | | | 5.03 | % | 5/6/2027 |
St. Louis Seventh & Cerre, LLC (2) | | $ | 2,057 | | | I/O | | | $ | 2,057 | | Cantor Commercial Real Estate | | | ** | | | | 5.03 | % | 5/6/2027 |
MVP Indianapolis Meridian Lot, LLC (2) | | $ | 938 | | | I/O | | | $ | 938 | | Cantor Commercial Real Estate | | | ** | | | | 5.03 | % | 5/6/2027 |
St Louis Cardinal Lot DST, LLC | | $ | 6,000 | | | I/O | | | $ | 6,000 | | Cantor Commercial Real Estate | | | ** | | | | 5.25 | % | 5/31/2027 |
MVP Preferred Parking, LLC | | $ | 11,330 | | | $ | 66 | | | $ | 11,199 | | Key Bank | | | ** | | | | 5.02 | % | 8/1/2027 |
Less unamortized loan issuance costs | | | $ | (791 | ) | | | | | | | | | | |
| | | | | | | | | | | $ | 146,345 | | | | | | | | | | | |
(1) | The Company issued a promissory note to KeyBank for $12.7 million secured by the pool of properties. |
(2) | The Company issued a promissory note to Cantor Commercial Real Estate Lending, L.P. (“CCRE”) for $16.25 million secured by the pool of properties. |
(3) | The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by MVP St. Louis 2013 and MVP Memphis Poplar. |
* 2 Year Interest Only
** 10 Year Interest Only
I/O - Interest Only
Reserve funds are generally required for repairs and replacements, real estate taxes, and insurance premiums. Some notes contain various terms and conditions including debt service coverage ratios and debt yield limits. As of March 31, 2023, borrowers for three of the Company’s loans totaling $55.3 million, failed to expense.
meet certain loan covenants. As a result, we are subject to additional cash management procedures, which resulted in approximately$0.6 million of restricted cash at March 31, 2023. In
making estimatesorder to exit cash management, certain debt service coverage ratios or debt yield tests must be exceeded for two consecutive quarters to return to less restrictive cash management procedures. During the three months ended March 31, 2023, two loans exited cash management as the properties have maintained consecutive quarters of
fair values for purposesthe minimum debt service coverage ratio.As of allocating purchase price, March 31, 2023, future principal payments on notes payable are as follows (dollars in thousands):
2023 (remainder) | | $ | 12,262 | |
2024 | | | 16,012 | |
2025 | | | 29,091 | |
2026 | | | 22,708 | |
2027 | | | 67,063 | |
Thereafter | | | — | |
Total | | $ | 147,136 | |
Note F - Revolving Credit Facility
On March 29, 2022, the Company will utilizeentered into a numberCredit Agreement (the “Credit Agreement”) with KeyBank Capital Markets, as lead arranger, and KeyBank, National Association, as administrative agent. The Credit Agreement refinanced the Company’s then current loan agreements for certain properties. The Credit Agreement provides for, among other things, a $75.0 million revolving credit facility, originally maturing on April 1, 2023 (the “Revolving Credit Facility”). The Revolving Credit Facility may be increased by up to an additional $75.0 million provided that no event of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective propertydefault has occurred and certain other market data. The Company will also consider information obtained about each property as a result of the Company's pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Organization, Offering and Related Costs
Certain organization and offering costs will be incurred by the Advisor. Pursuant to the terms of the Advisory Agreement, the Company will not reimburse the Advisor for these out of pocket costs and future organization and offering costs it may incur. Such costs shall include legal, accounting, printing and other offering expenses, including marketing, and direct expenses of the Advisor's employees and employees of the Advisor's affiliates and others.
All direct offering costs incurred and or paid by us thatconditions are directly attributable to a proposed or actual offering, including sales commissions, if any, were charged against the gross proceeds of the Offering and recorded as an offset to additional paid-in-capital. All indirect costs will be expensed as incurred.
Stock-Based Compensation
The Company has a stock-based incentive award plan, which is accounted forsatisfied. Borrowings under the guidance for share based payments. The expense for such awards will be included in generalRevolving Credit Facility bear interest at a Secured Overnight Financing Rate (“SOFR”) benchmark rate or Alternate Base Rate, plus a margin of between 1.75% and administrative expenses and is recognized over the vesting period or when the requirements for exercise of the award have been met (See Note G — Stock-Based Compensation).
Income Taxes
The Company is organized and conducts operations to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the "Code") and to comply with the provisions of the Internal Revenue Code3.00%, with respect thereto. A REIT is generally not subject to federal income tax on that portion of its REIT taxable income ("Taxable Income")SOFR loans, or 0.75% to 2.00%, which is distributedwith respect to its stockholders, provided that at least 90% of Taxable Income is distributed and provided that certain other requirements are met. Our Taxable Income may substantially exceed or be less than our net income as determined based on GAAP, because, differences in GAAP and taxable net income consist primarily of allowances for loan losses or doubtful account, write-downs on real estate held for sale, amortization of deferred financing cost, capital gains and losses, and deferred income.
If the Company does not qualify as a REIT for the tax year ended December 31, 2017, we will file as a C corporation and deferred tax assets and liabilities will be established for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for the deferred tax assets is provided if we believe that it is more likely than not that we will not realize the tax benefit of deferred tax assetsbase rate loans, based on the
available evidence atCompany’s leverage ratio as calculated under the
time the determinationCredit Agreement. The Credit Agreement is
made. For the tax year ended December 31, 2016,secured by a pool of properties and requires compliance with certain financial covenants. The Credit Agreement also includes financial covenants that require the Company
did to (i) maintain a total leverage ratio not realize to exceed 65.0%, (ii) not to exceed certain fixed charge coverage ratios, and (iii) maintain a certain tangible net worth.During 2022, the benefitsCompany drew $73.7 million on the Revolving Credit Facility to pay-off certain mortgage loans and fund an acquisition of its deferred tax assets, a valuation allowance was recorded against our net deferred tax assets.
Per Share Data
Thesingle garage.On November 17, 2022, the Company calculates basic income (loss) per share by dividing net income (loss)executed an amendment to the Credit Agreement which extends the maturity of the Revolving Credit Facility to April 1, 2024, amends certain financial covenants through the new term, and adds a requirement for the periodCompany to use diligent efforts to pursue an equity raise or liquidity event by weighted-averageMarch 31, 2023. As of March 31,2023, the Company was not in compliance with all applicable covenants in agreements governing its debt, resulting in events of default.
As of March 31,2023, the balance of unamortized loan fees associated with the Revolving Credit Facility is $0.8 million which is being amortized to interest expense in the Consolidated Statements of Operations over the remaining term.
Note G - Equity
Series A Preferred Stock
On November 1, 2016, the Company commenced an offering of up to $50 million in shares of its common stock outstanding for the respective period. Diluted income per share takes into account the effect of dilutive instruments, such as stock options and convertible stock, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. The Company had no outstanding common share equivalents during the three and nine months ended September 30, 2017 and 2016.
There is a potential for dilution from the Company'sCompany’s Series A Convertible Redeemable Preferred Stock
(“Series A Preferred Stock”), par value $0.0001 per share, together with warrants to acquire the Company’s Common Stock, in a Regulation D 506(c) private placement to accredited investors.The holders of the Series A Preferred Stock are entitled to receive, when and as authorized by the Board of Directors and declared by the Company out of funds legally available for the payment of dividends, cash dividends at the rate of 5.75% per annum of the initial stated value of $1,000 per share. Since a Listing Event, as defined in the charter, did not occur by March 31, 2018, the cash dividend rate has been increased to 7.50%, until a Listing Event at which maytime, the annual dividend rate will be converted intoreduced to 5.75% of the Company'sstated value.
On March 24, 2020, the Company’s Board of Directors unanimously authorized the suspension of the payment of distributions on the Series A Preferred Stock; however, such distributions will continue to accrue in accordance with the terms of the Series A Preferred Stock. Since initial issuance, the Company had declared distributions of approximately $1.3 million of which approximately $0.6 million had been paid to Series A stockholders. As of March 31, 2023 and December 31, 2022, approximately $0.7 million and $0.6 million of Series A Preferred Stock distributions that were accrued and unpaid, respectively, are included in accounts payable and accrued expenses on the Consolidated Balance Sheet.
Series 1 Preferred Stock
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock (“Series 1 Preferred Stock”), par value $0.0001 per share. On April 7, 2017, the Company commenced the Regulation D 506(b) private placement of shares of Series 1 Preferred Stock, together with warrants to acquire the Company’s common stock, to accredited investors.
The holders of the Series 1 Preferred Stock are entitled to receive, when and as authorized by the Company’s Board of Directors and declared by us out of legally available funds, cumulative, cash dividends on each share at an annual rate of 5.50% of the stated value pari passu with the dividend preference of the Series A Preferred Stock and in preference to any time beginning uponpayment of any dividend on the earlierCompany’s common stock; provided that since a Listing Event, as defined in the charter, has not occurred by April 7, 2018, the annual dividend rate on all Series 1 Preferred Stock shares has been increased to 7.00% of (i) 90 days afterthe stated value until the occurrence of a listing eventListing Event, at which time, the annual dividend rate will be reduced to 5.50% of the stated value.
Each holder of Series 1 Preferred Stock received, for every $1,000 in shares subscribed by such holder, detachable warrants to purchase 35 shares of the Company’s common stock if the Company’s common stock is listed on a national securities exchange. Since a Listing Event did not occur on or (ii)prior to the secondfifth anniversary of the final closing date of the offering (whether or not a listing event has occurred).(ie. January 31, 2023), the outstanding warrants automatically expired.
On March 24, 2020, the Company’s Board of Directors unanimously authorized the suspension of the payment of distributions on the Series 1 Preferred Stock, however, such distributions will continue to accrue in accordance with the terms of the Series 1 Preferred Stock. Since initial issuance, the Company had declared distributions of approximately $15.0 million of which approximately $6.4 million had been paid to Series 1 Preferred Stock stockholders. As of September 30, 2017, thereMarch 31, 2023 and December 31, 2022, approximately $8.6 million and $7.9 million of Series 1 Preferred Stock distributions that were 2,862accrued and unpaid, respectively, are included in accounts payable and accrued expenses on the consolidated balance sheet.
Warrants
In accordance with its warrant agreement between the Company and Color Up, dated August 25, 2021 (the “Warrant Agreement”), Color Up has the right to purchase up to 1,702,128 shares of common stock, at an exercise price of $11.75 per share for an aggregate cash purchase price of up to $20.0 million (the “Common Stock Warrants”). Each whole Common Stock Warrant entitles the registered holder thereof to purchase one whole share of common stock at a price of $11.75 per share, subject to customary adjustments, at any time following a “Liquidity Event,” which is defined as an initial public offering and/or listing of the common stock on the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange. The Common Stock Warrants will expire on August 25, 2026.
The Common Stock Warrants are classified as equity and recorded at the issuance date fair value.
Securities Purchase Agreement
On November 2, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) by and among the Company, the Operating Partnership, and HS3, pursuant to which the Operating Partnership issued and sold to HS3 (a) 1,702,128 newly issued OP Units; and (b) 425,532 newly-issued Class A units of limited partnership of the Operating Partnership (“Class A Units”) which entitle HS3 to purchase up to 425,532 additional OP Units (the “Additional OP Units”) at an exercise price equal to $11.75 per Additional OP Unit, subject to adjustment as provided in the Class A Unit agreement, and HS3 paid to the Operating Partnership cash consideration of $20.0 million. The Additional OP Units are available to be exercised only upon completion of a Liquidity Event, as defined in the Securities Purchase Agreement.
Convertible Noncontrolling Interests
As of March 31, 2023, the Operating Partnership had approximately 17.0 million OP Units outstanding, excluding any equity incentive units granted. Under the terms of the Third Amended and Restated Limited Partnership Agreement, OP Unit holders may elect to exchange certain OP Units for shares of the Series A Convertible Redeemable PreferredCompany’s Common Stock issued and outstanding.
There is a potential for dilution from the Company's Series 1 Convertible Redeemable Preferred Stock which may be converted into the Company's common stock at any time beginning upon the earlier of (i) 45 days after the occurrencecompletion of a listing event or (ii) April 7, 2019 (whether or not a listing event has occurred). Asliquidity event. The OP Units outstanding as of September 30, 2017, there were 13,445 shares of the Series 1 Convertible Redeemable Preferred Stock issued and outstanding.
Each share of Series A preferred stock and Series 1 preferred stock will convert into the number of shares of the Company's common stock determined by dividing (i) the stated value per Series A share or Series 1 share of $1,000 (as may be adjusted pursuant to the applicable articles supplementary) plus any accrued but unpaid dividends to, but not including, the conversion date by (ii) the conversion price. The conversion price is equal to 100% or, if the conversion notice is received before December 1, 2017 (for Series 1 shares) or DecemberMarch 31, 2017 (for Series A shares), 110% of the volume weighted average price per share of the Company's common stock for the 20 trading days prior to the delivery date of the conversion notice; provided that if the Company's common stock is not then traded2023 are classified as noncontrolling interests within permanent equity on a national securities exchange, the conversion price will be equal to the net asset value per share of the Company's common stock. The Company will have the right (but not the obligation) to redeem any Series A or Series 1 shares that are subject to a conversion notice on the terms set forth in the applicable articles supplementary.
Reportable Segments
We currently operate one reportable segment.
Reclassifications
Amounts listed in connection with certain expense accounts on the condensed consolidated statements of operations in the 2016 have been reclassified to conform to the September 30, 2017 presentation.
Accounting and Auditing Standards Applicable to "Emerging Growth Companies"
The Company is an "emerging growth company" under the Jumpstart Our Business Startups Act (the "JOBS Act"). For as long as the Company remains an "emerging growth company," which may be up to five fiscal years, the Company is not required to (1) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies, (2) provide an auditor's attestation report on management's assessment of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (3) comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer or (4) comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. The Company intends to take advantage of such extended transition period. Since the Company will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, the Company's financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If the Company were to subsequently elect to instead comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.
Share Repurchase Program
our Consolidated Balance Sheet.Dividend Reinvestment Plan
The Company has a Dividend Reinvestment Plan (“DRIP”) which allows its stockholders to invest distributions in additional shares of our common stock, subject to certain limits. Stockholders who elect to participate in the DRIP may choose to invest all or a portion of their cash distributions in shares of our common stock at a price equal to our most recent estimated value per share. On March 22, 2018, the Company suspended payment of distributions and as such there are currently no distributions to invest in the DRIP.
Share Repurchase Program
On May 29, 2018, the Company’s Board of Directors suspended the Share Repurchase Program, ("SRP") that enables stockholders to sell their shares to the Company. Under the SRP, stockholders may request that the Company redeem all or any portion, subject to certain minimum conditions described below, if such repurchase does not impair the Company's capital or operations.
Prior to the time that the Company's shares are listed on a national securities exchange, the repurchase price per share will depend on the length of time investors have held such shares as follows: noother than for hardship repurchases
for the first two years unless shares are being repurchased in connection with a
stockholder's death or disability (as defined in the Code).shareholder’s death. Repurchase requests made in connection with the death
or disability of a stockholder
willcan be repurchased at a price per share equal to
100% of the amount the stockholder paid for each share, or once
we havethe Company had established an estimated NAV per share,
100% of such amount as determined by the
Company's boardCompany’s Board of
directors,Directors, subject to any special distributions previously made to the
Company'sCompany’s stockholders.
With respectOn March 24, 2020, the Board of Directors suspended all repurchases, even in the case of a stockholder’s death.Note H — Equity Compensation
On February 28, 2023, Mr. Chavez and Ms. Hogue were granted 81,301 and 50,813 LTIP Units, respectively, in lieu of their 2022 target annual bonus. Of these awards granted to all other repurchases, priorMr. Chavez and Ms. Hogue, 13,550 and 10,163 LTIP Units vested immediately, with the remaining scheduled to vest over a three year period. The grant date fair value was determined to be $13.48 per unit for each of the LTIP Units awarded. Additionally, the non-management members of the Board of Directors were granted 26,082 LTIP Units in lieu of their 2022 compensation. The Director’s LTIP Units will vest over a three year period, with the exception of immediate vesting for LTIP Units granted to Shawn Nelson, a former director that retired from the Board effective December 31, 2022. The grant date fair value was determined to be $14.76 per unit for each of the LTIP Units awarded to the date that we establish an estimated value per share of common stock, the purchase price will be 95.0%non-management members of the purchase price paidBoard.
For the three months ended March 31, 2023, the Company recognized $1.4 million in non-cash amortization of equity awards. No amortization expense was recognized for the shares, if redeemed at any time betweenthree months ended March 31, 2022. As of March 31, 2023 there was $20.3 million of unrecognized non-cash amortization, including $15.7 million for LTIP Units and Performance LTIP Units (“PUs”) granted in 2022 which vest upon the second and third anniversariesachievement of a Liquidity Event (as defined in the purchase date, and 97.0%respective LTIP agreements) and/or certain performance measures, which are considered not probable.
The following table sets forth a roll forward of common stock, the purchase price will be 95.0% of the NAV per shareall incentive equity awards for the shares, if redeemed at any time between the secondthree months ended March 31, 2023:
| | | As of March 31, 2023 | |
| | | Number of Incentive Equity Awards | | | Weighted Avg Grant FV Per Share | |
Unvested - January 1, 2023 | | | 1,782,027 | | | $ | 12.65 | |
Granted | | | 158,196 | | | | (13.69 | ) |
Vested | | | (29,562 | ) | | | 13.76 | |
Forfeited | | | — | | | | — | |
Unvested - March 31, 2023 | | | 1,910,661 | | | $ | 12.72 | |
Note I - Earnings Per Share
Basic and third anniversaries of the purchase date, 97.0% of the NAVdiluted loss per weighted average common share if redeemed at any time between the third and fifth anniversaries, and 100.0% of the NAV per share if redeemed after the fifth anniversary. In the event that the Company does not have sufficient funds available to repurchase all of the shares for which repurchase requests have been submitted in any quarter, we will repurchase the shares on a pro rata basis on the repurchase date. The SRP will be terminated if the Company's shares become listed for trading on a national securities exchange or if the Company's board of directors determines that it(“EPS”) is in the Company's best interest to terminate the SRP.
The Company is not obligated to repurchase shares of common stock under the share repurchase program. The number of shares to be repurchased during the calendar quarter is limitedcalculated by dividing net income (loss) attributable to the lesser of: (i) 5% ofCompany’s common stockholders, including any participating securities, by the weighted average number of shares outstanding duringfor the prior calendar year,period. The Company includes the effect of participating securities in basic and (ii) those repurchases that could be fundeddiluted earnings per share computations using the two-class method of allocating distributed and undistributed earnings when the two-class method is more dilutive than the treasury stock method. Outstanding warrants were antidilutive as a result of the net loss for the three months ended March 31,2023 and 2022 and therefore were excluded from the net proceeds of the sale ofdilutive calculation. The Company includes unvested PUs as contingently issuable shares under the DRIP in the prior calendar year plus such additional funds as may be reserved forcomputation of diluted EPS once the market criteria is met, assuming that purpose by the Company's board of directors; provided, however, that the above volume limitations shall not apply to repurchases requested in connection with the death or qualifying disability of a stockholder. Because of these limitations, the Company cannot guarantee that the Company will be able to accommodate all repurchase requests.
The Company will repurchase shares as of March 31st, June 30th, September 30th, and December 31st of each year. Each stockholder whose repurchase request is approved will receive the repurchase payment approximately 30 days following the end of the applicable quarter, effective as of the last day of such quarter. The Company refers to the last day of such quarter as the repurchase date. If funds available for the Company's share repurchase program are not sufficient to accommodate all requests, shares will be repurchased as follows: (i) first, repurchases due to the death of a stockholder, on the basis of the date of the request for repurchase; (ii) next, in the discretion of the Company's board of directors, repurchases because of other involuntary exigent circumstances, such as bankruptcy; (iii) next, repurchases of shares held by stockholders subject to a mandatory distribution requirement under the stockholder's IRA; and (iv) finally, all other repurchase requests based upon the postmark of receipt. If the Stockholder's repurchase requestreporting period is not honored during a repurchase period, the Stockholder will be required to resubmit the request to have it considered in a subsequent repurchase period.
On October 27, 2016, the Company filed a Form 8-K announcing, among other things, an amendment to the SRP providing for participation in the SRP by any holder of the Company's Series A Convertible Redeemable Preferred Stock, or any future board-authorized series or class of preferred stock that is convertible into common stock of the Company. Under the amendment, which became effective on November 26, 2016, a preferred stock holder may participate in the SRP by converting its preferred stock into common stock of the Company, and submitting such common shares for repurchase. The time period, for purposes of determining how long such stockholder has held the common shares submitted for repurchase, begins as of the date such preferred stockholder acquired the underlying preferred shares that were converted into common shares and submitted for repurchase.
The board of directors may, in its sole discretion, terminate, suspend or further amend the share repurchase program upon 30 days' written notice without stockholder approval if it determines that the funds available to fund the share repurchase program are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase program is in the best interest of the stockholders. Among other things, we may amend the plan to repurchase shares at prices different from those described above for the purpose of ensuring the Company's dividends are not "preferential" for incomes tax purposes. Any notice of a termination, suspension or amendment of the share repurchase program will be made via a report on Form 8-K filed with the SEC at least 30 days prior to the effective date of such termination, suspension or amendment. The board of directors may also limit the amounts available for repurchase at any time in its sole discretion. Notwithstanding the foregoing, the share repurchase program will terminate if the shares of common stock are listed on a national securities exchange. As of September 30, 2017, no shares are eligible for redemption (other than in connection with a death or disability of a stockholder).
Distribution Reinvestment Plan
Pursuant to the DRIP stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. No dealer manager fees or selling commissions are paid with respect to shares purchased pursuant to the DRIP. Participants purchasing shares pursuant to the DRIP have the same rights and are treated in the same manner as if such shares were issued pursuant to the Offering. The board of directors may designate that certain cash or other distributions be excluded from the DRIP. The Company has the right to amend any aspect of the DRIP or terminate the DRIP with ten days' notice to participants. Shares issued under the DRIP are recorded to equity in the accompanying balance sheets in the period distributions are declared. We have issued a total of 54,336 shares of common stock under the DRIP as of September 30, 2017. The DRIP program is currently suspended in connection with the merger.
Non-controlling Interests
The FASB issued authoritative guidance for non-controlling interests in December 2007, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as an unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, the guidance requires consolidated net income to be reported at amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest.
Note C — Commitments and Contingencies
Litigation
The nature of our business exposes our properties, us and our operating partnership to the risk of claims and litigation in the normal course of business. Other than routine litigation arising out of the ordinary course of business, we are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us.
Environmental Matters
As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. We do not believe that compliance with existing laws will have a material adverse effect on the Company's financial condition or results of operations. However, we cannot predict the impact of any unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.
Note D – Investments in Real Estate
As of September 30, 2017, the Company had the following Investments in Real Estate that were consolidated on our balance sheet:
Property | Location | Date Acquired | Investment
Amount
| Parking Tenant | Lease Commencement Date |
MVP San Jose 88 Garage, LLC | San Jose, CA | 6/15/2016 | $3,824,000 | Lanier Parking | 3/01/2017 |
MCI 1372 Street, LLC | Canton, OH | 7/8/2016 | $700,000 | ABM | 7/8/2016 |
MVP Cincinnati Race Street Garage, LLC | Cincinnati, OH | 7/8/2016 | $5,408,000 | SP + | 9/1/2016 |
MVP St. Louis Washington, LLC | St Louis, MO | 7/18/2016 | $3,000,000 | SP + | 7/21/2016 |
MVP St. Paul Holiday Garage, LLC | St Paul, MN | 8/12/2016 | $8,310,000 | Interstate Parking | 8/12/2016 |
MVP Louisville Station Broadway, LLC | Louisville, KY | 8/23/2016 | $3,107,000 | Riverside Parking | 8/23/2016 |
Cleveland Lincoln Garage Owners, LLC | Cleveland, OH | 10/19/2016 | $7,412,000 | SP + | 10/25/2016 |
MVP Houston San Jacinto Lot, LLC | Houston, TX | 11/22/2016 | $3,250,000 | iPark Services | 12/1/2016 |
MVP Houston Preston Lot, LLC | Houston, TX | 11/22/2016* | * $2,820,000 | iPark Services | 12/1/2016 |
White Front Garage Partners, LLC | Nashville, TN | 9/30/2016 | $11,672,000 | Premier Parking | 10/1/2016 |
West 9th Street Properties II, LLC**
| Cleveland, OH | 5/11/2016 | $5,733,000 | SP + | 5/11/2016 |
33740 Crown Colony, LLC** | Cleveland, OH | 5/17/2016 | $3,050,000 | SP + | 5/17/2016 |
MVP Detroit Center Garage, LLC | Detroit, MI | 01/10/2017 | $55,139,000 | SP + | 2/1/2017 |
St Louis Broadway, LLC | St Louis, MO | 02/01/2017 | $2,400,000 | St Louis Parking Co | 2/1/2017 |
St Louis Seventh & Cerre, LLC | St Louis, MO | 02/01/2017 | $3,300,000 | St Louis Parking Co | 2/1/2017 |
MVP Preferred Parking, LLC | Houston, TX | 6/29/2017 | $20,600,000 | iPark Services | 8/01/2017 |
| | | $139,725,000 | | |
* During April 2017, MVP REIT reduced its ownership interest in MVP Houston Preston Lot from 80% to 40%, by selling a portion of its ownership to the Company for $1.12 million. This transaction was completed at par value with no fees paid and no gain or loss recorded by MVP REIT or the Company. Our ownership interest in MVP Houston Preston Lot increased from 20% to 60% and we have been considered the controlling party starting May 1, 2017.
** In November 2016, these properties merged into one holding company called West 9th Street Properties II, LLC, for the purposes of debt financing.
Note E — Related Party Transactions and Arrangements
The transactions described in this Note were approved by a majority of the Company's board of directors (including a majority of the independent directors) not otherwise interested in such transaction as fair and reasonable to the Company and on terms and conditions no less favorable to the Company than those available from unaffiliated third parties.
Ownership of Company Stock
During May 2017, VRM II acquired approximately 35,000 shares of our stock from third party investors in exchange for various trust deed investments. During the nine months ended September 30, 2017, VRM II received approximately $11,900 in distributions in accordance with the Company's DRIP program.
As of September 30, 2017, the Company's Sponsor owned 8,839 shares and VRM II owned 41,435 shares of the Company's outstanding common stock.
Ownership of MVP REIT
On November 5, 2016, the Company purchased 338,409 shares of MVP REIT common stock from an unrelated third party for $3.0 million or $8.865 per share. During the three and nine months ended September 30, 2017, MVP REIT paid the Company, approximately $23,000 and $122,000, respectively, in stock distributions and in addition the Company received 2,544 common shares of MVP REIT common shares in accordance with their DRIP program.
During April 2017, MVP REIT reduced its ownership interest in MVP Houston Preston Lot from 80% to 40%, by selling a portion of its ownership to the Company for $1.12 million. This transaction was completed at par value with no gain or loss recorded by MVP REIT or the Company. Our ownership interest in MVP Houston Preston Lot increased from 20% to 60% and we will be considered the controlling party starting May 1, 2017.
As of September 30, 2017 MVP REIT owed the Company $1.5 million, related to various acquisitions and ongoing operations.
Ownership of the Advisor
VRM I and VRM II own 40% and 60%, respectively, of the Advisor. Neither VRM I nor VRM II paid any up-front consideration for these ownership interests, but each agreed to be responsible for its proportionate share of future expenses of the Advisor. The operating agreement of the Advisor provides that once VRM I and VRM II have been repaid in full for any capital contributions to the Advisor or for any expenses advanced on the Advisor's behalf, or capital investment, and once they have received an annualized return on their capital investment of 7.5%, then Michael Shustek will receive 40% of the net profits of the Advisor.
Note Payable to the Advisor
On June 29, 2017, the Advisor entered into an agreement with the Company to loan the principal amount of $2.1 million to the Company ("Loan Agreement") for the purchase of the Houston Systems Lot. The terms of this 1-year Loan Agreement includes an annual interest rate of 5% with no penalty for prepayment. Interest and principal are due upon maturity.
Fees Paid in Connection with the Offering – Common Stock
Various affiliates of the Company are involved in the Common Stock offering and the Company's operations including MVP American Securities, LLC, or ("MVP American Securities"), which is a broker-dealer and member of the Financial Industry Regulatory Authority, Inc., or FINRA. MVP American Securities is owned by MS MVP Holdings, LLC which is owned and managed by Mr. Shustek. Additionally, the Company's board of directors, including a majority of the Company's independent directors, may engage an affiliate of the Advisor to perform certain property management services for us.
The Company's Sponsor or its affiliates paid selling commissions of up to 6.5% of gross offering proceeds from the sale of shares in the Common Stock Offering without any right to seek reimbursement from the Company.
The Company's sponsor or its affiliates also paid non-affiliated selling agents a one-time fee separately negotiated with each selling agent for due diligence expenses, subject to the total underwriting compensation limitation set forth below. Such due diligence expenses were approximately 1.25% to 2.00% of total offering proceeds. Such commissions and fees were paid by the Company's sponsor or its affiliates (other than the Company) without any right to seek reimbursement from the Company.
Fees Paid in Connection with the Offering – Preferred Stock
In connection with the private placement of the Series A and Series 1 preferred stock, the Company may pay selling commissions of up to 6.0% of gross offering proceeds from the sale of shares in the private placements, including sales by affiliated and non-affiliated selling agents. During the three and nine months ended September 30, 2017, the Company paid approximately $0.7 million and $1.3 million, respectively, in selling commissions, of which 0.2 million and $0.3 million, respectively, were paid to affiliated selling agents.
The Company may pay non-affiliated selling agents a one-time fee separately negotiated with each selling agent for due diligence expenses of up to 2.0% of gross offering proceeds. The Company may also pay a dealer manager fee to MVP American Securities of up to 2.0% of gross offering proceeds from the sale of the shares in the private placements as compensation for acting as dealer manager. During the three and nine months ended September 30, 2017, the Company paid approximately $0.2 million and $0.3 million, respectively, to MVP American Securities as compensation.
Fees Paid in Connection with the Operations of the Company
The Advisor or its affiliates will receive an acquisition fee of 2.25% of the purchase price of any real estate provided, however, the Company will not pay any fees when acquiring loans from affiliates. During the three and nine months ended September 30, 2017, approximately zero and $1.7 million, respectively, in acquisition fees had been earned by the Advisor. During the three and nine months ended September 30, 2016, approximately $1.0 million and $1.4 million, respectively, in acquisition fees had been earned by the Advisor.
The Advisor or its affiliates can be reimbursed for actual expenses paid or incurred in the investment. During the three and nine months ended September 30, 2017 and 2016, no acquisition expenses had been reimbursed to the Advisor.
The Advisor or its affiliates will receive a monthly asset management fee at an annual rate equal to 1.0% of the cost of all assets then held by the Company, or the Company's proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement. The Company will determine the Company's NAV, on a date not later than the Valuation Date. Following the Valuation Date, the asset management fee will be based on the value of the Company's assets rather than their historical cost. Asset management fees for the three and nine months ended September 30, 2017 were approximately $0.3 million and $0.8 million, respectively. Asset management fees for the three and nine months ended September 30, 2016 were approximately $51,000 and $66,000, respectively.
The Company will reimburse the Advisor or its affiliates for costs of providing administrative services, subject to the limitation that we will not reimburse the Advisor for any amount by which the Company's operating expenses, at the end of the four preceding fiscal quarters (commencing after the quarter in which we make the Company's first investment), exceed the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income connection with the selection or acquisition of an investment, whether or not the Company ultimately acquires, unless the excess amount is approved by a majority of the Company's independent directors. We will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives a separate fee, such as an acquisition fee, disposition fee or debt financing fee, or for the salaries and benefits paid to the Company's executive officers. In addition, we will not reimburse the Advisor for rent or depreciation, utilities, capital equipment or other costs of its own administrative items. During the three and nine months ended September 30, 2017 and 2016, no operating expenses have been reimbursed to the Advisor.
In connection with the merger, the Advisory Agreement with MVP Realty Advisor will be amended effective at the closing of the merger to eliminate all fees except a 1.1% asset management fee, which will be limited to $2.0 million per year until the merged company:
· | holds assets with an Appraised Value equal to or in excess of $500,000,000 or, |
· | the Company reports AFFO per share of Company Common Stock equal to or greater than the $0.3125 per share for two consecutive quarters, on a fully diluted basis at which time all fees subordinated will be paid. |
In connection with the merger, pursuant to the Termination Agreement, at the effective time of the Merger, the Advisory Agreement, dated September 25, 2012, as amended, among MVP REIT and the Advisor will be terminated and the Company will pay the Advisor an Advisor Acquisition Payment (as such term is defined in the Termination Agreement) of approximately $3.6 million, subject to adjustment in the event that additional properties are acquired by MVP REIT prior to closing, which shall be the only fee payable to the Advisor in connection with the Merger.
Fees Paid in Connection with the Liquidation or Listing of the Company's Real Estate Assets
For substantial assistance in connection with the sale of investments, as determined by the independent directors, we will pay the Advisor or its affiliate the lesser of (i) 3.0% of the contract sale price of each real estate-related secured loan or other real estate investment or (ii) 50% of the customary commission which would be paid to a third-party broker for the sale of a comparable property. The amount paid, when added to the sums paid to unaffiliated parties, may not exceed either the customary commission or an amount equal to 6.0% of the contract sales price. The disposition fee will be paid concurrently with the closing of any such disposition of all or any portion of any asset. During the three and nine months ended September 30, 2017 and 2016, no disposition fees have been earned by the Advisor.
After the Company's stockholders have received a return of their net capital invested and a 6.0% annual cumulative, non-compounded return, then the Company's Advisor will be entitled to receive 15.0% of the remaining proceeds. We will pay this subordinated performance fee only upon one of the following events: (i) if the Company's shares are listed on a national securities exchange; (ii) if the Company's assets are sold or liquidated; (iii) upon a merger, share exchange, reorganization or other transaction pursuant to which the Company's investors receive cash or publicly-traded securities in exchange for their shares; or (iv) upon termination of the Company's advisory agreement. During the three and nine months ended September 30, 2017 and 2016, no subordinated performance fees have been earned by the Company's Advisor.
Upon completion of the merger of MVP REIT and the Company these fees will be terminated.
Note F — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor and its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition services, the sale of shares of the Company's common stock available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. In addition, the Sponsor pays selling commissions in connection with the sale of the Company's shares in the Offering and the Advisor pays the Company's organization and offering expenses.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note G — Stock-Based Compensation
Long-Term Incentive Plan
The Company's board of directors has adopted a long-term incentive plan which we may use to attract and retain qualified directors, officers, employees, and consultants. The Company's long-term incentive plan will offer these individuals an opportunity to participate in the Company's growth through awards in the form of, or based on, the Company's common stock. We currently anticipate that we will not issue awards under the Company's long-term incentive plan, although we may do so in the future, including possible equity grants to the Company's independent directors as a form of compensation.
The long-term incentive plan authorizes the granting of restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, dividend equivalents, other stock-based awards and cash-based awards to directors, officers, employees and consultants of the Company and the Company's affiliates' selected by the board of directors for participation in our long-term incentive plan. Stock options granted under the long-term incentive plan will not exceed an amount equal to 10% of the outstanding shares of our common stock on the date of grant of any such stock options. Stock options may not have an exercise price that is less than the fair market value of a share of our common stock on the date of grant.
Our board of directors or a committee appointed by our board of directors will administer the long-term incentive plan, with sole authority to determine all of the terms and conditions of the awards, including whether the grant, vesting or settlement of awards may be subject to the attainment of one or more performance goals. No awards will be granted under the long-term incentive plan if the grant or vesting of the awards would jeopardize our status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under our charter. Unless otherwise determined by our board of directors, no award granted under the long-term incentive plan will be transferable except through the laws of descent and distribution.
We have authorized and reserved an aggregate maximum number of 500,000 common shares for issuance under the long-term incentive plan. In the event of a transaction between our company and our stockholders that causes the per-share value of our common stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the share authorization limits under the long-term incentive plan will be adjusted proportionately and the board of directors will make such adjustments to the long-term incentive plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. In the event of a stock split, a stock dividend or a combination or consolidation of the outstanding shares of common stock into a lesser number of shares, the authorization limits under the long-term incentive plan will automatically be adjusted proportionately and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price.
Our board of directors may in its sole discretion at any time determine that all or a portion of a participant's awards will become fully vested. The board may discriminate among participants or among awards in exercising such discretion. The long-term incentive plan will automatically expire on the tenth anniversary of the date on which it is approved by our board of directors and stockholders, unless extended or earlier terminated by our board of directors. Our board of directors may terminate the long-term incentive plan at any time. The expiration or other termination of the long-term incentive plan will not, without the participant's consent, have an adverse impact on any award that is outstanding at the time the long-term incentive plan expires or is terminated. Our board of directors may amend the long-term incentive plan at any time, but no amendment will adversely affect any award without the participant's consent and no amendment to the long-term incentive plan will be effective without the approval of our stockholders if such approval is required by any law, regulation or rule applicable to the long-term incentive plan. During the three and nine months ended September 30, 2017 and 2016, no grants have been made under the long-term incentive plan.
Note H – Recent Accounting Pronouncements
In May 2014, Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers, an updated standard on revenue recognition. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The standard requires expanded disclosure surrounding revenue recognition. Early application is not permitted. The standard was initially to be effective for fiscal periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Deferral of Effective Date, which delays the effective date of ASU 2014-09 by one year to fiscal periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and the effective date is the same as requirements in ASU 2015-14. The Company does not expect adoption of ASU 2014-09 to have a material effect on our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with changes in fair value recognized in net income. The ASU also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet has been eliminated by this ASU. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect adoption of ASU 2016-01 to have a material effect on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases – (Topic 842). This update will require lessees to recognize all leases with terms greater than 12 months on their balance sheet as lease liabilities with a corresponding right-of-use asset. This update maintains the dual model for lease accounting, requiring leases to be classified as either operating or finance, with lease classification determined in a manner similar to existing lease guidance. The basic principle is that leases of all types convey the right to direct the use and obtain substantially all the economic benefits of an identified asset, meaning they create an asset and liability for lessees. Lessees will classify leases as either finance leases (comparable to current capital leases) or operating leases (comparable to current operating leases). Costs for a finance lease will be split between amortization and interest expense, with a single lease expense reported for operating leases. This update also will require both qualitative and quantitative disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; however, early adoption is permitted. We have determined that the provisions of ASU 2016-02 may result in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities for leases. The Company is currently evaluating whether or not the adoption of ASU 2014-09 will have a material effect on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-13 will have on the Company's consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statements of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. This update will become effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company will adopt ASU 2016-18 starting first quarter 2018.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This update will become effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company will adopt ASU 2016-18 starting first quarter 2018.
In May 2017, the FASB issued Accounting Standards Update ASU 2017-09, Compensation-Stock Compensation: Scope of Stock Compensation Modification Accounting. The ASU was issued to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted, including adoption in any interimcontingency period. The Company does not expect adoption of ASU 2017-09had 150,000 additional performance units that were granted to have a material effectour executive officers on our consolidated financial statements.
In August 2017,May 27, 2022, which are considered antidilutive to the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accountingdilutive loss per share calculation for Hedging Activities. The objective of ASU 2017-12 is to expand hedge accounting for both financial (interest rate) and commodity risks, and create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. ASU 2017-12 will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods in the year of adoption. Early adoption is permitted for any interim or annual period.three months ended March 31,2023. The Company isdid not have any additional dilutive shares resulting in basic loss per share equaling dilutive loss per share for the process of determining the impact that the implementation of ASU 2017-12 will have on the Company's financial statements.
three months ended March 31,2022.
Note I – Acquisitions
The following table is a summary ofreconciles the acquisitionsnumerator and denominator used in computing the Company’s basic and diluted per-share amounts for net loss attributable to common stockholders for the ninethree months ended September 30, 2017.
| Property | Location | Date Acquired | Property Type | # Spaces | Size / Acreage | Retail /Office Square Ft. | Cash Consideration | Ownership % |
| MVP Detroit Center Garage | Detroit, MI | 01/10/2017 | Garage | 1,275 | 8.78 | N/A | $55,000,000 | 80% |
| St Louis Broadway, LLC | St Louis, MO | 02/01/2017 | Lot | 161 | 0.96 | N/A | $2,400,000 | 100% |
| St Louis Seventh & Cerre, LLC | St Louis, MO | 02/01/2017 | Lot | 174 | 1.20 | N/A | $3,300,000 | 100% |
| MVP Preferred Parking, LLC | Houston, TX | 06/29/2017 | Garage & Lot | 521 | 1.0 | 784 | $20,500,000 | 100% |
| | | Assets | |
| | | Land and Improvements | | | Building and improvements | | | Total assets acquired | |
| MVP Detroit Center Garage | | $ | 7,000,000 | | | $ | 48,000,000 | | | $ | 55,000,000 | |
| St Louis Broadway, LLC | | | 2,400,000 | | | | -- | | | | 2,400,000 | |
| St Louis Seventh & Cerre, LLC | | | 3,300,000 | | | | -- | | | | 3,300,000 | |
| MVP Preferred Parking, LLC | | | 15,800,000 | | | | 4,700,000 | | | | 20,500,000 | |
| | | $ | 28,500,000 | | | $ | 52,700,000 | | | $ | 81,200,000 | |
| | | For the three months ended | |
| | | March 31, 2023 | | | March 31, 2022 | |
Numerator: | | | | | | | | |
Net loss attributable to MIC | | $ | (2,298 | ) | | $ | (2,186 | ) |
Net loss attributable to participating securities | | | — | | | | — | |
Net loss attributable to MIC common stock | | $ | (2,298 | ) | | $ | (2,186 | ) |
Denominator: | | | | | | | | |
Basic and dilutive weighted average shares of Common Stock outstanding | | | 7,762,375 | | | | 7,762,375 | |
Basic and diluted loss per weighted average common share: | | | | | | | | |
Basic and dilutive | | $ | (0.30 | ) | | $ | (0.28 | ) |
The following table of results of operations of the acquired properties for the three and nine months ended September 30, 2017:
| | | Three Month Ended 9/30/2017 | | | Nine Month Ended 9/30/2017 | |
| | | Total Revenues | | | Net Income | | | Total Revenues | | | Net Income | |
| 2017 acquisitions | | $ | 1,271,000 | | | $ | 263,000 | | | $ | 3,743,000 | | | $ | 664,000 | |
Pro forma results of the Company
The following table of pro forma consolidated results of operations of the Company for the three and nine months ended September 30, 2017 and 2016, and assumes that the acquisitions were completed as of January 1, 2016.
| | | For the three months ended September 30, | | | For the nine months ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| Revenues from continuing operations | | $ | 2,222,000 | | | $ | 1,933,000 | | | $ | 7,693,000 | | | $ | 4,653,000 | |
| Net income (loss) available to common stockholders | | $ | (392,000 | ) | | $ | (307,000 | ) | | $ | (4,104,000 | ) | | $ | 1,311,000 | |
| Net income (loss) available to common stockholders per share – basic | | $ | (0.15 | ) | | $ | (0.23 | ) | | $ | (1.63 | ) | | $ | 1.71 | |
| Net income (loss) available to common stockholders per share – diluted | | $ | (0.15 | ) | | $ | (0.23 | ) | | $ | (1.63 | ) | | $ | 1.71 | |
On October 5, 2016, the– Variable Interest EntitiesThe Company, through its Operating Partnership, and MVP REIT, (the "REITs") through a wholly owned subsidiary (the "Borrowers"), entered intoof its Operating Partnership, owns a credit agreement (the "Unsecured Credit Agreement"51.0% beneficial interest in MVP St. Louis Cardinal Lot, DST, a Delaware Statutory Trust (“MVP St. Louis”) with KeyBank, National Association ('KeyBank"). MVP St. Louis is the owner of a 2.56-acre, 376-vehicle commercial parking lot, known as the administrative agentCardinal Lot.
MVP St. Louis is considered VIE and KeyBank Capital Markets ("KeyBank Capital Markets"the Company concludes that it is the primary beneficiary since the power to direct the activities that most significantly impact the economic performance of MVP St. Louis was held by MVP Parking DST, LLC (the “Manager”) and certain subsidiaries of the Manager, which is controlled by Mr. Chavez.
As a result, the Company consolidates its investment in MVP St. Louis and MVP St. Louis Cardinal Lot Master Tenant, LLC, which had total assets of approximately $11.9 million (substantially all real estate investments) and liabilities of approximately $6.0 million (substantially all mortgage debt) as of March 31,2023.
Note K - Income Taxes
The Company previously elected to be taxed as a REIT for federal income tax purposes and operated in a manner that allowed the lead arranger. PursuantCompany to qualify as a REIT through December 31, 2019. As a consequence of the Unsecured Credit Agreement,COVID-19 pandemic, the Borrowers wereCompany earned management income in lieu of lease income from a number of distressed tenants, which did not constitute qualifying REIT income for purposes of the annual REIT gross income tests, and, as a result, the Company was not in compliance with the annual REIT income tests for the year ended December 31, 2020. Accordingly, the Company did not qualify for taxation as a REIT in 2020 and continues to be taxed as a C corporation. As a C corporation, the Company is subject to federal income tax on its taxable income at regular corporate rates.
A full valuation allowance for deferred tax assets was historically provided witheach year since the Company believed that as a $30 million unsecured credit facility (the "Unsecured Credit Facility")REIT it was more likely than not that it would not realize the benefits of its deferred tax assets. As a taxable C Corporation, the Company has evaluated its deferred tax assets for the three months ended March 31, 2023, which may be increased up to $100 million, in minimum incrementsconsist primarily of $10 million. The Unsecured Credit Facility has an initial term of two years, maturing on October 5, 2018,net operating losses and may be extended for a one-year period if certain conditions are met and upon payment of an extension fee. The Unsecured Credit Facility has an interest rate calculated based on LIBOR Rate plus 2.25% or Base Rate plus 1.25%, both as providedits investment in the Unsecured Credit Agreement. The Base Rate is calculated asOperating Partnership. Management assesses the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%. Payments under the Unsecured Credit Facility are interest onlyavailable positive and are due on the first day of each quarter. The obligationsnegative evidence to estimate whether sufficient future taxable income will be generated to permit use of the Borrowersexisting deferred tax assets. A significant piece of objective negative evidence evaluated was the Unsecured Credit Agreement are jointcumulative loss incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Despite substantial growth in property-level operations, the Company has continued to generate a net loss and several. The REITs have entered into cross-indemnification provisions with respectas such the Company has determined that it will continue to their joint and several obligations underrecord a full valuation allowance against its deferred tax assets for the Unsecured Credit Agreement. As of September 30, 2017 the interest rate was 3.49%.
As of September 30, 2017, the Borrowers had one property listed on the line of credit, which provided an available draw of approximately $2.2 million, and had drawn approximately $2.0 million, of which our portion of the current draw was approximately $0, based on our pro-rata ownership of the properties listed on the line of credit. Based on the one property on the line of credit as of September 30, 2017, the REITs had an additional available draw of approximately $0.2 million. For the three and nine months ended September 30, 2017, we expensed approximately $34,000 and $220,000, respectively,March 31, 2023. A change in interest expense. For the three and nine months ended September 30, 2017, we expensed approximately $9,000 and $18,400, respectively, in unused line fees associated with our draw. Total loan amortization cost for the three and nine months ended September 30, 2017 were $62,000 and $189,000, respectively.
On June 26, 2017,circumstances may cause the Company to change its judgment about whether deferred tax assets should be recorded, and MVP REIT (together, the "REITs"), each through a wholly owned subsidiary, MVP REIT II Operating Partnership, LP and MVP Real Estate Holdings, LLC (together, the "Borrowers"), entered into a credit agreement (the "Working Capital Credit Agreement") with KeyBank, National Association ("KeyBank") as the administrative agent and KeyBanc Capital Markets ("KeyBanc Capital Markets") as the lead arranger. Pursuant to the Working Capital Credit Agreement, the Borrowers were provided with a $6.0 million credit facility (the "Total Commitment"), which mayfurther whether any such assets would more likely than not be increased up to $10 million, in minimum increments of $1 million.realized. The Total Commitment had an initial term of six months, maturing on December 26, 2017. In October 2017, this was extended to March 31, 2018. The Working Capital Credit Agreement has an interest rate calculated based on LIBOR Rate plus 4.5% or Base Rate plus 3.5%, both as providedCompany would generally report any change in the Working Capital Credit Agreement. The Base Rate is calculated asvaluation allowance through its Consolidated Statements of Operations in the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%. Payments under the Working Capital Credit Facility require 100% of the net proceeds of all capital events and equity issuances by the REITs within 5 business days of receipt. The obligations of the Borrowers of the Unsecured Credit Agreement are joint and several. The REITs have entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement. As of September 30, 2017 the interest rate was 5.73%.
As of September 30, 2017, the balance on the Working Capital Credit Facility was approximately $1.5 million (net of unamortized loan costs), ofperiod in which
our portion of the current draw was approximately $1.5 million. As of September 30, 2017, the REITs had an additional available draw of approximately $4.4 million. The Company used net proceeds from the private placement of the Series 1 Convertible Redeemable Preferred Stock to paydown the $1.5 millionsuch changes in
October 2017. For the three and nine months ended September 30, 2017, we expensed approximately $49,000 in interest expense. For the three and nine months ended September 30, 2017, we expensed approximately $1,600 in unused line fees associated with our draw. Total loan amortization cost for the three and nine months ended September 30, 2017 were $50,000 and $53,000, respectively.circumstances occur.
Note K — Notes Payable and Notes Payable Related Party
As of September 30, 2017, the principal balances on notes payable are as follows:
| Property | Original Debt Amount | Monthly Payment | Balance as of 9/30/2017 | Lender | Term | Interest Rate | Loan Maturity |
| MVP Realty Advisors | $2,100,000 | -- | $2,100,000 | MVP Realty Advisors | 1 Year (I/O) | 5.00% | 6/30/2018 |
West 9th Properties II, LLC | $5,300,000 | $30,000 | $5,192,000 | American National Insurance Co. | 10 year | 4.50% | 11/1/2026 |
| MVP Detroit Center Garage, LLC | $31,500,000 | $194,000 | $31,112,000 | Bank of America | 10 year | 5.52% | 2/1/2027 |
| MVP San Jose 88 Garage, LLC | $2,200,000 | Interest Only | $2,200,000 | Owens Realty Mortgage, Inc. | 2 year (I/O) | 7.75% | 1/15/2019 |
| MVP Cincinnati Race Street Garage, LLC | $3,000,000 | Interest Only | $3,000,000 | Moonshell, LLC | 3 Months (I/O) | 9.00% | 1/10/2018 |
| MVP St Louis Washington, LLC | $1,380,000 | Interest Only | $1,380,000 | KeyBank | 10 year (2 year I/O) | 4.90% | 5/1/2027 |
| St Paul Holiday Garage, LLC | $4,132,000 | Interest Only | $4,132,000 | KeyBank | 10 year (2 year I/O) | 4.90% | 5/1/2027 |
| Cleveland Lincoln Garage, LLC | $3,999,000 | Interest Only | $3,999,000 | KeyBank | 10 year (2 year I/O) | 4.90% | 5/1/2027 |
| Louisville Broadway Station, LLC | $1,682,000 | Interest Only | $1,682,000 | Cantor Commercial Real Estate (CCRE) | 10 year (I/O) | 5.03% | 5/6/2027 |
| Whitefront Garage, LLC | $6,454,000 | Interest Only | $6,454,000 | Cantor Commercial Real Estate (CCRE) | 10 year (I/O) | 5.03% | 5/6/2027 |
| MVP Houston Preston Lot, LLC | $1,627,000 | Interest Only | $1,627,000 | Cantor Commercial Real Estate (CCRE) | 10 year (I/O) | 5.03% | 5/6/2027 |
| MVP Houston San Jacinto Lot, LLC | $1,820,000 | Interest Only | $1,820,000 | Cantor Commercial Real Estate (CCRE) | 10 year (I/O) | 5.03% | 5/6/2027 |
| St. Louis Broadway, LLC | $1,671,000 | Interest Only | $1,671,000 | Cantor Commercial Real Estate (CCRE) | 10 year (I/O) | 5.03% | 5/6/2027 |
| St. Louis Seventh & Cerre, LLC | $2,058,000 | Interest Only | $2,058,000 | Cantor Commercial Real Estate (CCRE) | 10 year (I/O) | 5.03% | 5/6/2027 |
| MVP Preferred Parking, LLC | $11,330,000 | Interest Only | $11,330,000 | Key Bank | 10 year | 5.02% | 8/1/2027 |
| Less unamortized loan issuance costs | | | ($923,000) | | | | |
| | | | $78,834,000 | | | | |
Total interest expense incurred for the three and nine months ended September 30, 2017 was approximately $1.1 million and $2.7 million, respectively. Total interest expense incurred for the nine months ended September 30, 2016 was approximately $1,000. There was no interest expense for the three months ended September 30, 2016.
Total loan amortization cost for the three and nine months ended September 30, 2017 was approximately $0.2 and $0.4 million, respectively. During the three and nine months ended September 30, 2010 there were no loan amortization cost.
As of September 30, 2017, future principal payments on the notes payable are as follows:
| 2017 | | $ | 173,000 | |
| 2018 | | | 8,032,000 | |
| 2019 | | | 882,000 | |
| 2020 | | | 1,008,000 | |
| 2021 | | | 1,068,000 | |
| Thereafter | | | 68,594000 | |
| Less unamortized loan issuance costs | | | (923,000 | ) |
| Total | | $ | 78,834,000 | |
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:
1. | Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities |
2. | Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable. |
3. | Level 3 – Model-derived valuations with unobservable inputs. |
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.
Level 3 – Model-derived valuations with unobservable inputs.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payablereceivable and accrued expenses.accounts payable. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value.
Assets The estimated fair value of the Company’s debt (including notes payable and
liabilitiesthe Revolving Credit Facility) was derived using Level 2 inputs and approximate $207.6 million and $207.4 million as of March 31, 2023 and December 31, 2022, respectively.Our real estate assets are measured and recognized at fair value level 3 on a non-recurringnonrecurring basis when we determine an impairment has occurred. To estimate fair value the Company may include Assets Held for Sale.
Note M — Gain on Sale of Investment in Real Estate
During September 2017, we sold one property listed as held for sale for $2.0 million. The Company acquired the property on November 22, 2016 and recorded atuse internally developed valuation models or independent third-parties. In either case, the fair value
of real estate may be based on
a number of approaches including the income capitalization approach, sales comparable approach or discounted cash flow approach. Each of these approaches utilized estimates and assumptions regarding an
appraisal. During assets’ future performance and cash flows as well as market conditions, capitalization rates and discount rates which are all considered Level 2 inputs.Note M— Commitments and Contingencies
The nature of the Company’s business exposes our properties, the Company, the Operating Partnership and its other subsidiaries to the risk of claims and litigation in the normal course of business. Other than as noted below, or routine litigation arising out of the ordinary course of business, the Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against the Company.
The Company has previously disclosed stockholder class action lawsuits alleging direct and derivative claims against the Company, certain of its then-officers, then-directors, the Former Advisor and/or Mr. Shustek captioned Arthur Magowski v. The Parking REIT, Inc., et. al, No.24-C-19003125 (filed on May 31, 2019), Michelle Barene v. The Parking REIT, Inc., et. al, No.24-C-19003527 (filed on June 27, 2019) and SIPDA Revocable Trust v. The Parking REIT, Inc., et al, Case No.2:19-cv-00428 (filed on March 2017, Houston Jefferson12, 2019). As a result of the Transaction, the Settlement Agreement (as defined in the Purchase Agreement) was entered into subject to completion of Color Up’s Tender Offer (as defined in the Purchase Agreement) for up to 900,506 shares of the Company’s outstanding Common Stock at $11.75 per share. Upon the expiration of the Tender Offer on November 5, 2021, the terms of the Settlement Agreement were satisfied and the prior lawsuits settled.
The Company has previously disclosed that the SEC was conducting an investigation relating to the Company. On March 11, 2021, the SEC notified the Company that they do not intend to recommend an enforcement action by the Commission against the Company.
The SEC investigation also related to the conduct of the Company’s former chairman and chief executive officer, Mr. Shustek. On July 29, 2021, the SEC filed a civil lawsuit against Mr. Shustek and his advisory firm Vestin Mortgage LLC, alleging violations of the securities laws (Case 2-21-civ-01416-JCM-BNW, U.S. District Court, District of Nevada). The SEC seeks disgorgement, injunctions, and bars against Mr. Shustek, and related penalties. Pursuant to the Transaction, Mr. Shustek's right to indemnification by the Company for certain claims related to the SEC's investigation shall not exceed $2 million. This liability was recognized by the Company upon the closing of the Transaction and is included in indemnification liability on our Consolidated Balance Sheet. Effective as of the closing of the Transaction, Mr. Shustek resigned as Chief Executive Officer and director of the Company.
On August 25, 2021, the Company also entered into an Assignment of Claims, Causes of Action, and Proceeds Agreement, or the Assignment of Litigation Agreement, pursuant to which the Company assigned to the Former Advisor certain claims and claim proceeds that the Company had against Ira S. Levine, Levine Law Group, Inc. (or any other name by which a firm including Ira Levine was known), Edwin Herbert Bentzen IV and Andrew Fenton. The Settlement Agreement is not related to the Assignment of Litigation Agreement. On April 3, 2023, the parties entered into a purchasesettlement agreement and sale agreementmutual release related to sell the property "as is"Ira Levine matter.
In January 2023, the 43rd District Court of Parker County, Texas entered summary judgment in favor of the plaintiff, John Roy, who alleges he is due a commission relating to a third partyproposed sale of the Fort Worth Taylor parking facility which was never consummated. The Company has filed an appeal. As a result of the court’s summary judgment, in December 2022 we recognized a charge of $0.7 million for the full estimated amount of damages (including legal fees and costs). The $0.7 million was recognized within organizational, offering and other costs in our Consolidated Statements of Operations and indemnification liability on our Consolidated Balance Sheets. During the first quarter of 2023, and as part of the appeals process, the Company posted cash collateral of $0.7 million for an appeals bond, which is reflected in Cash - Restricted on our Consolidated Balance Sheets.
Note N — Related Party Transactions and Arrangements
Two of the Company’s assets, 1W7 Carpark and 222W7, are currently operated by PCA, Inc., dba Park Place Parking. Park Place Parking is a private parking operator that is wholly owned by relatives of the Company’s CEO. The Company’s CEO is neither an owner nor beneficiary of Park Place Parking. Park Place Parking has been operating these assets for five and four years, respectively. Both assets were acquired in 2021 with their management agreements in place. As of March 31, 2023 and 2022, the Company recorded a balance of approximately $2.0 million. During May 2017, this purchase$0.1 million from Park Place Parking which is included in accounts receivable, net on the Consolidated Balance Sheets and sale agreementhas been paid subsequent to March 31, 2023 within terms of the lease agreement.
In connection with the Company's recapitalization transaction in August 2021, the Company owes approximately $469,231 to certain member entities of Color Up relating to prorated revenues for the month of August 2021 of the three properties contributed by Color Up. The accrual is reflected within due to related parties on the Consolidated Balance Sheets.
Additionally, in connection with the Company's recapitalization transaction in August 2021, the Company was cancelled. During May and June, another unsolicited third party expressed interestdue approximately $156,000 from Color Up as consideration for OP Units then issued which was reflected within due from related parties on the Consolidated Balance Sheet as of December 31, 2022. The Company received all amounts due in purchasing the property for $2.0 million and during July 2017,March 2023.
License Agreement
On August 25,2021, the Company entered into a purchaseSoftware License and sale agreementDevelopment Agreement with this third party which closed on September 20, 2017. As a result of the sale the Company recorded a gain of approximately $1.2 million.
Note N – Investment In DST
On May 31, 2017, the Company, through a wholly-owned subsidiary of its operating partnership, purchased a 51.0% beneficial interest in MVP St. Louis Cardinal Lot, DST, a Delaware statutory trust, or MVP St Louis, for approximately $2.8 million. MVP St. Louis is the owner of a 2.56-acre, 376-vehicle, commercial parking lot located at 500 South Broadway, St. Louis, Missouri 63103, known as the Cardinal Lot, or the Property, which is adjacent to Busch Stadium, the home of the St. Louis Cardinals major league baseball team. The Property was purchased by MVP St. Louis from an unaffiliated seller for a purchase price of $11,350,000, plus payment of closing costs, financing costs, and related transactional costs.
Concurrently with the acquisition of the Property, MVP St. Louis obtained a first mortgage loan from Cantor Commercial Real Estate Lending, L.P, or St. Louis Lender, in the principal amount of $6,000,000, with a 10-year, interest-only term at a fixed interest rate of 5.25%, resulting in an annual debt service payment of $315,000, or St. Louis Loan. MVP St. Louis used the Company's investment to fund a portion of the purchase price for the Property. The remaining equity portion was funded through short-term investments by Vestin Realty Mortgage I, Inc. and Vestin Realty Mortgage II, Inc., both of which are affiliates of MVP Realty Advisors, LLC, the external advisor to the Company, or MVP Realty, pending the private placements of additional beneficial interest in MVP St. Louis exempt from registration under the Securities Act of 1933, as amended. Vestin Realty Mortgage II, Inc. and Michael V. Shustek, our Chairman and Chief Executive Officer, provided non-recourse carveout guaranties of the loan and environmental indemnities of St. Louis Lender.
Also concurrently with the acquisition of the Property, MVP St. Louis, as landlord, entered into a 10-year master lease, or St. Louis Master Lease, with MVP St. Louis Cardinal Lot Master Tenant, LLC, an affiliate of
MVP Realty, as tenant,Bombe Asset Management, Ltd., an affiliate of the Company’s CEO and CFO, or
St. Louis Master Tenant. St. Louis Master Tenant, in turn, concurrentlythe Supplier, pursuant to which the Company granted to the Supplier a limited, non-exclusive, non-transferable, worldwide right and license to access certain software and services for a fee of $5,000 per month.Tax Matters Agreement
On August 25,2021, the Company, the Operating Partnership and Color Up entered into the Tax Matters Agreement, or the Tax Matters Agreement, pursuant to which the Operating Partnership agreed to indemnify Color Up and certain affiliates and transferees of Color Up, together, the Protected Partners, against certain adverse tax consequences in connection with (1) (i) a 10-year sublease with Premier Parkingtaxable disposition of Missouri, LLC. The St. Louis Master Lease provides for annual rent payable monthly to MVP St. Louis, consisting of base rent in an amount to pay debt service on the St. Louis Loan, stated rent of $414,000certain specified properties and potential bonus rent equal to a share(ii) certain dispositions of the revenues payable under the sublease in excess of a threshold. The Company will be entitled to its proportionate share of the rent payments based on its ownership interest. Under the St. Louis Master Lease, MVP St. Louis is responsible for capital expenditures and the St. Louis Master Tenant is responsible for taxes, insurance and operating expenses. Distributions to the Company, for the 3 months ended September 30, 2017, totaled $52,000.
Summarized Balance Sheets—Unconsolidated Real Estate Affiliates—Equity Method Investments
| | | September 30, 2017 | |
| | | (Unaudited) | |
| ASSETS | |
| Investments in real estate and fixed assets | | $ | 11,350,000 | |
| Cash | | | 37,000 | |
| Cash - restricted | | | 3,000 | |
| Due from related party | | | 9,000 | |
| Total assets | | $ | 11,399,000 | |
| LIABILITIES AND EQUITY | |
| Liabilities | | | | |
| Notes payable, net of unamortized loan issuance cost of $65,734.77 | | $ | 5,934,000 | |
| Accounts payable and accrued liabilities | | | 27,000 | |
| Total liabilities | | | 5,961,000 | |
| Equity | | | | |
| Shareholders' Equity | | | | |
| Member's equity | | | 6,547,000 | |
| Unsold equity (bridged by Vestin Realty Mortgage II, Inc) | | | 203,000 | |
| Offering costs | | | (1,312,000 | ) |
| Accumulated earnings | | | 138,000 | |
| Distributions to members | | | (138,000 | ) |
| Total equity | | | 5,438,000 | |
| Total liabilities and equity | | $ | 11,399,000 | |
Summarized Statements of Operations—Unconsolidated Real Estate Affiliates—Equity Method Investments
| | | For the three months ended September 30, 2017 | | | For the period from May 31, 2017 (inception) to September 30, 2017 | |
| Revenu | | $ | 182,000 | | | $ | 243,000 | |
| Expenses | | | 79,000 | | | | 105,000 | |
| Net income | | $ | 103,000 | | | $ | 138,000 | |
Note O – Investment in Equity Method Investee
Denver 1935 Sherman
On February 12, 2016, the Company along with MVP REIT, through MVP Denver 1935 Sherman, LLC ("MVP Denver"), a Nevada limited liability company owned 24.49% by the Company and 75.51% by MVP REIT, closed on the purchase of a parking lot for approximately $2.4 million in cash, of which the Company's share was approximately $0.6 million. The parking lot is located at 1935 Sherman Avenue, Denver, Colorado (the "Denver parking lot"). The Denver parking lot consists of approximately 18,765 square feet and has approximately 72 parking spaces. The Denver parking lot is leased by SP Plus Corporation, a national parking operator, under a net lease agreement where MVP Denver is responsible for property taxes and SP Plus Corporation pays for all insurance and maintenance costs. SP Plus Corporation pays annual rent of $120,000. In addition, the lease provides percentage rent with MVP Denver receiving 70% of gross receipts over $160,000. The term of the lease is for 10 years.
Houston Preston Lot
On November 22, 2016, the Company and MVP REIT, through MVP Houston Preston Lot, LLC, a Delaware limited liability company ("MVP Preston"), an entity wholly owned by the Company, closed on the purchase of a parking lot consisting of approximately 46 parking spaces, located in Houston, Texas, for a purchase price of $2.8 million in cash plus closing costs, of which our portion was $560,000. We hold a 20% ownership interest in Houston Preston, while MVP REIT holds an 80% ownership interest in Houston Preston. The parking lot is under a 10-year lease with iPark Services LLC ("iPark"), a regional parking operator, under a modified net lease agreement where MVP Preston is responsible for property taxes above a $38,238 threshold, and iPark pays for insurance and maintenance costs. iPark pays annual rent of $228,000. In addition, the lease provides percentage rent with MVP Preston receiving 65% of gross receipts over $300,000. The term of the lease is for 10 years.
During April 2017, the company increased their ownershipProtected Partners’ interest in the MVP Houston Preston Lot from 20%Operating Partnership, in each case, prior to 60%, by purchasing $1.12 million of MVP REIT ownership and will now be considered the controlling party.
Summarized Balance Sheets—Unconsolidated Real Estate Affiliates—Equity Method Investments
| | | September 30, 2017 | | | December 31, 2016 | |
| | | (Unaudited) | | | (Unaudited) | |
| ASSETS | |
| Investments in real estate and fixed assets | | $ | 2,438,000 | | | $ | 2,438,000 | |
| Cash | | | 234,000 | | | | 51,000 | |
| Cash - restricted | | | 337,000 | | | | -- | |
| Total assets | | $ | 3,009,000 | | | $ | 2,489,000 | |
| LIABILITIES AND EQUITY | |
| Liabilities | | | | | | | | |
| Notes payable, net of unamortized loan issuance cost | | $ | 735,000 | | | $ | -- | |
| Due to related party | | | 318,000 | | | | -- | |
| Accounts payable and accrued liabilities | | | 117,000 | | | | 36,000 | |
| Total liabilities | | | 1,170,000 | | | | 36,000 | |
| Equity | | | | | | | | |
| Shareholders' Equity | | | | | | | | |
| Additional paid-in capital | | | 1,294,000 | | | | 1,802,000 | |
| Retained Earnings | | | 103,000 | | | | 64,000 | |
| Total Shareholders' Equity | | | 1,397,000 | | | | 1,866,000 | |
| Non-controlling interest | | | 442,000 | | | | 587,000 | |
| Total equity | | | 1,839,000 | | | | 2,453,000 | |
| Total liabilities and equity | | $ | 3,009,000 | | | $ | 2,489,000 | |
Summarized Statements of Operations—Unconsolidated Real Estate Affiliates—Equity Method Investments
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | |
| Rental revenue | | $ | 30,000 | | | $ | 30,000 | | | $ | 90,000 | | | $ | 76,000 | |
| Expenses | | | (22,000 | ) | | | (9,000 | ) | | | (52,000 | ) | | | (32,000 | ) |
| Net income | | $ | 8,000 | | | $ | 21,000 | | | $ | 38,000 | | | $ | 44,000 | |
Note P – Merger
As previously announced, on May 26, 2017, the Company, MVP REIT Inc., a Maryland corporation ("MVP REIT"), MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiarytenth anniversary of the Company ("Merger Sub"), and MVP Realty Advisors, LLC, the Company's and MVP REIT's external advisor (the "Advisor"), entered into an agreement and plan of merger (the "Merger Agreement"). Subject to the terms and conditionscompletion of the Merger Agreement, MVP REIT will merge withTransaction (or earlier, if certain conditions are satisfied); and into Merger Sub (the "Merger"(2), with Merger Sub surviving the Merger (the "Surviving Entity"), such that followingOperating Partnership’s failure to provide the Merger,Protected Partners the Surviving Entity will continue asopportunity to guarantee a wholly owned subsidiaryspecified amount of debt of the Company. The Merger is intended to qualify as a "reorganization" under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The combined company will be renamed "The Parking REIT, Inc."
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of MVP REIT's common stock, $0.001 par value per share (the "MVP REIT Common Stock"), will be automatically cancelled and retired, and converted into the right to receive 0.365 shares of common stock, $0.0001 par value per share, of the Company (the "Company Common Stock") (such ratio, as it may be adjusted pursuant to the Merger Agreement, the "Exchange Ratio"). Holders of shares of MVP REIT Common Stock will receive cash in lieu of fractional shares.
At the effective time of the Merger each share of MVP REIT Common Stock, if any, then held by any wholly owned subsidiary of MVP REIT or by the Company or any of its wholly owned subsidiaries will no longer be outstanding and will automatically be retired and will cease to exist, and no consideration will be paid, nor will any other payment or right inure or be made with respect to such shares of MVP REIT Common Stock in connection with or as a consequence of the Merger. In addition, each share of MVP REIT's Non-Participating, Non-Voting Convertible Stock, $0.001 par value per share ("MVP REIT Convertible Stock"), all 1,000 of which are held by the Advisor, will automatically be retired and will cease to exist, and no consideration will be paid, nor will any other payment or right inure or be made with respect to such shares of MVP REIT Convertible Stock in connection with or as a consequence of the Merger.
The Merger Agreement contains customary covenants, including covenants prohibiting MVP REIT and its subsidiaries and representatives from soliciting, providing information or entering into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions. However, under the terms of the Merger Agreement,Operating Partnership during the period beginningending on the datetenth anniversary of the Merger Agreement and continuing until 11:59 p.m. New York City time on July 10, 2017 (the "Go Shop Period End Time"), MVP REIT (through the MVP REIT special committee and its representatives) was permitted to initiate, solicit, provide information and enter into discussions concerning proposals relating to alternative business combination transactions. From May 30, 2017, through July 10, 2017, in connection with the ''go shop'' process provided for under the Merger Agreement, Robert A. Stanger & Co., Inc., ("Stanger") contacted approximately 78 parties, which the MVP I Special Committee and Stanger believed had the financial ability and potential strategic interest in reviewing the opportunity, to solicit their interest in a possible alternative transaction with MVP REIT. Stanger and Venable, LLP negotiated with 12 parties with regard to signing a confidentiality agreement of which 8 confidentiality agreements were executed. No bids were received prior to the July 10, 2017 Go Shop Period End Time.
Pursuant to the Merger Agreement, the board of directors of the Company (the "Company Board") will, effective as of the effective time of the Merger, increase the number of directors comprising the Company Board to eight and Nicholas Nilsen, Robert J. Aalberts and Shawn Newson, previous Directors of MVP REIT, will be elected to the Company Board.
As previously announced, the stockholders of MVP REIT have approved the Merger and the Merger Agreement at the special meeting of stockholders of MVP REIT held on September 27, 2017. The completion of the Merger remains subject to receiptTransaction (or earlier, if certain conditions are satisfied). In addition, and for so long as the Protected Partners own at least 20% of certain third party consents and satisfaction of other customary closing conditions.
Amended and Restated Advisory Agreement
Concurrently with the entry intounits in the Merger Agreement, on May 26, 2017,Operating Partnership received in the Transaction, the Company MVP REIT II Operating Partnership, LP and the Advisor entered into the Second Amended and Restated Advisory Agreement (the "Second Amended and Restated Advisory Agreement"), which will become effective at the effective time of the Merger. The Second Amended and Restated Advisory Agreement will amend the Company's existing advisory agreement, dated October 5, 2015 (the "Original Agreement"),agreed to use commercially reasonable efforts to provide for, among other amendments, (i) eliminationthe Protected Partners with similar guarantee opportunities.
Table of acquisition fees, disposition fees and subordinated performance fees and (ii) the payment of an asset management fee by the Company to the Advisor calculated and paid monthly in an amount equal to one-twelfth of 1.1% of the (a) cost of each asset then held by the Company, without deduction for depreciation, bad debts or other non-cash reserves, or (b) the Company's proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement excluding (only for clause (b)) debt financing on the investment. Pursuant to the Second Amended and Restated Advisory Agreement, the asset management fee may not exceed $2,000,000 per annum (the "Asset Management Fee Cap") until the earlier of such time, if ever, that (i) the Company holds assets with an Appraised Value (as defined Second Amended and Restated Advisory Agreement) equal to or in excess of $500,000,000 or (ii) the Company reports AFFO (as defined in the Second Amended and Restated Advisory Agreement) equal to or greater than $0.3125 per share of Company Common Stock (an amount intended to reflect a 5% or greater annualized return on $25.00 per share of the Company Common Stock) (the "Per Share Amount") for two consecutive quarters, on a fully diluted basis. All amounts of the asset management fee in excess of the Asset Management Fee Cap, plus interest thereon at a rate of 3.5% per annum, will be due and payable by the Company no later than ninety (90) days after the earlier of the date that (i) the Company holds assets with an Appraised Value equal to or in excess of $500,000,000 or (ii) the Company reports AFFO per share of Company Common Stock equal to or greater than the Per Share Amount for two consecutive quarters, on a fully diluted basis. In the event that the Merger Agreement is terminated prior to the consummation of the Merger, the Second Amended and Restated Advisory Agreement will automatically terminate and be of no further effect and the Company, MVP REIT II Operating Partnership, LP and the Advisor will have the rights and obligations set forth in the Original Agreement.
Termination Agreement
Concurrently with the entry into the Merger Agreement, on May 26, 2017, the Company, MVP REIT, the Advisor and MVP REIT II Operating Partnership, LP entered into a termination and fee agreement (the "Termination Agreement"). Pursuant to the Termination Agreement, at the effective time of the Merger, the Advisory Agreement, dated September 25, 2012, as amended, among MVP REIT and the Advisor will be terminated and the Company will pay the Advisor an Advisor Acquisition Payment (as such term is defined in the Termination Agreement) of approximately $3.6 million, subject to adjustment in the event that additional properties are acquired by MVP REIT prior to closing, which shall be the only fee payable to the Advisor in connection with the Merger. In the event that the Merger Agreement is terminated prior to the consummation of the Merger, the Termination Agreement will automatically terminate and be of no further effect and no Advisor Acquisition Payment will be owed and payable.
The foregoing description of the Merger Agreement, the Amended and Restated Advisory Agreement and the Termination Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the applicable agreements, each of which is filed with as a Form 8-K exhibit with the SEC on May 31, 2017.
Amended Charter
In connection with the Merger, at the Company annual stockholders' meeting held on September 27, 2017, the Company's stockholders approved, among other matters, the amendment and restatement of its charter (the "Amended Charter"). As described in more detail in the final proxy statement distributed to our stockholders for the annual meeting, the Amended Charter is primarily intended to accomplish two objectives in connection with the possible listing of the Company's Common Stock after the closing of the Merger: (1) to remove provisions of our charter that we believe may unnecessarily restrict our ability to take advantage of further opportunities for liquidity events or are redundant with or otherwise addressed or permitted to be addressed under Maryland law and (2) to amend certain provisions in a manner that we believe would be more suitable for becoming a publicly-traded REIT.
The Amended Charter will become effective upon its filing with the State Department of Assessments and Taxation of Maryland. We expect to file the proposed Amended Charter immediately before the Company's Common Stock becomes listed for trading on a national securities exchange. This means that the changes to the charter will not be effective unless and until we complete an exchange listing.
Note Q — Income Taxes and Critical Accounting Policy
The Company will be electing to be treated as a REIT for the tax year beginning January 1, 2017 and ending December 31, 2017, and believes that it has been organized and has operated during 2017 in such a manner to meet the qualifications to be treated as a REIT for federal and state income tax purposes. During 2016, the Company was subject to U.S. federal and state income taxes as it filed income tax returns as a C corporation. As such, we account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. The Company believes that its income tax filing positions and deductions would be sustained upon examination; thus, the Company has not recorded any uncertain tax positions as of September 30, 2017.
A full valuation allowance for deferred tax assets was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets will more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur.
As a REIT, the Company will generally not be subject to corporate level federal income taxes on earnings distributed to our stockholders, and therefore may not realize deferred tax assets arising during the Company's pre-2017 periods before the Company became a REIT. The Company intends to distribute at least 100% of its taxable income annually and intends to do so for the tax year ending December 31, 2017 and future periods. Accordingly, the Company has not included any provisions for federal income taxes in the accompanying consolidated financial statements for the three and nine months ended September 30, 2017. The Company owns and rents real estate in various states and municipalities within the United States, and, as a result, the Company or one or more of its subsidiaries may have income or other tax return filing requirements, and may be subject to income or franchise taxes, in state and municipal jurisdictions.
The Company has a net deferred tax asset of $1.6 million which is subject to a full valuation allowance and thus is not recorded on the Company's balance sheet. The deferred tax asset is primarily made up of net operating losses and capitalized acquisition costs which are deducted for books but capitalized for tax. If the Company makes a REIT election, generally the net operating losses will not be available to offset future income. Due to the valuation allowance, the Company's effective rate is approximately 0%.
Note R —Preferred Stock and Warrants
The Company reviewed the relevant ASC's, specifically ASC 480 – Distinguishing Liabilities From Equity and ASC 815 – Derivates and Hedging, in connection with the presentation of the Series A and Series 1 preferred stock. Below is a summary of the Company's Preferred Stock offerings.
Series A Preferred Stock
The Company offered up to $50 million in shares of the Company's Series A Convertible Redeemable Preferred Stock ("Series A"), par value $0.0001 per share, together with warrants to acquire the Company's common stock, in a Regulation D 506(c) private placement to accredited investors. In connection with the private placement, on October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock. The Company commenced the private placement of the Shares to accredited investors on November 1, 2016 and closed the offering on March 24, 2017. As of September 30, 2017, the Company raised approximately $2.6 million, net of offering costs, in the Series A private placements.
The holders of the Series A Preferred Stock shall be entitled to receive, when and as authorized by the board of directors and declared by the Company out of funds legally available for the payment of dividends, cash dividends at the rate of 5.75% per annum of the initial stated value of $1,000 per share. If a Listing Event, as defined in the offering, has not occurred by March 31, 2017, the cash dividend rate shall increase to 7.50%, until a Listing Event has occurred. Base on the number of Series A shares outstanding at September 30, 2017, the increased dividend rate would cost the Company approximately $12,000 more per quarter in Series A dividends.
Subject to the Company's redemption rights as described below, each Share will be convertible into shares of our common stock, at the election of the holder thereof by written notice to the Company (each, a "Conversion Notice") containing the information required by the charter, at any time beginning upon the earlier of (i) 90 days after the occurrence of a Listing Event or (ii) the second anniversary of the final Closing of this Offering (whether or not a Listing Event has occurred). Each Share will convert into a number of shares of our common stock determined by dividing (i) the sum of (A) 100% of the Stated Value, initially $1,000, plus (B) any accrued but unpaid dividends to, but not including, the date of conversion, by (ii) the conversion price for each share of our common stock (the "Conversion Price") determined as follows:
· | Provided there has been a Listing Event, if a Conversion Notice with respect to any Share is received on or prior to the day immediately preceding the first anniversary of the issuance of such Share, the Conversion Price for such Share will be equal to 110% of the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Conversion Notice. |
· | Provided there has been a Listing Event, if a Conversion Notice with respect to any Share is received on or after the first anniversary of the issuance of such Share, the Conversion Price for such Share will be equal to the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Conversion Notice. |
· | If a Conversion Notice with respect to any Share is received on or after the second anniversary of the final Closing of this Offering, and at the time of receipt of such Conversion Notice, a Listing Event has not occurred, the Conversion Price for such Share will be equal to 100% of our net asset value per share, or NAV per share, if then established, and until we establish a NAV per share, the Conversion Price will be equal to $25.00, or the initial offering price per share of our common stock in our initial public offering. |
If and when the Amended Charter becomes effective, the date by which holders of Series A must provide notice of conversion will be changed from the day immediately preceding the first anniversary of the issuance of such share to December 31, 2017. This change will conform the terms of the Series A with the terms of the Series 1 with respect to conversions.
Each investor in the Series A shall receive, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 30 shares of the Company's common stock, par value $0.0001 per share, if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of September 30, 2017, there were detachable warrants that may be exercised for 85,740 shares of the Company's common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at September 30, 2017 became exercisable because of a listing event, and were exercised at the minimum price of $25 per share, gross proceeds to us would be approximately $2.1 million and we would as a result issue an additional 85,740 shares of common stock. As of March 31, 2017, June 30, 2017 and September 30, 2017, the Company an estimated fair market value of potential warrants to be immaterial.
Series 1 Preferred Stock
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock ("Series 1"), par value $0.0001 per share. On April 7, 2017, the Company commenced the Regulation D 506(b) private placement of shares of Series 1, together with warrants to acquire the Company's common stock, to accredited investors.
The holders of the Series 1 Preferred Stock are entitled to receive, when and as authorized by our board of directors and declared by us out of legally available funds, cumulative, cash dividends on each Share at an annual rate of 5.50% of the Stated Value pari passu with the dividend preference of the Series A Preferred Stock and in preference to any payment of any dividend on our common stock; provided, however, that Qualified Purchasers (who purchased $1.0 million or more in a single closing) are entitled to receive, when and as authorized by our board of directors and declared by us out of legally available funds, cumulative, cash dividends on each Share held by such Qualified Purchaser at an annual rate of 5.75% of the Stated Value (instead of the annual rate of 5.50% for all other holders of the Shares) until April 7, 2018, at which time, the annual dividend rate will be reduced to 5.50% of Stated Value; provided further, however, that if a Listing Event has not occurred by April 7, 2018, the annual dividend rate on all Shares (without regard to Qualified Purchaser status) will be increased to 7.00% of the Stated Value until the occurrence of a Listing Event, at which time, the annual dividend rate will be reduced to 5.50% of the Stated Value. Base on the number of Series 1 shares outstanding at September 30, 2017, the increased dividend rate would cost the Company approximately $50,000 more per quarter in Series 1 dividends.
Subject to the Company's redemption rights as described below, each Share will be convertible into shares of our common stock, at the election of the holder thereof by written notice to the Company (each, a "Conversion Notice") containing the information required by the charter, at any time beginning upon the earlier of (i) 45 days after the occurrence of a Listing Event or (ii) April 7, 2019 (whether or not a Listing Event has occurred). Each Share will convert into a number of shares of our common stock determined by dividing (i) the sum of (A) 100% of the Stated Value, initially $1,000, plus (B) any accrued but unpaid dividends to, but not including, the date of conversion, by (ii) the conversion price for each share of our common stock (the "Conversion Price") determined as follows:
· | Provided there has been a Listing Event, if a Conversion Notice with respect to any Share is received prior to December 1, 2017, the Conversion Price for such Share will be equal to 110% of the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Conversion Notice. |
· | Provided there has been a Listing Event, if a Conversion Notice with respect to any Share is received on or after December 1, 2017, the Conversion Price for such Share will be equal to the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Conversion Notice. |
· | If a Conversion Notice with respect to any Share is received on or after April 7, 2019, and at the time of receipt of such Conversion Notice, a Listing Event has not occurred, the Conversion Price for such Share will be equal to 100% of our net asset value per share, or NAV per share, if then established, and until we establish a NAV per share, the Conversion Price will be equal to $25.00, or the initial offering price per share of our common stock in our initial public offering. |
Each investor in the Series 1 shall receive, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 35 shares of the Company's common stock, par value $0.0001 per share, if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of September 30, 2017, there were detachable warrants that may be exercised for 175,805 shares of the Company's common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at September 30, 2017 became exercisable because of a listing event, and were exercised at the minimum price of $25 per share, gross proceeds to us would be approximately $4.4 million and we would as a result issue an additional 175,805 shares of common stock. As of March 31, 2017, June 30, 2017 and September 30, 2017, the Company an estimated fair market value of potential warrants to be immaterial.
Note S — Subsequent Events
The following subsequent events have been evaluated through the date of this filing with the SEC.
On October 17, 2017 the Company made a payment of $1.0 million to MVP Realty Advisors towards the principal balance of the outstanding $2.1 million note payable.
During October 2017, the balance on our Working Capital Credit Facility was paid in full; however, on November 7, 2017, MVP REIT took a draw of $1.5 million to mainly pay acquisition fees and merger costs.
In November 2017, the Company acquired approximately 118,932 shares of MVP REIT's stock at $8.56 per share from an unrelated third party.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a financial review and analysis of ourthe Company’s financial condition and results of operations for the three and nine months ended September 30, 2017March 31, 2023 and 2016. 2022. This discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Conditions and Results of Operations in ourthe Company’s annual report on Form 10-K for the year ended December 31, 2016.2022. As used herein, the terms "we," "our"“we,” “our” and "us"“us” refer to MVP REIT II, Inc.,Mobile Infrastructure Corporation, and, as required by context, Mobile Infra Operating Partnership, L.P., formerly known as MVP REIT II Operating Partnership, LP,, which we referthe Company refers to as our "operating limited partnership,"the “Operating Partnership,” and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this quarterly report on Form 10-Q (this "Quarterly Report"“Quarterly Report”) that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. Forward-looking statements are typically identified by the use of terms such as "may," "should," "expect," "could," "intend," "plan," "anticipate," "estimate," "believe," "continue," "predict," "potential"“may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.
The forward-looking statements included herein are based upon ourthe Company’s current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond ourthe Company’s control. Although we believethe Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, ourthe actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
· | ● | the fact that we have athe Company has limited operating history, as the Company was formed in 2015; |
| ● | the Company’s ability to complete and realize the expected benefits of a liquidity event, including the consummation of the proposed merger with Fifth Wall Acquisition Corporation III; |
| ● | the Company's ability to achieve positive future financial and operating performance after the proposed merger with Fifth Wall Acquisition Corporation III; |
| ● | the Company’s ability to generate sufficient cash flows to pay distributions to the Company’s stockholders; |
| ● | the impact on our property operations began in 2016;business and those of our tenants from epidemics, pandemics or outbreaks of an illness, disease or virus (including COVID-19), including lockdowns and similar mandates; |
· | ● | the fact that we havethe Company has experienced net losses since inception and may continue to experience additional losses; |
· | our● | changes in economic conditions generally and the real estate and debt markets specifically, including economic trends impacting parking facilities; |
| ● | risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters and the lack of liquidity of real estate investments; |
| ● | competitive factors that may limit the Company’s ability to effectively raisemake investments or attract and deploy retain tenants; |
| ● | the proceeds raisedability of leases under our New Lease Structure (as defined below) to provide increases in same property rental revenue as compared to our offerings;prior leases; |
· | ● | the Company’s ability to attain its investment strategy or increase the value of its portfolio; |
| ● | the loss of key personnel could have a material adverse effect upon the Company's ability to conduct and manage the Company’s business; |
| ● | the performance of properties the Company has acquired or may acquire or loans the Company has made or may make that are secured by real property; |
· | changes in economic conditions generally● | the Company’s ability to successfully integrate pending acquisitions and the real estatetransactions and debt markets specifically;implement an operating strategy; |
· | legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts, or REITs); |
·● | potential damage and costs arising from natural disasters, terrorism and other extraordinary events, including extraordinary events affecting parking facilities included in ourthe Company’s portfolio; |
· | | the real estate business, including Company’s ability to secure leases or parking management contracts at favorable terms, tenant defaults, potential liability relating to environmental matters and the lackact on its pipeline of liquidity of real estate investments;acquisitions; |
· | competitive factors that may limit our ability to make investments or attract and retain tenants; |
·● | our ability to generate sufficient cash flows to pay distributions to our stockholders; |
· | our failure to maintain our status as a REIT; |
· | our ability and the timing to obtain third party consents required to consummate the Merger; |
· | the risk that the Merger or the other transactions contemplated by the Merger Agreement may not be completed in the time frame expected by the parties or at all; |
· | our ability to successfully integrate pending transactions and implement our operating strategy, including the Merger; |
· | our ability to list our shares of common stock on a national securities exchange; |
· | the availability of capital and debt financing generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions, covenants and requirements of that debt; |
· | ● | changes in interest rates; |
| ● | the Company’s ability to negotiate amendments or extensions to existing debt agreements; |
| ● | the Company’s loss of REIT status and ability to remediate its loss of REIT status under U.S. federal income tax law; |
· | ● | potential adverse impacts from changes to the U.S. tax laws; and |
| ● | changes to generally accepted accounting principles in the United States, or GAAP. |
Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed upon on any forward-looking statements included herein. All forward-looking statements are made as of the date of this Quarterly Report, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertakethe Company undertakes no obligation to publicly update or revise any forward – looking statements made after the date of this Quarterly Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward – looking statements included in this Quarterly Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report will be achieved.
Overview
This report may include market dataThe Company focuses on acquiring, owning and forecastsleasing parking facilities and related infrastructure, including parking lots, parking garages and other parking structures throughout the United States. The Company targets both parking garage and surface lot properties primarily in top 50 U.S. Metropolitan Statistical Areas (“MSAs”), with respectproximity to key demand drivers, such as commerce, events and venues, government and institutions, hospitality and multifamily central business districts.
As of March 31, 2023, the Company owned 43 parking facilities in 21 separate markets throughout the United States, with a total of 15,676 parking spaces and approximately 5.4 million square feet. The Company also owns approximately 0.2 million square feet of retail/commercial space adjacent to its parking facilities.
Merger with Fifth Wall Acquisition Corp. III
On December 13, 2022, the Company and Fifth Wall Acquisition Corp. III (“FWAC”), a special purpose acquisition company sponsored by Fifth Wall Acquisition Sponsor III LLC ("Fifth Wall"), entered into a definitive merger agreement, which was subsequently amended by the First Amendment to Agreement and Plan of Merger dated March 23, 2023 (the “Merger Agreement”). Upon closing of the merger (the “Merger”), FWAC will be the surviving entity and will be renamed “Mobile Infrastructure Corporation”. The combined company following the Merger (“New MIC”) expects to be publicly traded on the New York Stock Exchange under the ticker “BEEP.” Following the steps of the Merger as provided in the Merger Agreement:
| ● | each then issued and outstanding Class A Share of FWAC will convert, on a one-for-one basis, into one share of New MIC common stock; |
| ● | each then issued and outstanding share of the Company’s common stock will convert, on a one-to-1.5 basis, into one share of New MIC common stock; |
| ● | each share of the Company’s Series 1 and Series A preferred stock issued and outstanding will be converted into the right to receive one share of Series 1 and Series A preferred stock of New MIC; and |
| ● | each of the Company’s common stock warrants will become a warrant to purchase that number of shares of New MIC common stock equal to the product of (a) the number of shares of common stock that would have been issuable upon the exercise of such common stock warrant and (b) 1.5. |
Additionally, in connection with the execution of the Merger Agreement, FWAC entered into subscription agreements with an initial PIPE investor (the “Initial PIPE Investor”), pursuant to which the Initial PIPE Investor agreed to purchase from New MIC, prior to or substantially concurrently with the closing of the Merger, $10 million of common stock, par value $0.0001 per share, of New MIC (the “New MIC Common Stock”) at $10.00 per 1.2 shares. The Initial PIPE Investor is controlled by Jeffrey Osher, a member of the Company’s Board of Directors and a control person of HS3.
The Merger Agreement also contemplates other PIPE investments through the entry into one or more additional subscription agreements with one or more investors to purchase Class A Shares of FWAC, New MIC Common Stock, New MIC preferred stock or convertible notes of New MIC.
Pursuant to the REIT industry. Although we are responsibleMerger, the Operating Partnership will convert from a Maryland limited partnership to a Delaware limited liability company (the “Operating Company”). As a limited liability company, the Operating Company will continue to be treated as a partnership and a disregarded entity for alltax and accounting purposes. Following the conversion, the Company will be a member of the disclosure contained in this report, in some cases we rely onOperating Company and refer to market datathe Operating Company will be managed by a board consisting of board members, one appointed by the Company and certain industry forecasts that were obtained from third party surveys, market research, consultant surveys, publicly available information and industry publications and surveys that we believe to be reliable.
Overview
MVP REIT II, Inc. (one appointed by the "Company," "we," "us," or "our") is a Maryland corporation formed on May 4, 2015 and intends to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes upon the filingother members of the
federal tax return forOperating Company.During the three months ended March 31, 2023 and the year ended December 31, 2017. The2022, the Company believes that it has been organizedincurred costs of approximately $1.9 million and has operated in a manner that has enabled it to qualify as a REIT commencing$2.1 million, respectively, associated with the taxable year ending December 31, 2017; however, if the company is unable to meet the REIT qualificationMerger. These costs are being accounted for 2017 we will continue to operate as a C corporation for U.S. federal income tax purposes. As of December 31, 2016, the Company ceased all selling efforts for the initial public offering (the "Common Stock Offering") of its common stock, $0.0001 par value per share, at $25.00 per share, pursuant to a registration statement on Form S-11 filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended. The Company accepted additional subscriptions through March 31, 2017, the last day of the Common Stock Offering. As of September 30, 2017, the Company raised approximately $67.7 million in the Common Stock Offering before payment of deferred offering costs in accordance with FASB ASC Topic 340, Other Assets and Deferred Costs and are reflected within deferred offering costs on our Consolidated Balance Sheets.
Objectives
Over the next twelve months, management of approximately $1.1 million, contribution from the SponsorCompany will be focused predominantly on the following strategic objectives:
| • | Completing the Merger with FWAC and attracting a number of PIPE investors in order to provide the Company scale and capacity for growth; |
| • | Working with third-party operators to optimize the performance of the Company’s parking facilities and other assets to move towards cash flow positivity; |
| • | Reducing corporate overhead to move the Company towards profitability; |
| • | Pursuing options for refinancing near-term debt maturities; and |
| • | Continuing to identify paths for remediation of REIT status. |
Management of approximately $1.1 millionthe Company has continued to work closely with our tenants to evaluate capital requirements of the assets, with a view to understanding current and cash distributionsfuture demand drivers of approximately $0.6 million.those assets. The Company has also registered $50 million in sharesbeen implementing its proprietary technology which provides real-time information on the performance of common stock for issuance pursuant to a distribution reinvestment plan (the "DRIP") under which common stockholders may elect to have their distributions reinvested in additional shares of common stock atassets. Under the current price of $25.00 per share.
On October 27, 2016,New Lease Structure, the Company
filedhas funded capital expenditures related to upgrades and optimization of our parking facilities, including but not limited to gate arm systems, lighting, and large capital improvements to structure and concrete. We expect to maintain an active dialogue with
our tenants for the
State Department of Assessments and Taxation of Maryland Articles Supplementary to the charterbetterment of the
Company’s portfolio. Investment Strategy & Criteria
The Company’s management team has a long experience in the parking industry, the Company classifyingoften receives off-market calls for parking facilities that are not yet being marketed for sale, as well as have early notices on properties just getting ready to be marketed. As such, the Company has a pipeline of acquisitions that is both bespoke and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock.actionable, that the Company believes are off-market and largely unavailable to our competitors. The Company commencedintends to continue to consolidate the private placement of the shares of Series A, togetherindustry through acquisitions, partnering with warrantsboth owners and tenants, to acquire the Company's common stock, to accredited investors on November 1, 2016create a meaningful pipeline and closed the offering on March 24, 2017. As of September 30, 2017, the Company raised approximately $2.6 million, net of offering costs, in the Series A private placements andscale.
The Company’s investment strategy has 2,862 shares of Series A issued and outstanding.
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock ("Series 1"), par value $0.0001 per share. On April 7, 2017, the Company commenced the private placement of shares of Series 1, together with warrants to acquire the Company's common stock, to accredited investors. As of September 30, 2017, the Company had raised approximately $11.8 million, net of offering costs, in the Series 1 private placements and had 13,445 shares of Series 1 issued and outstanding.
The Company was formed to focushistorically focused primarily on
investments inacquiring, owning and leasing parking facilities, including parking lots, parking garages and other parking structures throughout the United
StatesStates. The Company has historically focused primarily on investing in income-producing parking lots and
Canada. Nogarages with air rights in MSAs. In expanding the Company’s portfolio, the Company will seek geographically diverse investments that address multiple key demand drivers and demonstrate consistent consumer use that are expected to generate cash flows and provide greater predictability during periods of economic uncertainty. Such targeted investments include, but are not limited to, parking facilities near one or more than 10% of the proceedsfollowing key demand drivers: | • | Commerce |
| • | Events and venues |
| • | Government and institutions |
| • | Hospitality |
| • | Multifamily central business districts |
The Company generally targets parking facilities that are near multiple key demand drivers so as not to be solely reliant on a single source of income. Parking garages in downtown cores constitute a large portion of the Common Stock Offering will be used for investment in Canadian properties.
To a lesser extent,Company’s parking facilities as they serve multiple key demand drivers.The Company works closely with our current tenants to understand the return to each individual market, both as the Company considers the key demand drivers of the Company’s current assets, as well as new assets that the Company may also invest in properties other than parking facilities.
consider acquiring as part of our investment strategy. The Company’s deep relationships with key tenants help facilitate collaboration with respect to our portfolio.The Company is the sole general partner of MVP REIT II Operating Partnership, LP, a Delaware limited partnership (the "Operating Partnership"). The Company plansfocused on acquiring properties that are expected to own substantially all of its assetsgenerate cash flow, located in populated MSAs and conduct its operations through the Operating Partnership. The Company's wholly owned subsidiary, MVP REIT II Holdings, LLC, is the sole limited partnerexpected to produce income within 12 months of the Operating Partnership. The operating agreement provides that the Operating Partnership is operated in a manner that enables the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability, and (3) ensure that the Operating Partnership is not classified as a "publicly traded partnership" for purposes of Section 7704 of the Internal Revenue Code, which classification could result in the Operating Partnership being taxed as a corporation.
The Company utilizes an Umbrella Partnership Real Estate Investment Trust ("UPREIT") structure to enable us to acquire real property in exchange for limited partnership interests in the Company's Operating Partnership from owners who desire to defer taxable gain that would otherwise normally be recognized by them upon the disposition of their real property or transfer of their real property to us in exchange for shares of the Company's common stock or cash.
As part of the Company's initial capitalization, the Company sold 8,000 shares of common stock for $200,000 to MVP Capital Partners II, LLC (the "Sponsor"), the sponsor of the Company. The Sponsor is owned 60% by Vestin Realty Mortgage II, Inc., a Maryland corporation and OTC pink sheet listed company ("VRM II"), and 40% by Vestin Realty Mortgage I, Inc., a Maryland corporation and OTC pink sheet listed company ("VRM I"), both which are managed by Vestin Mortgage, LLC, a Nevada limited liability company in which Michael Shustek wholly owns. The Company also sold 5,000 shares of common stock directly to VRM II.
The Company's advisor is MVP Realty Advisors, LLC (the "Advisor"), a Nevada limited liability company, which is owned sixty percent (60%) by VRM II and forty percent (40%) by VRM I. The Advisor is responsible for managing the Company's affairs on a day-to-day basis and for identifying and making investments on the Company's behalf pursuant to an advisory agreement between the Company and the Advisor (the "Advisory Agreement"). The Company has no paid employees. The Advisor also advises MVP REIT, Inc. ("MVP REIT"), a real estate investment trust registered with the SEC with substantially the same investment strategy as the Company in that MVP REIT also invests primarily in parking facilities.
From inception through September 30, 2017, the Company has paid approximately $2.1 million in distributions, including issuing 54,336 shares of its common stock as DRIP, issuing 85,358 shares of its common stock as dividend in distributions to the Company's common stockholders and $200,000 in distributions for preferred stockholders, all of which have been paid from offering proceeds and constituted a return of capital. All of the cash distributions have been paid from offering proceeds and constituted a return of capital. The Company may pay distributions from sources other than cash flow from operations, including proceeds from the Offering, the sale of assets, or borrowings. The Company has no limits on the amounts it may pay from such sources. If the Company continues to pay distributions from sources other than cash flow from operations, the funds available to the Company for investments would be reduced and the share value may be diluted.
The following table is a summary of the acquisitions for the nine months ended September 30, 2017.
| Property | Location | Date Acquired | Property Type | # Spaces | Size / Acreage | Retail /Office Square Ft. | Investment Amount | Ownership % |
| MVP Detroit Center Garage | Detroit, MI | 01/10/2017 | Garage | 1,275 | 8.78 | N/A | $55,000,000 | 80.00% |
| St Louis Broadway, LLC | St Louis, MO | 02/01/2017 | Lot | 161 | 0.96 | N/A | $2,400,000 | 100.00% |
| St Louis Seventh & Cerre, LLC | St Louis, MO | 02/01/2017 | Lot | 174 | 1.20 | N/A | $3,300,000 | 100.00% |
| MVP Preferred Parking, LLC | Houston, TX | 06/29/2017 | Garage & Lot | 521 | 1.0 | 784 | $20,500,000 | 100.00% |
During April 2017, MVP REIT reduced its ownership interest in MVP Houston Preston Lot from 80% to 40%, by selling a portion of its ownership to the Company for $1.12 million. This transaction was completed at par value with no gain or loss recorded by MVP REIT or the Company. Our ownership interest in MVP Houston Preston Lot increased from 20% to 60% and we will be considered the controlling party starting May 1, 2017.
As of September 30, 2017 the Company had investments in the following facilities:
| Parking Facility | Date Acquired | Type | Zoning | Height Restriction | MVP REIT I % Owned | MVP REIT II % Owned | 3rd Party % Owned | Property Purchase Price |
| MVP Minneapolis Venture | 1/6/2016 | Lot | B4C-1 | Unlimited | 87% | 13% | 0% | $6,100,000 |
| MVP Denver Sherman 1935 | 2/12/2016 | Lot | CMX-16 | 200 Feet | 76% | 24% | 0% | $2,437,500 |
| MVP Bridgeport Fairfield Garage | 3/30/2016 | Garage | DVD-CORE | 65 Feet | 90% | 10% | 0% | $7,800,000 |
| Minneapolis City Parking | 1/6/2016 | Lot | B4C-1 | Unlimited | 87% | 13% | 0% | $9,395,000 |
| MVP Cleveland West 9th | 5/11/2016 | Lot | CBD LLR-B4 | 175 Feet | 49% | 51% | 0% | $5,675,000 |
| 33740 Crown Colony | 5/17/2016 | Lot | LLR-D5 | 250 Feet | 49% | 51% | 0% | $3,030,000 |
| MVP San Jose 88 Garage | 6/15/2016 | Garage | DC | N/A | 0% | 100% | 0% | $3,575,500 |
| MCI 1372 Street | 7/8/2016 | Lot | B-5 | 375 Feet | 0% | 100% | 0% | $700,000 |
| MVP Cincinnati Race Street Garage | 7/8/2016 | Garage | DD-A | 500 Feet | 0% | 100% | 0% | $4,500,000 |
| MVP St. Louis Washington | 7/18/2016 | Lot | CBD I | 100 Feet | 0% | 100% | 0% | $3,000,000 |
| MVP St. Paul Holiday Garage | 8/12/2016 | Garage | B-5 | Unlimited | 0% | 100% | 0% | $8,200,000 |
| MVP Louisville Station Broadway | 8/23/2016 | Lot | CBD I | Unlimited | 0% | 100% | 0% | $3,050,000 |
| White Front Garage Partners | 9/30/2016 | Garage | CBD I | Unlimited | 20% | 80% | 0% | $11,496,000 |
| Cleveland Lincoln Garage Owners | 10/19/2016 | Garage | SI / GR-E5 | 250 Feet | 0% | 100% | 0% | $7,316,950 |
| MVP Houston Jefferson Lot | 11/22/2016 | Lot | NONE | Unlimited | 0% | 100% | 0% | $700,000 |
| MVP Houston Preston Lot | 11/22/2016 | Lot | NONE | Unlimited | 40% | 60% | 0% | $2,800,000 |
| MVP Houston San Jacinto Lot | 11/22/2016 | Lot | NONE | Unlimited | 0% | 100% | 0% | $3,200,000 |
| MVP Detroit Center Garage | 1/10/2017 | Garage | PD | Unlimited | 20% | 80% | 0% | $55,000,000 |
| St. Louis Broadway Group | 2/1/2017 | Lot | CBD I | 200 Feet | 0% | 100% | 0% | $2,400,000 |
| St. Louis Seventh & Cerre | 2/1/2017 | Lot | CBD I | 200 Feet | 0% | 100% | 0% | $3,300,000 |
| MVP St. Louis Cardinal Lot, DST * | 5/31/2017 | Lot | -- | -- | 0% | 51% | 49% | $11,350,000 |
| MVP Preferred Parking (Preston) | 6/29/2017 | Garage | NONE | Unlimited | 0% | 100% | 0% | $16,500,000 |
| MVP Preferred Parking (Congress) | 6/29/2017 | Lot | NONE | Unlimited | 0% | 100% | 0% | $4,000,000 |
* The Company acquired a 51.0% beneficial interest in MVP St. Louis Cardinal Lot, DST, a Delaware statutory trust, or MVP St Louis, for approximately $2.8 million. MVP St. Louis purchased the St. Louis parking lot from an unaffiliated seller for a purchase price of $11,350,000, plus payment of closing costs, financing costs, and related transactional costs. MVP St. Louis used the Company's investment to fund a portion of the purchase price for the property. The remaining equity portion was funded through short-term investments by the Advisor pending the private placements of additional beneficial interest in MVP St. Louis exempt from registration under the Securities Act.
properties’ acquisition. The Company intends to
operateacquire under-managed parking facilities and collaborate with its tenants to implement a tailored, value-add approach that includes fostering the implementation of identified value levers and mitigating risk exposure, while fostering local business relationships to derive market knowledge and connectivity.In the event of a future acquisition of properties, the Company would expect the foregoing criteria to serve as a REIT forguidelines; however, management and the year ended December 31, 2017. Company’s Board of Directors may vary from these guidelines to acquire properties which they believe represent value or growth opportunities.
The Company is not a mutual fund or an investment company within the meaning of the Investment Company Act of 1940, nor is the Company subject to any regulation thereunder. As a REIT, the Company is required to have a December 31 fiscal year end. As a REIT,cannot assure you that the Company will not be subject to federal income tax on incomeattain investment objectives or that is distributed to stockholders. Among other requirements, REITs are required to satisfy certain gross income and asset tests, which may affect the composition of assets the Company acquires with the proceedsvalue of the offering. In addition, REITs are required to distribute to stockholders at least 90% of their annual REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain).
If the Company does not qualify as a REIT for the tax year ended December 31,2017, we will file as a C corporation and deferred taxCompany’s assets and liabilities will be established for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for the deferred tax assets is provided if we believe that it is more likely than not that we will not realizedecrease. The Company’s Board of Directors utilizes the tax benefit of deferred tax assets based on the available evidence at the time the determination is made. For the tax year ended December 31, 2016, we concluded that dueinvestment policies to our cumulative book losses, a valuation allowance should be recorded against our net deferred tax assets.
The Company's board of directors will at all times have ultimate oversight and policy-making authority over the Company, including responsibility for governance, financial controls, compliance and disclosure. Pursuant to the Company's advisory agreement, however, the Company's board has delegated to MVP Realty Advisors, LLC, the Company's advisor, authority to manage the Company's day-to-day business, in accordance with the Company'sensure investment objectives, strategy, guidelines, policies and limitations. Vestin Realty Mortgage II, Inc., ("VRM II") owns 60% of the Advisor, and the remaining 40% is owned by Vestin Realty Mortgage I, Inc. ("VRM I"); bothdecisions are managed by Vestin Mortgage, LLC. The Company's sponsor is MVP Capital Partners II, LLC (" the "Sponsor"). The Sponsor is owned 60% by Vestin Realty Mortgage II, Inc., a Maryland corporation and OTC pink sheet listed company ("VRM II"), and 40% by Vestin Realty Mortgage I, Inc., a Maryland corporation and OTC pink sheet listed company ("VRM I"), both which are managed by Vestin Mortgage, LLC, a Nevada limited liability company in which Michael Shustek wholly owns. The Company also sold 5,000 shares of common stock directly to VRM II.
VRM I, an OTC Pink Sheet-listed company, and VRM II, an OTC Pink Sheet -listed company, are engaged primarily in the business of investing in commercial real estate and loans secured by commercial real estate. As the owners of the Advisor, VRM I and VRM II may benefit from any fees and other compensation that the Company pays to the Advisor under the Advisor Agreement. In this regard, the Company notes that the Advisor has agreed to waive certain fees and expenses it otherwise would be entitled under the Advisory Agreement. Please refer to Note E – Related Party Transactions and Arrangements – Fees and Expenses Paid in Connection With the Operations of the Company in Part I, Item 1 Financial Statements of this Quarterly Report on Form 10-Q for more information. If the owners of the Advisor determine that such waivers are no longer in the best interests of
their stockholdersthe Company’s stockholders.Trends and Other Factors Affecting Our Business
Various trends and other factors affect or otherwise refuse to grant future waivers of fees or expenses if requested by the Company, thenhave affected the Company's operating expenses could increaseresults, including:
The COVID-19 Pandemic
The COVID-19 pandemic has significantly adversely impacted global economic activity, contributing to significant volatility. The return to normalized movement is relatively uneven among markets and industries, which could adversely affecthas impacted the Company's resultsperformance of operations and the amount of distributions to stockholders.
In addition, the Company may compete against MVP REIT, VRM I and VRM II, all of whom are managed by affiliatesour assets, as many of the Company's sponsor,Company’s properties are located in urban centers, near government buildings, entertainment centers, or hotels. While the employment level in the United States has nearly returned to 2019 levels, many companies continue to deploy a work-from-home or hybrid remote strategy for employees. We anticipate that a hybrid work structure for traditional central business district office workers will be the acquisitionnormalized state going-forward. This has impacted the performance of investments. The Company believes this potential conflict with respectmany of our assets that have office exposure and underscores the importance of a multi-key demand driver strategy in repositioning current and/or acquiring new assets. During 2020 and 2021, many state and local governments restricted public gatherings and implemented social distancing measures, which has, in some cases, eliminated or severely reduced the demand for parking. Governments have now lifted or modified most of these measures, which should continue to VRM Iencourage greater movement around and VRM II, is mitigated,between cities. Should public health restrictions be reinstated due to COVID-19 or any future pandemic, the Company’s rental revenue may continue to be adversely affected and may be further materially adversely affected to the extent that economic conditions result in part, by the Company's focus onelimination of jobs or the migration of jobs from the urban centers where the Company’s parking facilities as its core investments, while the investment strategy of VRM I and VRM II focuses on acquiring office buildings andare situated to other commercial real estate and loans secured by commercial real estate. MVP REIT has substantially the same investment strategy as the Company, in that MVP REIT is also focused primarily on investments in parking facilities. For additional discussion regarding potential conflicts of interests, please see "Risk Factors—Risks Related to Conflicts of Interest" and "Item 13 – Certain Relationships and Related Transactions, and Director Independence" in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
In October 2016 the Board of Directors appointed a special committee to evaluate liquidity options. After consideration, in January 2017 the special committee of the Board of Directors decided to explore a merger with MVP REIT.
On May 26, 2017, the Company, MVP REIT Inc., a Maryland corporation ("MVP REIT"), MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("Merger Sub"), and MVP Realty Advisors, LLC, the Company's and MVP REIT's external advisor (the "Advisor"), entered into an agreement and plan of merger (the "Merger Agreement"). Subject to the terms and conditions of the Merger Agreement, MVP REIT will merge with and into Merger Sub (the "Merger"), with Merger Sub surviving the Merger (the "Surviving Entity"), such that following the Merger, the Surviving Entity will continue as a wholly owned subsidiary of the Company. The Merger is intended to qualify as a "reorganization" under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The combined company will be renamed "The Parking REIT, Inc."
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of MVP REIT's common stock, $0.001 par value per share (the "MVP REIT Common Stock"), will be automatically cancelled and retired, and converted into the right to receive 0.365 shares of common stock, $0.0001 par value per share, of the Company (the "Company Common Stock") (such ratio, as it may be adjusted pursuant to the Merger Agreement, the "Exchange Ratio"). Holders of shares of MVP REIT Common Stock will receive cash in lieu of fractional shares.
At the effective time of the Merger each share of MVP REIT Common Stock, if any, then held by any wholly owned subsidiary of MVP REIT or by the Company or any of its wholly owned subsidiaries will no longer be outstanding and will automatically be retired and will cease to exist, and no consideration will be paid, nor will any other payment or right inure or be made with respect to such shares of MVP REIT Common Stock in connection with or as a consequence of the Merger. In addition, each share of MVP REIT's Non-Participating, Non-Voting Convertible Stock, $0.001 par value per share ("MVP REIT Convertible Stock"), all 1,000 of which are held by the Advisor, will automatically be retired and will cease to exist, and no consideration will be paid, nor will any other payment or right inure or be made with respect to such shares of MVP REIT Convertible Stock in connection with or as a consequence of the Merger.
The Merger Agreement contains customary covenants, including covenants prohibiting MVP REIT and its subsidiaries and representatives from soliciting, providing information or entering into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions. However, under the terms of the Merger Agreement, during the period beginning on the date of the Merger Agreement and continuing until 11:59 p.m. New York City time on July 10, 2017 (the "Go Shop Period End Time"), MVP REIT (through the MVP REIT special committee and its representatives) was permitted to initiate, solicit, provide information and enter into discussions concerning proposals relating to alternative business combination transactions. From May 30, 2017, through July 10, 2017, in connection with the ''go shop'' process provided for under the Merger Agreement, Robert A. Stanger & Co., Inc., ("Stanger") contacted approximately 78 parties, which the MVP I Special Committee and Stanger believed had the financial ability and potential strategic interest in reviewing the opportunity, to solicit their interest in a possible alternative transaction with MVP REIT. Stanger and Venable, LLP negotiated with 12 parties with regard to signing a confidentiality agreement of which 8 confidentiality agreements were executed. No bids were received prior to the July 10, 2017 Go Shop Period End Time.
Pursuant to the Merger Agreement, the board of directors of the Company (the "Company Board") will, effective as of the effective time of the Merger, increase the number of directors comprising the Company Board to eight and Nicholas Nilsen, Robert J. Aalberts and Shawn Newson, previous Directors of MVP REIT, will be elected to the Company Board.
As previously announced, the stockholders of MVP REIT have approved the Merger and the Merger Agreement at the special meeting of stockholders of MVP REIT held on September 27, 2017. The completion of the Merger remains subject to receipt of certain third party consents and satisfaction of other customary closing conditions.
Amended and Restated Advisory Agreement
Concurrently with the entry into the Merger Agreement, on May 26, 2017, the Company, MVP REIT II Operating Partnership, LP and the Advisor entered into the Second Amended and Restated Advisory Agreement (the "Second Amended and Restated Advisory Agreement"), which will become effective at the effective time of the Merger. The Second Amended and Restated Advisory Agreement will amend the Company's existing advisory agreement, dated October 5, 2015 (the "Original Agreement"), to provide for, among other amendments, (i) elimination of acquisition fees, disposition fees and subordinated performance fees and (ii) the payment of an asset management fee by the Company to the Advisor calculated and paid monthly in an amount equal to one-twelfth of 1.1% of the (a) cost of each asset then held by the Company, without deduction for depreciation, bad debts or other non-cash reserves, or (b) the Company's proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement excluding (only for clause (b)) debt financing on the investment. Pursuant to the Second Amended and Restated Advisory Agreement, the asset management fee may not exceed $2,000,000 per annum (the "Asset Management Fee Cap") until the earlier of such time, if ever, that (i) the Company holds assets with an Appraised Value (as defined Second Amended and Restated Advisory Agreement) equal to or in excess of $500,000,000 or (ii) the Company reports AFFO (as defined in the Second Amended and Restated Advisory Agreement) equal to or greater than $0.3125 per share of Company Common Stock (an amount intended to reflect a 5% or greater annualized return on $25.00 per share of the Company Common Stock) (the "Per Share Amount") for two consecutive quarters, on a fully diluted basis. All amounts of the asset management fee in excess of the Asset Management Fee Cap, plus interest thereon at a rate of 3.5% per annum, will be due and payable by the Company no later than ninety (90) days after the earlier of the date that (i) the Company holds assets with an Appraised Value equal to or in excess of $500,000,000 or (ii) the Company reports AFFO per share of Company Common Stock equal to or greater than the Per Share Amount for two consecutive quarters, on a fully diluted basis.
In the event that the Merger Agreement is terminated prior to the consummation of the Merger, the Second Amended and Restated Advisory Agreement will automatically terminate and be of no further effect and the Company, MVP REIT II Operating Partnership, LP and the Advisor will have the rights and obligations set forth in the Original Agreement.
Termination Agreement
Concurrently with the entry into the Merger Agreement, on May 26, 2017, the Company, MVP REIT, the Advisor and MVP REIT II Operating Partnership, LP entered into a termination and fee agreement (the "Termination Agreement"). Pursuant to the Termination Agreement, at the effective time of the Merger, the Advisory Agreement, dated September 25, 2012, as amended, among MVP REIT and the Advisor will be terminated and the Company will pay the Advisor an Advisor Acquisition Payment (as such term is defined in the Termination Agreement) of approximately $3.6 million, subject to adjustment in the event that additional properties are acquired by MVP REIT prior to closing, which shall be the only fee payable to the Advisor in connection with the Merger. In the event that the Merger Agreement is terminated prior to the consummation of the Merger, the Termination Agreement will automatically terminate and be of no further effect and no Advisor Acquisition Payment will be owed and payable.
The foregoing description of the Merger Agreement, the Amended and Restated Advisory Agreement and the Termination Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the applicable agreements, each of which is filed with as a Form 8-K exhibit with the SEC on May 31, 2017.
Amended Charter
In connection with the Merger, at the Company annual stockholders' meeting held on September 27, 2017, the Company's stockholders approved, among other matters, the amendment and restatement of its charter (the "Amended Charter"). As described in more detail in the final proxy statement distributed to our stockholders for the annual meeting, the Amended Charter is primarily intended to accomplish two objectives in connection with the possible listing of the Company's Common Stock after the closing of the Merger: (1) to remove provisions of our charter that we believe may unnecessarily restrict our ability to take advantage of further opportunities for liquidity events or are redundant with or otherwise addressed or permitted to be addressed under Maryland law and (2) to amend certain provisions in a manner that we believe would be more suitable for becoming a publicly-traded REIT.
The Amended Charter will become effective upon its filing with the State Department of Assessments and Taxation of Maryland. We expect to file the proposed Amended Charter immediately before the Company's Common Stock becomes listed for trading on a national securities exchange. This means that the changes to the charter will not be effective unless and until we complete an exchange listing.
Please see Note P- Merger for additional information regarding the Merger, the Merger Agreement, the Second Amended and Restated Advisory Agreement, the Termination Agreement and the Amended Charter.
Review of the Company's Policies
The Company's board of directors, including the independent directors, have reviewed the policies described in this Quarterly Report and determined that they are in the best interest of the Company's stockholders because: (1) they increase the likelihood that the Company will be able to acquire a diversified portfolio of income producing properties, thereby reducing risk in its portfolio; (2) the Company's executive officers, directors and affiliates of the advisor have expertise with the type of real estate investments the Company seeks; and (3) borrowings should enable the Company to purchase assets and earn rental income more quickly, thereby increasing the likelihood of generating income for the Company's stockholders and preserving stockholder capital.
Results of Operations for the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016.
The Company began purchasing properties in May 2016 and the results of operations below reflect start-up costs as well as acquisition expenses incurred in connection with purchasing properties as the Company seeks to deploy the Company's offering proceeds. The Company expects that income and expenses related to the Company's portfolio will increase in future years as a result of owning the properties acquired for a full year and as a result of anticipated future acquisitions of real estate and real estate-related assets. The results of operations described below may not be indicative of future results of operations.
| | | For the three months | | | For the nine months | |
| | | ended September 30, | | | ended September 30, 2016 | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| Revenue | | | | | | | | | | | | | | | | | | | | | | | | |
| Parking Base rent | | $ | 2,180,000 | | | | 98 | % | | $ | 406,000 | | | | 67 | % | | $ | 5,719,000 | | | | 84 | % | | $ | 451,000 | | | | 67 | % |
| Retail rent | | | 26,000 | | | | 1 | % | | | -- | | | | 0 | % | | | 57,000 | | | | 1 | % | | | 1,000 | | | | 0 | % |
| Management Agreement (a) | | | -- | | | | 0 | % | | | 201,000 | | | | 33 | % | | | 482,000 | | | | 7 | % | | | 224,000 | | | | 33 | % |
| Percentage rent (b) | | | 16,000 | | | | 1 | % | | | -- | | | | 0 | % | | | 523,000 | | | | 8 | % | | | -- | | | | 0 | % |
| Total revenues | | $ | 2,222,000 | | | | 100 | % | | $ | 607,000 | | | | 100 | % | | $ | 6,781,000 | | | | 100 | % | | $ | 676,000 | | | | 100 | % |
a) | Through February 28, 2017, the San Jose 88 Garage was subject to a parking management agreement and the rental income represents the gross revenues generated by the property. Operating expenses for this property are included in Operations and Maintenance. Starting on March 1, 2017, this property was leased to a national parking operator, with an annual base rent of $450,000 per year. |
During January 2017, MVP Detroit Center Garage received a settlement amount of approximately $345,000 for the operations of the garage until SP+ assumed operations under a longer-term lease agreement.
b) | During May 2017, MVP Detroit Center Garage, LLC amended their lease with SP+ to set the percentage rent trigger amount and periods from 80% of $5,000,000 over the first 12 months to the following: |
· | 80% over $833,333 from February 2017 to March 2017 |
· | 80% over $1,250,000 from April 2017 to June 2017 |
· | 80% over $2,916,667 from July 2017 to January 2018 |
As a result of this amendment, MVP Detroit Center Garage, LLC earned approximately $498,000 in percentage rent from February 2017 to September 2017.
In September 2017, White Front Garage Partners received approximately $16,000 in percentage rent in accordance with the lease agreement between White Front Garage Partners and Premier Parking.
Total rental revenue earned, including percentage rent, from our 18 consolidated parking facilities (held by 16 different subsidiaries), which have continued operations, totaled approximately $6.8 million for the nine months ended September 30, 2017, compared to total revenues of $676,000 from 8 of our consolidated properties for the nine months ended September 30, 2016. All of the properties held as of September 30, 2016, were purchased in May 2016 or later, not providing a full nine months' worth of rental income in 2016. The increase in rental revenues and the number of properties held is a result of the Company's planned and continued growth through acquisitions of new properties.locations. In particular, the acquisition of the $55.0 million garage in Detroit, which accounted for a majority of the increase, generating approximately $3.1 million in rental income to the Company during the nine months ended September 30, 2017. As the Company continues to acquire new properties, by means of equity raises, debt financing and a pending merger with MVP REIT, we expect to see our rental revenue to continue to grow year over year.
During the last week of August 2017, Houston Texas experienced major flooding due to Hurricane Harvey. This resulted in limited access to the Houston area and a shutdown of most business and government operations. Our parking garage and parking lots located in Houston, TX experienced minimal damage during this time; however, we are still assessing the long-term impact. As of September 30, 2017, we have not seen a reduction in the base rent from our operator, who will continue to operate these locations under the terms of the current leases.
Since a majority of the Company'sCompany’s property leases call for additional percentage rent,
which will be adversely impacted by a decline in the
Company monitorsdemand for parking. However, we see increasing demand for multi-use assets that have exposure to entertainment and sporting venues or have exposure to driving travel through hotel relationships. As restrictions continue to lift across the
gross revenue generated by each propertyUnited States, we anticipate a return to normal, in particular a return to driving vacations, which may positively impact the longer-term outlook of central business districts.The COVID-19 pandemic has had, and may continue to have, a material adverse effect on the Company’s business, financial condition, results of operations, cash flows, liquidity and ability to satisfy debt service obligations, and its duration and ultimate lasting impact is unknown. The Company’s business, financial condition, results of operations, cash flows, liquidity and ability to satisfy debt service obligations may continue to be negatively impacted as a monthly basis. The higher the property's gross revenue the higher the Company's potential percentage rent. The graph below shows the comparisonresult of the Company's monthly rental incomeCOVID-19 pandemic and may remain at depressed levels compared to the gross revenue generated by the properties.
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| Operating expenses | | | | | | | | | | | | |
| Property taxes | | $ | 90,000 | | | $ | 22,000 | | | $ | 279,000 | | | $ | 24,000 | |
| Property operating expense | | | 273,000 | | | | 220,000 | | | | 608,000 | | | | 238,000 | |
| Asset management expense | | | 345,000 | | | | 51,000 | | | | 839,000 | | | | 66,000 | |
| General and administrative | | | 400,000 | | | | 267,000 | | | | 1,051,000 | | | | 602,000 | |
| Merger costs | | | 824,000 | | | | -- | | | | 1,596,000 | | | | -- | |
| Acquisition expenses | | | 113,000 | | | | 529,000 | | | | 2,156,000 | | | | 748,000 | |
| Acquisition expenses – related party | | | -- | | | | 1,011,000 | | | | 1,710,000 | | | | 1,427,000 | |
| Seminar | | | -- | | | | -- | | | | -- | | | | 6,000 | |
| Depreciation | | | 508,000 | | | | 43,000 | | | | 1,404,000 | | | | 46,000 | |
| Total operating expenses | | $ | 2,553,000 | | | $ | 2,143,000 | | | $ | 9,643,000 | | | $ | 3,157,000 | |
Operating expensespre-COVID-19 pandemic levels for an extended period.Results of Operations for the ninethree months ended September 30, 2017, increased $6.5 million, asMarch 31, 2023, compared to the ninethree months ended September 30, 2016. Other than costs relating to the Merger, the increaseMarch 31, 2022 (dollars in expenses is primarily attributable to the Company's growth in investments in parking facilities. During the nine months ended September 30, 2017, the Company acquired a controlling interest in five parking facilities totaling approximately $81.2 million, as compared to 12 properties totaling approximately $56.5 million during the nine months ended September 30, 2016. The majority of the 2016 acquisitions occurred in the third and fourth quarters of 2016. thousands):
| | | For the Three Months Ended March 31, | |
| | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Revenues | | | | | | | | | | | | | | | | |
Base rental income | | $ | 2,080 | | | $ | 1,931 | | | $ | 149 | | | | 7.7 | % |
Management income | | | — | | | | 427 | | | | (427 | ) | | | (100.0 | )% |
Percentage rental income | | | 5,023 | | | | 4,456 | | | | 567 | | | | 12.7 | % |
Total revenues | | $ | 7,103 | | | $ | 6,814 | | | $ | 289 | | | | 4.2 | % |
Base rental income
The increase in acquisitions resulted in increased property taxes, other property operating expense, asset management fees, acquisitions expenses and depreciation.
As the Company continues to acquire new properties, by means of the equity raises, debt financing and the pending merger with MVP REIT, we expect to see our operations and maintenance, asset management fees and depreciation grow.
In addition, the pending merger of the Company and MVP REIT resulted in approximately $0.8 million and $1.6 million in expenses during the three and nine months ended September 30, 2017, respectively. There were no similar expenses incurred during the three and nine months ended September 30, 2016. We estimated the total merger costs for the Company to continue to increase as we move closer to the completion of the merger, including a merger success fee of $3.6 million payable to our Advisor under the Termination Agreement.
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| Other income (expense) | | | | | | | | | | | | |
| Interest expense | | $ | (1,297,000 | ) | | $ | -- | | | $ | (3,146,000 | ) | | $ | (1,000 | ) |
| Distribution income – related party | | | 75,000 | | | | -- | | | | 174,000 | | | | -- | |
| Gain from sale of investment | | | 1,200,000 | | | | -- | | | | 1,200,000 | | | | -- | |
| Income (loss) from investment in equity method investee | | | 2,000 | | | | 5,000 | | | | 19,000 | | | | 9,000 | |
| Total other income (expense) | | $ | (20,000 | ) | | $ | 5,000 | | | $ | (1,753,000 | ) | | $ | 8,000 | |
The increase in interest expensebase rental income for the three
and nine months ended
September 30, 2017, asMarch 31, 2023 compared to the same period in
2016,2022 is
due primarily to the acquisition of one parking asset in Oklahoma City in the second quarter of 2022 and an increase of tenant reimbursements. Management income
The management income for the three months ended March 31, 2022 is attributable to operator collections for a management agreement that was converted into the New Lease Structure at the beginning of 2022.
Percentage rental income
The $0.6 million increase in percentage rent income is due primarily to (1) a $0.2 million increase related to one property acquired during the second quarter of 2022 and (2) demand for event parking, specifically in markets with sporting events, theatres, festivals, and other gatherings. This demand positively affects several of our properties in Chicago, Cincinnati and Denver and was partially offset by lower revenues from contract parking in Detroit.
| | | For the Three Months Ended March 31, | |
| | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Operating expenses | | | | | | | | | | | | | | | | |
Property taxes | | $ | 1,756 | | | $ | 1,631 | | | $ | 125 | | | | 7.6 | % |
Property operating expense | | | 518 | | | | 853 | | | | (335 | ) | | | (39.3 | )% |
Interest expense | | | 3,599 | | | | 2,457 | | | | 1,143 | | | | 46.5 | % |
General and administrative | | | 2,620 | | | | 1,515 | | | | 1,104 | | | | 72.9 | % |
Professional fees | | | 469 | | | | 574 | | | | (105 | ) | | | (18.4 | )% |
Organizational, offering and other costs | | | 33 | | | | 893 | | | | (860 | ) | | | (96.3 | )% |
Depreciation and amortization expenses | | | 2,126 | | | | 2,010 | | | | 116 | | | | 5.8 | % |
Total operating expenses | | $ | 11,121 | | | $ | 9,933 | | | $ | 1,188 | | | | 12.0 | % |
Property taxes
The $0.1 million increase in property taxes during the three months ended March 31, 2023 compared to March 31, 2022 is attributable primarily to changes in estimated property tax assessments recognized in the first quarter of 2022.
Property operating expense
The $0.3 million decrease in property operating expense during the three months ended March 31, 2023 compared to March 31, 2022 is attributable primarily to lower professional services related to engineering surveys, legal fees, and insurance costs.
The increase in interest expense of approximately $1.1 million during the three months ended March 31, 2023 compared to the same period in the prior year is primarily attributable to (1) $1.6 million of first quarter 2023 interest expense on the Company’s Revolving Credit Facility (which includes $0.2 million of non-cash fee amortization), partially offset by the repayment of $56.1 million of mortgage loans during the second quarter of 2022.
General and administrative
The $1.1 million increase in general and administrative expenses during the three months ended March 31, 2023 compared to March 31, 2022 is primarily attributable to non-cash compensation cost for performance units granted on May 27, 2022 and certain executive LTIP Units granted on February 28, 2023 of approximately $1.4 million which was partially offset by a decrease in payroll and travel related costs.
Professional fees
Professional fees decreased by approximately $0.1 million during the three months ended March 31, 2023 compared to March 31, 2022. The decrease was primarily attributable to lower utilization of professional services firms including consulting, advisory and legal service providers.
Organizational, offering and other costs
On May 27, 2022, the Company entered into an Agreement and Plan of Merger (the “MIT Merger Agreement”) by and between the Company and Mobile Infrastructure Trust, a Maryland real estate investment trust (“MIT”). Pursuant to the terms of the MIT Merger Agreement, the Company would merge with and into MIT, with MIT continuing as the surviving entity resulting from the transaction. Prior to and as a condition to the merger with MIT, MIT expected to undertake an initial public offering of its common shares of beneficial interest. Also, in March 2022, the Company had entered into an agreement with MIT, requiring the Company to be allocated, bear and (where practicable) pay directly certain costs and expenses related to the Company's increased usemerger with MIT. In connection with the execution of debtthe Merger Agreement with FWAC, the MIT Merger Agreement and the cost allocation agreement with MIT were terminated.
The $0.9 million decrease in organizational, offering and other costs during the three months ended March 31, 2023 compared to acquire properties. To maximizeMarch 31, 2022 is due to the usetermination of our cash,the MIT Merger Agreement and other transactions primarily attributable to legal and accounting fees.
Depreciation and amortization expenses
The $0.1 million increase in depreciation and amortization expenses during the three months ended March 31, 2023 compared to March 31, 2022 is due to the one property acquired during the second quarter of 2022.
| | | For the Three Months Ended March 31, | |
| | | 2023 | | | 2022 | | | $ Change | | | % Change | |
Other income (expense) | | | | | | | | | | | | | | | | |
Gain on sale of real estate | | | 660 | | | | — | | | | 660 | | | | 100.0 | % |
Other income | | | 15 | | | | 61 | | | | (46 | ) | | | (75.4 | )% |
Total other expense | | $ | 675 | | | $ | 61 | | | $ | 614 | | | | 1006.8 | % |
Gain on sale of real estate
On February 28, 2023, the Company sold a parking lot located in Wildwood, New Jersey for $1.5 million, resulting in a gain on sale of real estate of approximately $0.7 million. The Company received net proceeds of approximately $0.3 million after the repayment of the outstanding mortgage loan, interest and transaction costs.
Liquidity and Capital Resources
Effective March 29, 2022, the Company secured a $75.0 million Revolving Credit Facility with a $75.0 million accordion feature (the “Revolving Credit Facility”) with KeyBanc Capital Markets, as lead arranger, and KeyBank National Association, as administrative agent. During the second quarter of 2022, the Company drew on $73.7 million of the available $75.0 million to pay off the outstanding balances of near-term debt maturities as well as fund the acquisition of one parking asset. The $75.0 million accordion feature of the Revolving Credit Facility can be utilized for acquisitions, capital expenditures and other working capital requirements.
The Company’s principal source of funds to meet our operating expenses, pay debt service obligations and make distributions to our stockholders will continue to look for opportunities to utilize financing on future acquisitions, including with the use of our line of credit with KeyBank or permanent debtbe rental income from tenants at the time of acquisitions. The interest expense will vary based onCompany’s parking facilities. Although the amount of our borrowings and current interest rates atCompany has no present intention to do so, the time of financing. The Company will seek to secure appropriate leverage with the lowest interest rate available to us. The terms of the loans will greatly depend on the quality of the property, the credit worthiness of the tenant and the amount of income the property is able to generate through our parking leases. There is no assurance, however,also may sell properties that the Company owns or place mortgages on properties that the Company owns to raise capital.
The Company has not entered into any swaps or hedges.
The Company’s short-term and long-term liquidity needs will consist primarily of funds necessary for payments of indebtedness, acquisitions of assets, capital expenditures, and costs associated with the Merger. Existing capital expenditure activities expected to be ablecompleted in the near-term for general deferred maintenance are expected to secure additional financing on favorable terms or at all. Interest expense recordedcost approximately $1.8 million.
Sources and Uses of Cash
The following table summarizes our cash flows for the three and nine months ended September 30, 2017 includes loan amortization costs. Total loan amortization cost forMarch 31, 2023 and 2022 (dollars in thousands):
| | | For the Three Months Ended March 31, | |
| | | 2023 | | | 2022 | |
Net cash (used in) operating activities | | $ | (3,063 | ) | | $ | (1,030 | ) |
Net cash provided by (used in) investing activities | | $ | 1,228 | | | $ | (132 | ) |
Net cash (used in) financing activities | | $ | (2,069 | ) | | $ | (1,288 | ) |
Comparison of the three and nine months ended September 30, 2017 was approximately $0.2 million and $0.4 million, respectively.
See Note J – Line of Credit and Note K – Notes Payable of the NotesMarch 31, 2023 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Funds from Operations and Modified Funds from Operations
The Advisor believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets 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 to be insufficient. Additionally, publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, the Company believes that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases.
In order to provide a more complete understanding of the operating performance of a REIT, the National Association of Real Estate Investment Trusts ("NAREIT") promulgated a measure known as funds from operations ("FFO"). FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, adding back asset impairment write-downs, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, the Company believes that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of the Company's performance relative to the Company's competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than the Company does, making comparisons less meaningful.
The Investment Program Association ("IPA") issued Practice Guideline 2010-01 (the "IPA MFFO Guideline") on November 2, 2010, which extended financial measures to include modified funds from operations ("MFFO"). In computing MFFO, FFO is adjusted for certain non-operating cash items such as acquisition fees and expenses and certain non-cash items such as straight-line rent, amortization of in-place lease valuations, amortization of discounts and premiums on debt investments, nonrecurring impairments of real estate-related investments, mark-to-market adjustments included in net income (loss), and nonrecurring gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Management is responsible for managing interest rate, hedge and foreign exchange risk. To achieve the Company's objectives, the Company may borrow at fixed rates or variable rates. In order to mitigate the Company's interest rate risk on certain financial instruments, if any, the Company may enter into interest rate cap agreements and in order to mitigate the Company's risk to foreign currency exposure, if any, the Company may enter into foreign currency hedges. The Company views fair value adjustments of derivatives, impairment charges and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Additionally, the Company believes it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations, assessments regarding general market conditions, and the specific performance of properties owned, which can change over time.
No less frequently than annually, the Company evaluates events and changes in circumstances that could indicate that the carrying amounts of real estate and related intangible assets may not be recoverable. When indicators of potential impairment are present, the Company assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) expected from the use of the assets and the eventual disposition. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of MFFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of the Company's operations, it could be difficult to recover any impairment charges through operational net revenues or cash flows prior to any liquidity event. The Company adopted the IPA MFFO Guideline as management believes that MFFO is a helpful indicator of the Company's on-going portfolio performance. More specifically, MFFO isolates the financial results of the REIT's operations. MFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, MFFO for the period presented may not be indicative of future results or the Company's future ability to pay the Company's dividends. By providing FFO and MFFO, the Company presents information that assists investors in aligning their analysis with management's analysis of long-term operating activities. MFFO also allows for a comparison of the performance of the Company's portfolio with other REITs that are not currently engaging in acquisitions, as well as a comparison of the Company's performance with that of other non-traded REITs, as MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and the Company believe often used by analysts and investors for comparison purposes. As explained below, management's evaluation of the Company's operating performance excludes items considered in the calculation of MFFO based on the following economic considerations:
· | Straight-line rent. Most of the Company's leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these periodic minimum rent payment increases during the term of a lease are recorded to rental revenue on a straight-line basis in order to reconcile the difference between accrual and cash basis accounting. As straight-line rent is a GAAP non-cash adjustment and is included in historical earnings, it is added back to FFO to arrive at MFFO as a means of determining operating results of the Company's portfolio.
|
· | Amortization of in-place lease valuation. As this item is a cash flow adjustment made to net income in calculating the cash flows provided by (used in) operating activities, it is added back to FFO to arrive at MFFO as a means of determining operating results of the Company's portfolio.
|
· | Acquisition-related costs. The Company was organized primarily with the purpose of acquiring or investing in income-producing real property in order to generate operational income and cash flow that will allow us to provide regular cash distributions to the Company's stockholders. In the process, the Company incurs non-reimbursable affiliated and non-affiliated acquisition-related costs, which in accordance with GAAP, are expensed as incurred and are included in the determination of income (loss) from operations and net income (loss). These costs have been and will continue to be funded with cash proceeds from the Offering or included as a component of the amount borrowed to acquire such real estate. If the Company acquires a property after all offering proceeds from the Offering have been invested, there will not be any offering proceeds to pay the corresponding acquisition-related costs. Accordingly, unless the Advisor determines to waive the payment of any then-outstanding acquisition-related costs otherwise payable to the Advisor, such costs will be paid from additional debt, operational earnings or cash flow, net proceeds from the sale of properties, or ancillary cash flows. In evaluating the performance of the Company's portfolio over time, management employs business models and analyses that differentiate the costs to acquire investments from the investments' revenues and expenses. Acquisition-related costs may negatively affect the Company's operating results, cash flows from operating activities and cash available to fund distributions during periods in which properties are acquired, as the proceeds to fund these costs would otherwise be invested in other real estate related assets. By excluding acquisition-related costs, MFFO may not provide an accurate indicator of the Company's operating performance during periods in which acquisitions are made. However, it can provide an indication of the Company's on-going ability to generate cash flow from operations and continue as a going concern after the Company ceases to acquire properties on a frequent and regular basis, which can be compared to the MFFO of other non-listed REITs that have completed their acquisition activity and have similar operating characteristics to the Company. Management believes that excluding these costs from MFFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management.
|
For all of these reasons, the Company believes the non-GAAP measures of FFO and MFFO, in addition to income (loss) from operations, net income (loss) and cashthree months ended March 31, 2022:Cash flows from operating activities as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of
the Company's real estate portfolio. However, a material limitation associated with FFO and MFFO is that they are not indicative of the Company's cash available to fund distributions since other uses of cash, such as capital expenditures at the Company's properties and principal payments of debt, are not deducted when calculating FFO and MFFO. Additionally, MFFO has limitations as a performance measure in an offering such as the Company's where the price of a share of common stock is a stated value. The use of MFFO as a measure of long-term operating performance on value is also limited if the Company does not continue to operate under
the Company's current business plan as noted above. MFFO is useful in assisting management and investors in assessing the Company's on-going ability to generate cash flow from operations and continue as a going concern in future operating periods, and in particular, after the Offering and acquisition stages are complete and net asset value ("NAV") is disclosed. However, MFFO is not a useful measure in evaluating NAV because impairments are taken into account in determining NAV but not in determining MFFO. Therefore, FFO and MFFO should not be viewed as more prominent a measure of performance than income (loss) from operations, net income (loss) or to cash flows from operating activities and each should be reviewed in connection with GAAP measurements.
Neither the SEC, NAREIT, nor any other organization body has opined on the acceptability of the adjustments contemplated to adjust FFO in order to calculate MFFO and its use as a non-GAAP performance measure. In the future, the SEC or NAREIT may decide to standardize the allowable exclusions across the REIT industry, and the Company may have to adjust the calculation and characterization of this non-GAAP measure.
The Company's calculation of FFO and MFFO, attributable to shareholders is presented in the following table for the three and nine months ended September 30, 2017 and 2016.
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| Net loss attributable to MVP REIT II, Inc. common shareholders | | $ | (604,000 | ) | | $ | (1,589,000 | ) | | $ | (5,157,000 | ) | | $ | (2,534,000 | ) |
| Add (Subtract): | | | | | | | | | | | | | | | | |
| Gain on Sale of real estate | | | (1,200,000 | ) | | | -- | | | | (1,200,000 | ) | | | -- | |
| Depreciation of real estate assets | | | 508,000 | | | | 43,000 | | | | 1,404,000 | | | | 46,000 | |
| FFO | | $ | (1,296,000 | ) | | $ | (1,546,000 | ) | | $ | (4,953,000 | ) | | $ | (2,488,000 | ) |
| Add: | | | | | | | | | | | | | | | | |
| Acquisition fees and expenses to non-affiliates | | | 113,000 | | | | 529,000 | | | | 2,156,000 | | | | 748,000 | |
| Acquisition fees and expenses to affiliates | | | -- | | | | 1,011,000 | | | | 1,710,000 | | | | 1,427,000 | |
| Acquisition / Merger costs | | | 824,000 | | | | -- | | | | 1,596,000 | | | | -- | |
| MFFO attributable to MVP REIT II, Inc. shareholders | | $ | (359,000 | ) | | $ | (6,000 | ) | | $ | 509,000 | | | $ | (313,000 | ) |
| Distributions paid to Common Shareholders | | $ | 481,000 | | | $ | 221,000 | | | $ | 1,402,000 | | | $ | 359,000 | |
Capital and Liquidity Resources
The Company commenced operations on December 30, 2015.
The Company's principal demand for funds is for the acquisition of real estate assets, the payment of operating expenses, capital expenditures, interest on the Company's outstanding indebtedness and the payment of distributions to the Company's stockholders. Over time, the Company intends to generally fund its operating expenses from its cash flow from operations. The cash required for acquisitions and investments in real estate will be funded primarily from the sale of shares of the Company's common stock, including those offered for sale through the Company's distribution reinvestment plan, dispositions of properties in the Company's portfolio and through third party financing and the assumption of debt on acquired properties.
The Company anticipates raising additional funds through equity financings, such as private placements of its preferred stock, as well as through additional debt financing. As of September 30, 2017, the Company had raised approximately $2.6 million in funds from the private placements of Series A Convertible Redeemable Preferred Stock and approximately $11.8 million in funds from the private placements of Series 1 Convertible Redeemable Preferred Stock. The Company continues to raise additional funds through private placements of Series 1 Convertible Redeemable Preferred Stock.
Net cash used in operating activities for the ninethree months ended September 30, 2017 totaled approximately $9.0 million. OperatingMarch 31, 2023 was primarily attributable to a $0.3 million increase in revenue and $0.3 decrease in property operating expenses (partially offset by an increase of $0.1 million in property taxes), an increase in cash flows were usedpaid for interest, real estate tax payments due earlier in the year and payment of normal operating expenses such as managementcertain general and administrative and professional fees insurance, accounting fees and legal bills. Netthat were accrued for in the fourth quarter of 2022.Cash flows from investing activities
The cash provided by investing activities during the three months ended March 31, 2023 was primarily attributable to proceeds from the sale of one parking asset in February 2023. The cash used in investing activities totaled approximately $76.2during the three months ended March 31, 2022 was primarily attributable to routine and strategic capital expenditures.
Cash flows from financing activities
The cash used in financing activities during the three months ended March 31, 2023 was primarily attributable to principal payments on mortgage loans, including $1.0 million and mainly consisted of purchase of investmentsfor the one parking asset sold in real estate totaling $81.2 million (with proceeds fromFebruary 2023, as well as distribution payments to non-controlling interest totaling $5.1 million and use of deposits from prior periods totaling $4.5 million), building improvements of approximately $2.0 million, additional investmentholders in Houston Preston of approximately $1.0 million and the purchase of an investmentMVP St. Louis Cardinal Lot, DST. The cash used in a DST for $2.8 million. Net cash provided by financing activities totaled approximately $82.9 million and mainly consisted of proceeds from notes payable of approximately $75.8 million, proceeds from
during the
Company's KeyBank line of credit of approximately $32.6 million, proceeds from issuance of preferred stock of approximately $14.3 million, proceeds from issuance of common stock of approximately $5.8 million, netted withthree months ended March 31, 2022 was primarily attributable to principal payments on the KeyBank line of credit of approximately $39.5 million, distributions to non-controlling interests of approximately $1.8 million, payments on notes payable of approximately $1.4 million, distributions to stockholders of approximately $1.8 millionmortgage loans and loan fees paidon the Revolving Credit Facility.
Net cash used in operating activities for the nine months ended September 30, 2016 totaled approximately $1.8 million. Operating cash flows were used for the payment of normal operating expenses. Net cash used in investing activities totaled approximately $40.4 million and consisted of investments in real estate of approximately $36.6 million, investment in equity method investee of approximately $0.6 million, investments in cost method investees of approximately $1.4 million, investment in cost method investees held for sale of approximately $0.8 million and security deposits on future acquisitions of approximately $1 million. Net cash provided by financing activities totaled approximately $42.7 million and consisted of proceeds from issuance of common stock of approximately $42.6 million, proceeds from notes payable related to a cost method investment property of approximately $0.4 million, distributions of approximately $0.1 million and payments on notes payable of approximately $0.1 million.
Company Indebtedness
On October 5, 2016,March 29, 2022, the Company through itsentered into the Credit Agreement which includes the Revolving Credit Facility. During 2022, the Company used $73.7 million of available capacity to refinance certain of the Company’s current loans for various properties and to finance the acquisition of a parking garage in June 2022. The remaining capacity of $1.3 million may also be available for our general corporate purposes, including liquidity, acquisitions and working capital. The Company borrows under the Revolving Credit Facility in U.S. dollars and expects borrowings to bear interest at a floating rate based upon a Secured Overnight Financing Rate, or SOFR, benchmark rate or an alternate base rate, plus a margin of between 1.75% and 3.00%, with respect to SOFR loans, or 0.75% to 2.00%, with respect to base rate loans, based on the leverage ratio as calculated pursuant to our Revolving Credit Facility.
The obligations under the Credit Agreement underlying the Revolving Credit Facility are guaranteed by the Company and other guarantors. The Credit Agreement contains customary representations, warranties, conditions to borrowing, covenants and events of default, including certain covenants that limit or restrict, subject to certain exceptions, the ability of the Company, the Operating Partnership and MVP REIT, through a wholly owned subsidiary (the "Borrowers"), enteredother subsidiaries to sell or transfer assets, enter into a credit agreement (the "Unsecured Credit Agreement")merger or consolidate with KeyBank, National Association ('KeyBank") as the administrative agent and KeyBank Capital Markets ("KeyBank Capital Markets") as the lead arranger. Pursuant to the Unsecuredanother company, create liens, make investments or acquisitions or incur certain indebtedness. The Credit Agreement also includes financial covenants that require the Borrowers were provided withCompany to (i) maintain a $30total leverage ratio not to exceed 65.0%, (ii) not to exceed certain fixed charge coverage ratios, and (iii) maintain a certain tangible net worth.
As of March 31, 2023, $73.7 million unsecured credit facility (the "Unsecuredwas outstanding under the Revolving Credit Facility"),Facility.
On November 17, 2022, the Company executed an amendment to Credit Agreement which may be increased up to $100 million, in minimum incrementsextends the maturity of $10 million. The Unsecuredthe Revolving Credit Facility has an initialto April 1, 2024, amends certain financial covenants through the new term, of two years, maturing on October 5, 2018, and may be extendedadds a requirement for a one-year period if certain conditions are met and upon payment of an extension fee. The Unsecured Credit Facility has an annual interest rate calculated based on LIBOR Rate plus 2.25% or Base Rate plus 1.25%, both as provided in the Unsecured Credit Agreement. The Base Rate is calculated as the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%. Payments under the Unsecured Credit Facility are interest only and are due on the first day of each quarter. The obligations of the Borrowers of the Unsecured Credit Agreement are joint and several. The REITs have entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement.
On June 26, 2017, the Company and MVP REIT (together, the "REITs"), each through a wholly owned subsidiary, MVP REIT II Operating Partnership, LP and MVP Real Estate Holdings, LLC (together, the "Borrowers"), entered into a credit agreement (the "Working Capital Credit Agreement") with KeyBank, National Association ("KeyBank") as the administrative agent and KeyBanc Capital Markets ("KeyBanc Capital Markets") as the lead arranger. Pursuant to the Working Capital Credit Agreement, the Borrowers were provided with a $6.0 million credit facility (the "Total Commitment"), which may be increased upuse diligent efforts to $10 million, in minimum increments of $1 million. The Total Commitment haspursue an initial term of six months, maturing on December 26, 2017. The Working Capital Credit Agreement has an interest rate calculated based on LIBOR Rate plus 4.5%equity raise or Base Rate plus 3.5%, both as provided in the Working Capital Credit Agreement. The Base Rate is calculated as the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%. Payments under the Working Capital Credit Facility require 100% of the net proceeds of all capital events and equity issuancesliquidity event by the REITs within 5 business days of receipt. The obligations of the Borrowers of the Unsecured Credit Agreement are joint and several. The REITs have entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement.
As of September 30, 2017, the balance on the Working Capital Credit Facility was approximately $1.5 million (net of unamortized loan costs), of which our portion of the current draw was approximately $1.5 million. As of September 30, 2017, the REITs had an additional available draw of approximately $4.4 million. The Company used net proceeds from the private placement of the Series 1 Convertible Redeemable Preferred Stock to paydown the $1.5 million in October 2017. For the three and nine months ended September 30, 2017, we expensed approximately $49,000 in interest expense. For the three and nine months ended September 30, 2017, we expensed approximately $1,600 in unused line fees associated with our draw. Total loan amortization cost for the three and nine months ended September 30, 2017 were $50,000 and $53,000, respectively. As of November 14, 2017, the balance on the Working Capital Line of Credit was approximately zero.
March 31, 2023. In connection with
our KeyBank Unsecured Credit Agreement,this extension, the
Borrowers are required to maintain a minimum liquidity requirementCompany paid an extension fee of
$2.0 million,$375,000 (plus expenses) which is
defined asbeing deferred and amortized over the
sum of unencumbered cash and cash equivalentsnew term of the
Borrower andRevolving Credit Facility to interest expense on the consolidated statement of operations.As of March 31, 2023, the Company was not in compliance with all applicable covenants in agreements governing its Subsidiaries. In addition,debt, resulting in events of default. Additionally, based on the loan with Bank of AmericaCompany’s expected financial performance for the MVP Detroit Center Parking garagetwelve-month period subsequent to the filing of the March 31, 2023 Form 10-Q, the Company expects that it will not be in compliance with a financial covenant under the Revolving Credit Facility, which would result in an event of default. Such event allows the lender to accelerate the maturity of the debt under the Revolving Credit Facility which carries a balance of $73.7 million as of March 31, 2023. Further, our independent auditor included an explanatory paragraph regarding our ability to continue as a “going concern” in its report on our financial statements for the year ending December 31, 2022 (as included in our Form 10-K), which constitutes an event of default under our Revolving Credit Facility. The Revolving Credit Facility also requires the Company and MVP REIT to maintaininitiate an equity raise in order to achieve a combined $2.3 million liquidity, which is definedfixed charge coverage ratio (“FCCR”) of 1.4 to 1.0 as unencumbered cash and cash equivalents. As of November 14, 2017, the Company and MVP REIT were in compliance with both of these lender requirements.
The Company will experience a relative decrease in liquidity as offering proceeds are used to acquire and operate assets and may experience a temporary, relative increase in liquidity if and when investments are sold, to the extent such sales generate proceeds that are available for additional investments. The Advisor may, but is not required to, establish working capital reserves from offering proceeds of cash flow generated by the Company's investments or out of proceeds from the sale of investments.March, 31, 2023. The Company does not anticipate establishingcurrently have sufficient cash on hand, liquidity or projected future cash flows to repay these outstanding amounts upon an event of default. These conditions and events raise substantial doubt about the Company’s ability to continue as a general working capital reserve; however,going concern.In response to these conditions, management’s plans include the following:
| 1. | Capitalizing on recent business development initiatives that we anticipate will improve total revenues through increased utilization of our parking assets and in many cases at higher average ticket rates. |
| 2. | Management is budgeting reduced overhead costs in 2023 through the reduction or elimination of certain controllable expenses. |
| 3. | We are pursuing further amendments and/or extensions with respect to the Revolving Credit Facility, including waivers of noncompliance with covenants. |
| 4. | We have initiated equity raise or liquidity events, including the proposed merger with Fifth Wall Acquisition Corporation III. |
However, there can be no assurance that we will be successful in completing any of these options. As a result, management’s plans cannot be considered probable and thus does not alleviate substantial doubt about our ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts of liabilities that might result from the outcome of this uncertainty.
Over time, management intends to both extend and sculpt our maturity wall, so that our maturities are spread over multiple years. As of the date of this filing, the Company has significant commercial mortgage-backed securities (“CMBS”) debt with prohibitive defeasance, which will limit our ability to refinance our CMBS debt prior to the maturity date or any permitted prepayment date. As our loans approach maturity, we will assess the lowest cost, most flexible options available to the Company and refinance those loans accordingly. Our intent over the mid-term period is to work with lending relationships to maintain a revolver that can address upcoming maturities, should market conditions not permit us to refinance with longer-term debt.
The Company may establish capital reserves with respect to particular investments. The Company also may, but is not required to, establish reserves out of cash flow generated by investments or out of net sale proceeds in non-liquidating sale transactions. Working capital reserves are typically utilized to fund tenant improvements, leasing commissions and major capital expenditures.
The
Company'sCompany’s lenders also may require working capital reserves.
Distributions on Common Stock
On March 22, 2018, the extentCompany suspended the payment of distributions on its Common Stock. There can be no assurance that the working capital reserve is insufficient to satisfy the Company'scash requirements, additional funds may be provided from cash generated from operations or through short-term borrowing. In addition, subjectdistributions to the limitations previously described in the Company's prospectus, the Company may incur indebtedness in connection with the acquisition of any real estate asset, refinance the debt thereon, arrange for the leveraging of any previously unfinanced property or reinvest the proceeds of financing or refinancing in additional properties.
The Company's management is not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting the Company's targeted portfolio, the U.S. parking facility industry, which may reasonably be expected to have a material impact on either capital resources or the revenues or incomes to be derived from the operation of the Company's assets.
In addition to making investments in accordance with the Company's investment objectives, the Company expects to use its capital resources to make certain payments to the Company's advisor and the selling agent(s). During the acquisition and development stage, the Company expects to make payments to the Company's advisor in connection with the selection or purchase of investments, the management of the Company's assets and costs incurred by the Company's advisor in providing services to us. For a discussion of the compensation to be paid to the Company's advisor, see "Fees and Expenses Paid in Connection with the Operations of the Company", included in Note E — Related Party Transactions and Arrangements Part I, Item 1 Financial Statements of this Quarterly Report on Form 10-Q for more information. The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of the Company's advisor and the Company's board of directors.
Management Compensation Summary
The following table summarizes all compensation and fees incurred by us and paid or payable to the Company's Advisor and its affiliates in connection with the Company's organization operations for the three and nine months ended September 30, 2017 and, 2016.
| | | For the three months ended September 30, | | | For the nine months ended September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | |
| Acquisition Fees – related party | | $ | -- | | | $ | 1,011,000 | | | $ | 1,710,000 | | | $ | 1,427,000 | |
| Asset Management Fees | | | 345,000 | | | | 51,000 | | | | 839,000 | | | | 66,000 | |
| Total | | $ | 345,000 | | | $ | 1,062,000 | | | $ | 2,549,000 | | | $ | 1,493,000 | |
Distributions and Stock Dividends
The Company intends to make regular cash and stock distributions to itsCompany’s common stockholders and cash distributed to its Series A preferred stock and Series 1 preferred stock, typically on a monthly basis.will be resumed in the future. The actual amount and timing of distributions, if any, will be determined by the
Company's boardCompany’s Board of directorsDirectors in its discretion and typically will depend on the amount of funds available for distribution, which is impacted by current and projected cash requirements, tax considerations and other factors. As a result, various factors that the Company's
distribution rate Board of Directors deems relevant.The Company does not currently, and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, the Company must make distributions equal to at least 90% of its REIT taxable income each year.
Common Stock
On October 23, 2015, the Company announced that its board of directors has approved a plan for payment of initial monthly cash distributions of $0.0625 per share and monthly stock dividends $0.0625 per share, based on a purchase price of $25.00 per common share, commencing after the Company breaks escrow upon receiving subscriptions for the minimum offering amount of $2 million. The initial cash distribution and stock dividend were paid on February 10, 2016 to stockholders of record as of January 24, 2016. The initial cash distributions were paid from offering proceeds rather than funds from operations and therefore may represent a return of capital. There can be no assurance that distributions and dividends will continue to be paid at this rate. The Company's board of directors may at any time change the distribution and dividend rate or suspend payment of distributions and dividends if it determines that such action isnot in the best interest of the Company and its stockholders. The Company expects that its board of directors will continue to authorize, and it will declare, distributions based on a record date on the 24th of each month, and it expects to continue to pay distributions on the 10th day of the following month (or the next business day if the 10th is not a business day), monthly in arrears. The Company has not established a minimum distribution level, and its charter does not require that it make distributions to its stockholders; however, the Company anticipates the payment of monthly distributions. The Company may also make special stock dividends.
From inception through September 30, 2017, the Company had paid approximately $0.8 million in cash, issued 54,336 shares of its common stock as DRIP and issued 85,358 shares of its common stock as dividend in distributions to the Company's stockholders. All of the cash distributions were paid from offering proceeds and constituted a return of capital. The Company's total distributions paid for the period presented, the sources of such distributions, the cash flows provided by (used in) operations and the number of shares of common stock issued pursuant to the Company's distribution reinvestment plan, or DRIP, are detailed below.
To date, all distributions were paid from offering proceeds and therefore may represent a return of capital.
| | | Distributions paid in Cash | | | Distributions paid through DRIP | | | Total Distributions Paid | | | Cash Flows Used in Operations (GAAP basis) | |
1st Quarter, 2017 | | $ | 161,000 | | | $ | 285,000 | | | $ | 446,000 | | | $ | (3,672,000 | ) |
2nd Quarter, 2017 | | | 168,000 | | | | 307,000 | | | | 475,000 | | | | (3,943,000 | ) |
3rd Quarter, 2017 | | | 172,000 | | | | 309,000 | | | | 481,000 | | | | (1,623,000 | ) |
| Total 2017 | | $ | 501,000 | | | $ | 901,000 | | | $ | 1,402,000 | | | $ | (9,238,000 | ) |
| | | Distributions paid in Cash | | | Distributions paid through DRIP | | | Total Distributions Paid | | | Cash Flows Used in Operations (GAAP basis) | |
1st Quarter, 2016 | | $ | 10,000 | | | $ | 14,000 | | | $ | 24,000 | | | $ | (134,000 | ) |
2nd Quarter, 2016 | | | 47,000 | | | | 67,000 | | | | 114,000 | | | | (435,000 | ) |
3rd Quarter, 2016 | | | 85,000 | | | | 136,000 | | | | 221,000 | | | | (1,181,000 | ) |
4th Quarter, 2016 | | | 132,000 | | | | 241,000 | | | | 373,000 | | | | (1,894,000 | ) |
| Total 2016 | | $ | 274,000 | | | $ | 458,000 | | | $ | 732,000 | | | $ | (3,644,000 | ) |
As of September 30, 2017, the Company issued 85,358 shares of its common stock as dividend distribution made to the Company's stockholders through the DRIP.
Preferred Series A Stock
The Company offered up to $50 million in shares of the Company's Series A Convertible Redeemable Preferred Stock ("Series A"), par value $0.0001 per share, together with warrants to acquire the Company's common stock, in a Regulation D 506(c) private placement to accredited investors. In connection with the private placement, on October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock. The Company commenced the private placement of the Shares to accredited investors on November 1, 2016 and closed the offering on March 24, 2017. The Company raised approximately $2.6 million, net of offering costs, in the Series A private placements.
The offering price was $1,000 per share. In addition, each investor in the Series A received, for every $1,000 in shares subscribed by such investor, 30 detachable warrants to purchase shares of common stock, par value $0.0001 per share, of the Company if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of November 14, 2017, there were potentially 85,740 detachable warrants that may be exercised after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event.
From inception through September 30, 2017, the Company has paid $87,000 in distributions for Series A stockholders, all of which were paid from offering proceeds and constituted a return of capital.
To date, all distributions were paid from offering proceeds and therefore may represent a return of capital.
| | | Total Series A Distributions Paid | | | Cash Flows Used in Operations (GAAP basis) | |
1st Quarter, 2017 | | $ | 5,000 | | | $ | (3,672,000 | ) |
2nd Quarter, 2017 | | | 41,000 | | | | (3,943,000 | ) |
3rd Quarter, 2017 | | | 41,000 | | | | (1,623,000 | ) |
| Total 2017 | | $ | 87,000 | | | $ | (9,238,000 | ) |
Preferred Series 1 Stock
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock ("Series 1"), par value $0.0001 per share. On April 7, 2017, the Company commenced the Regulation D 506(b) private placement of shares of Series 1, together with warrants to acquire the Company's common stock, to accredited investors. As of November 14, 2017, the Company had raised approximately $21.6 million, net of offering costs, in the Series 1 private placements and had 21,628 shares of Series 1 issued and outstanding.
The offering price is $1,000 per share. In addition, each investor in the Series 1 will receive, for every $1,000 in shares subscribed by such investor, 35 detachable warrants to purchase shares of common stock, par value $0.0001 per share, of the Company if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of November 14, 2017, there were potentially 750,855 detachable warrants that may be exercised after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event.
From inception through September 30, 2017, the Company has paid $112,000 in distributions forSeries 1 stockholders, all of which were paid from offering proceeds and constituted a return of capital.
To date, all distributions were paid from offering proceeds and therefore may represent a return of capital.
| | | Total Series 1 Distributions Paid | | | Cash Flows Used in Operations (GAAP basis) | |
1st Quarter, 2017 | | $ | -- | | | $ | (3,672,000 | ) |
2nd Quarter, 2017 | | | 14,000 | | | | (4,883,000 | ) |
3rd Quarter, 2017 | | | 98,000 | | | | (1,623,000 | ) |
| Total 2017 | | $ | 112,000 | | | $ | (10,178,000 | ) |
The Company may notfuture, generate sufficient cash flow from operations to fully fund distributions. AllThe Company does not currently anticipate that it will be able to resume the payment of distributions on its Common Stock. However, if distributions do resume, all or a portion of the distributions may be paid from other sources, such as cash flows from equity offerings, financing activities, borrowings, cash advances from the Advisor, or by way of waiver or deferral of fees. The Company has not established any limit on the extent to which distributions could be funded from these other sources. Accordingly, the amount of distributions paid may not reflect current cash flow from operations and distributions may include a return of capital, rather(rather than a return on capital.capital). If the Company continues to paypays distributions from sources other than cash flow from operations, the funds available to the Company for investments would be reduced and the share value may be diluted. The level of distributions will be determined by the boardBoard of directorsDirectors and depend on a number ofseveral factors including current and projected liquidity requirements, anticipated operating cash flows and tax considerations, and other relevant items deemed applicable by the boardBoard of directors.
Related-Party Transactions and Arrangements
Directors.The Company has entered into agreements with affiliatesdid not repurchase any of its Sponsor, wherebyshares during the three months ended March 31, 2023. No cash dividends can be made on the Common Stock until the preferred distributions are paid.
Dividend Reinvestment Plan
From inception through March 22, 2018, when the Company will pay certain fees
or reimbursementssuspended payment of distributions of Common Stock, the Company had paid approximately $1.8 million in cash, issued 83,437 shares of its Common Stock as a Dividend Reinvestment Plan (“DRIP”) and issued 153,826 shares of its Common Stock in distributions to the Advisor or its affiliates in connection with, among other things, acquisition and financing activities, asset management services and reimbursement of operating and offering related costs. See Note E — Related Party Transactions and Arrangements in in Part I, Item 1 Financial Statements of this Quarterly Report on Form 10-Q for a discussionCompany’s stockholders. All of the various related party transactions, agreementscash distributions were paid from offering proceeds and fees.
constituted a return of capital.Preferred Stock
On November 5, 2016,March 24, 2020, the Company purchased 338,409 sharesCompany’s Board of MVP REIT's common stock from an unrelated third party for $3.0 million or $8.865 per share. DuringDirectors unanimously authorized the three and nine months ended September 30, 2017, the Company received, approximately $23,000 and $122,000 in stock distributions, related to the Company's ownership of MVP REIT common stock.
Inflation
The Company expects to include provisions in its tenant leases designed to protect the Company from the impact of inflation. These provisions will include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases annual reimbursement of operating expenses above a certain allowance. Due to the generally long-term nature of these leases, annual rent increases may not be sufficient to cover inflation and rent may be below market.
The Company is organized and conducts operations to qualify as a REIT under Sections 856 to 860suspension of the Internal Revenue Codepayment of 1986, as amended (the "Code") and to comply with the provisions of the Internal Revenue Code with respect thereto. A REIT is generally not subject to federal income tax on that portion of its REIT taxable income ("Taxable Income"), which is distributed to its stockholders, provided that at least 90% of Taxable Income is distributed and provided that certain other requirements are met. Our Taxable Income may substantially exceed or be less than our net income as determined based on GAAP, because, differences in GAAP and taxable net income consist primarily of allowances for loan losses or doubtful account, write-downs on real estate held for sale, amortization of deferred financing cost, capital gains and losses, and deferred income.
If the Company does not qualify as a REIT for the tax year ended December 31,2017, we will file as a C corporation and deferred tax assets and liabilities will be established for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for the deferred tax assets is provided if we believe that it is more likely than not that we will not realize the tax benefit of deferred tax assets baseddistributions on the available evidence at the time the determination is made. For the tax year ended December 31, 2016, the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets, a valuation allowance should be recorded against our net deferred tax assets.
The Company will be electing to be treated as a REIT for the tax year beginning January 1, 2017 and ending December 31, 2017, and believes that it has been organized and has operated during 2017 in such a manner to meet the qualifications to be treated as a REIT for federal and state income tax purposes. During 2016, the Company was subject to U.S. federal and state income taxes as it will file income tax returns as a C corporation. As such, we account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. The Company believes that its income tax filing positions and deductions would be sustained upon examination; thus, the Company has not recorded any uncertain tax positions as of September 30, 2017.
Series A full valuation allowance for deferred tax assets was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets will more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur.
As a REIT, the Company will generally not be subject to corporate level federal income taxes on earnings distributed to our stockholders, and therefore may not realize deferred tax assets arising during the Company's pre-2017 periods before the Company became a REIT. The Company intends to distribute at least 100% of its taxable income annually and intends to do so for the tax year ending December 31, 2017 and future periods. Accordingly, the Company has not included any provisions for federal income taxes in the accompanying consolidated financial statements for the three and nine months ended September 30, 2017. The Company owns and rents real estate in various states and municipalities within the United States, and, as a result, the Company or one or more of its subsidiaries may have income or other tax return filing requirements, and may be subject to income or franchise taxes, in state and municipal jurisdictions.
The Company has a net deferred tax asset of $1.6 million which is subject to a full valuation allowance and thus is not recorded on the Company's balance sheet. The deferred tax asset is primarily made up of net operating losses and capitalized acquisition costs which are deducted for books but capitalized for tax. If the Company makes a REIT election, the net operating losses will not be available to offset future income; however they may be used to offset any built-in gains. Due to the valuation allowance, the Company's effective rate is approximately 0%.
REIT Compliance
The Company intends to qualify as a REIT for the year ended December 31, 2017 for federal income tax purposes, and therefore the Company generally will not be subject to federal income tax on income that the Company distributes to the stockholders. If the Company fails to qualify as a REIT in any taxable year, including and after the taxable year in which the Company initially elects to be taxed as a REIT, the Company will be subject to federal income tax on the taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied. Failing to qualify as a REIT could materially and adversely affect the Company's net income.
To qualify as a REIT for tax purposes, the Company will be required to distribute at least 90% of its REIT taxable income to the Company's stockholders. The Company must also meet certain asset and income tests, as well as other requirements. The Company will monitor the business and transactions that may potentially impact the Company's REIT status. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on the taxable income at regular corporate rates.
Off-Balance Sheet Arrangements
Convertible Redeemable Preferred Stock ("Series A Preferred Stock
Each investor in the Series A shall receive, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 30 shares of the Company's common stock,Stock"), par value $0.0001 per share,
ifand Series 1 Convertible Redeemable Preferred Stock ("Series 1 Preferred Stock" and, together with the
Company's common stock is listed on a national securities exchange. The warrants' exercise price is equalSeries A Preferred Stock, "Preferred Stock"), par value $0.0001 per share; however, such distributions will continue to
110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determinedaccrue in accordance with the terms of the
warrant; however,Series A Preferred Stock and Series 1 Preferred Stock.As of March 31, 2023 and 2022, approximately $0.7 million and $0.4 million of accrued and unpaid Series A Preferred Stock distributions, respectively, are included in no event shallaccrued preferred distributions on the consolidated balance sheet.
As of March 31, 2023 and 2022, approximately $8.6 million and $5.8 million of accrued and unpaid Series 1 Preferred Stock distributions, respectively, are included in accrued preferred distributions on the consolidated balance sheet.
Common Stock Warrants
In connection with the Company's recapitalization transaction in August 2021, the Company entered into a warrant agreement (the “Warrant Agreement”) pursuant to which it issued warrants (the “Warrants”) to Color Up to purchase up to 1,702,128 shares of Common Stock, at an exercise price be less than $25of $11.75 per share. Asshare for an aggregate cash purchase price of September 30, 2017, there were detachable warrants that may be exercised for 85,740 sharesup to $20.0 million (the “Common Stock Warrants”). Each whole Common Stock Warrant entitles the registered holder thereof to purchase one whole share of Common Stock at a price of $11.75 per share (the “Warrant Price”), subject to customary adjustments, at any time following a “Liquidity Event,” which is defined as an initial public offering and/or Listing of the Company's common stock afterCommon Stock on the 90th day followingNasdaq Global Market, the occurrence of a listing event. These potential warrantsNasdaq Global Select Market, or the New York Stock Exchange. The Common Stock Warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential Warrants outstanding at September 30, 2017 became exercisable because of a listing event, and were exercised at the minimum price of $25 per share, gross proceeds to us would be approximately $2.1 million and we would as a result issue an additional 85,740 shares of common stock.
See Note R — Preferred Stock and Warrants in in Part I, Item 1 Financial Statements of this Quarterly Report on Form 10-Q for a discussion of the various related party transactions, agreements and fees
Series 1 Preferred Stock
Each investor in the Series 1 shall receive, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 35 shares of the Company's common stock, par value $0.0001 per share, if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of September 30, 2017, there were detachable warrants that may be exercised for 466,795 shares of the Company's common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential Warrants outstanding at September 30, 2017 became exercisable because of a listing event, and were exercised at the minimum price of $25 per share, gross proceeds to us would be approximately $11.7 million and we would as a result issue an additional 466,795 shares of common stock.
See Note R — Preferred Stock and Warrants in in Part I, Item 1 Financial Statements of this Quarterly Report on Form 10-Q for a discussion of the various related party transactions, agreements and fees
Critical Accounting Policies
The Company's accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statementsWarrant Agreement.The Company assesses its warrants as either equity or a liability based upon the characteristics and the reported amountsprovisions of revenue and expenses during the reporting periods. If management's judgment or interpretation of the facts and circumstances relating to various transactions is different, it is possible that different accounting policies will be applied or different amounts of assets, liabilities, revenues and expenses will be recorded, resulting in a different presentation of the financial statements or different amounts reported in the financial statements.
Additionally, other companies may utilize different estimates that may impact comparability of the Company's results of operations to those of companies in similar businesses. Below is a discussion of the accounting policies that management considers to be most critical once the Company commences significant operations. These policies require complex judgment in their application or estimates about matters that are inherently uncertain.
Real Estate Investments
Investments in real estateeach instrument. Warrants classified as equity are recorded at cost. Improvements and replacements are capitalized when they extend the useful lifefair value as of the asset. Costsdate of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
The Company are required to make subjective assessments as to the useful lives of the Company's properties for purposes of determining the amount of depreciation to record on an annual basis with respect to the Company's investments in real estate. These assessments have a direct impact on the Company's net income because if the Company were to shorten the expected useful lives of the Company's investments in real estate, the Company would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
The Company is required to present the operations related to properties that have been sold or properties that are intended to be sold, as discontinued operations in the statement of operations for all periods presented. Properties that are intended to be sold are to be designated as "held for sale"issuance on the Company’s balance sheet.
Purchase Price Allocation
The Company allocates the purchase price of acquired propertiessheet and no further adjustments to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes variousvaluation are made. Management estimates processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third parties or on the Company's analysis of comparable properties in the Company's portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable.
The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company will include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized. Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on the Company's evaluation of the specific characteristics of each tenant's lease and the Company's overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of the Company's existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.
The value of in-place leases is amortized to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event, does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, the Company will utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company will also consider information obtained about each property as a result of the pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of these warrants using option pricing models and assumptions that are based on the tangible and intangible assets acquired and intangible liabilities assumed.
Deferred Costs
Deferred costs may consist of deferred financing costs, deferred offering costs and deferred leasing costs. Deferred financing costs represent commitment fees, legal fees, and other costs associated with obtaining commitments for financing. These costs are amortized over the termsindividual characteristics of the respective financing agreements usingwarrants or other instruments on the effectivevaluation date, as well as assumptions for future financings, expected volatility, expected life, yield and risk-free interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined that the financing will not close.
Contractual Obligations
rate. As of September 30, 2017, our contractual obligations consisted ofMarch 31, 2023, all outstanding warrants issued by the mortgage notes secured by our acquired properties and the Revolving Credit Facilities:
| Contractual Obligations | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | |
| Long-term debt obligations | | $ | 79,757,000 | | | $ | 173,000 | | | $ | 8,914,000 | | | $ | 2,076,000 | | | $ | 68,594,000 | |
| Lines of credit: | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | |
| Interest | | | -- | | | | -- | | | | -- | | | | -- | | | | -- | |
| Principal | | | 1,445,000 | | | | 1,445,000 | | | | -- | | | | -- | | | | -- | |
| Total | | $ | 81,202,000 | | | $ | 1,618,000 | | | $ | 8,914,000 | | | $ | 2,076,000 | | | $ | 68,594,000 | |
Contractual obligation table amount does not reflect the unamortized loan issuance costs of approximately $0.9 million for notes payable and approximately $0.2 million for the line of creditCompany were classified as of September 30, 2017.
Subsequent Events
See Note S — Subsequent Events in in Part I, Item 1 Financial Statements of this Quarterlyequity.Critical Accounting Policies
Our 2022 Annual Report on Form 10-Q for10-K, filed with the U.S. Securities and Exchange Commission (the "SEC") on March 22, 2023, contains a discussiondescription of the various subsequent events.our critical accounting policies and estimates, including those relating to real estate investments and acquisitions. There have been no significant changes to our critical accounting policies during 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting company.
applicable.ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company'sIn connection with the filing of this Form 10-Q for the quarter ended March 31, 2023, our Chief Executive Officer (“CEO”) and our Chief Financial Officer have(“CFO”) evaluated the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,1934. As a result of this evaluation, our CEO and CFO concluded that the material weaknesses previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2022, were still present as of March 31, 2023 (“the Evaluation Date”). Based on those material weaknesses, and the evaluation of our disclosure controls and procedures, our CEO and CFO concluded that our disclosure controls and procedures were not effective as of the endEvaluation Date.
(b) Remediation Plan and Status
Our remediation efforts previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2022, are ongoing and we continue our initiatives to implement and document policies, procedures, and internal controls. Remediation of the period coveredidentified material weaknesses and strengthening our internal control environment will require a substantial effort throughout 2023 and beyond. While we believe the steps taken to date and those planned for implementation will improve our internal controls over financial reporting, we have not completed all remediation efforts. The planned remediation activities described in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2022 highlight our commitment to remediating our identified material weaknesses and remain largely unchanged through the date of filing this Quarterly Report.
The following remedial actions have been identified and initiated by this report,the Company through March 31, 2023:
| ● | We have hired a Chief Accounting Officer and will hire (as needed) and train additional accounting resources with appropriate levels of experience and reallocating responsibilities across the finance organization. This measure provides for segregation of duties and ensures that the appropriate level of knowledge and experience will be applied based on the risk and complexity of transactions and tasks under review. |
| ● | We will continue to educate control owners and enhance policies to ensure appropriate restrictions related to user access and privileged access are in place. |
| ● | We have re-evaluated the permissions of user roles within our accounting system and have re-assigned access to individuals in order to establish more appropriate segregation of duties. |
| ● | We have enhanced internal control documentation for key controls to ensure the assignment of preparers and reviewers, and establishing policies for the formal sign-off of key controls. |
| ● | Beginning with the third quarter of 2022, we established a formal Disclosure Committee to enhance governance by management for the oversight of internal controls over financial reporting, including disclosure controls and procedures. |
| ● | We have provided access to accounting literature and research to enable the control owners in evaluating technical accounting pronouncements for certain transactions, in addition to utilizing third party resources when appropriate. |
| ● | Through our continued remediation efforts, we have identified and recorded certain accounting adjustments during the third and fourth quarters of 2022 that were considered immaterial, individually and in the aggregate, to our consolidated financial statements taken as a whole for the affected periods. Our continued remediation activities will include the designing of internal control policies and practices that directly respond to these accounting adjustments. |
As the Company continues to evaluate and they have concludedworks to improve its internal control over financial reporting, the Company’s management may determine that these controls and proceduresadditional or different measures to address control deficiencies or modifications to the remediation plan are effective.
(b)necessary.(c) Changes in Internal Control over Financial Reporting
During the third quarter 2017, the Company took additional steps to identify revenue from all sources to improve our quarterly REIT testing process. In addition, numerous employees of the Advisor completed additional REIT compliance training as conducted by Morrison & Foerster LLP's REIT experts. The Company believes these additional procedures and controls have been effective in regards to our REIT testing. The Company will continue to monitor these controls on an on-going basis to evaluate their effectiveness. There have been no other changes in internal control over financial reporting during the thirdfirst quarter of 2017,2023, that have materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
On May 19, 2017, the Audit Committee
During the Company's two most recent fiscal years ended December 31, 2015 and 2016 and the period from January 1, 2017 through November 14, 2017, the Company did not consult with RSM on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on the Company's consolidated financial statements, and RSM did not provide either a written report or oral advice to the Company that was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) any matter that was the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.Contents
PART II OTHER INFORMATION
None.
ITEM 1. LEGAL PROCEEDINGS
The nature of the Company'sCompany’s business exposes its properties, the Company, its Operating Partnership and its operating partnershipother subsidiaries to the risk of claims and litigation in the normal course of business. Other than as noted above or routine litigation arising out of the ordinary course of business, the Company is not presently subject to any material legal proceedingslitigation nor, to the Company'sits knowledge, is any material legal proceedingslitigation threatened against the Company.
See Note M — Commitments and Contingencies in Part I, Item 1 Notes to the Consolidated Financial Statements of this Quarterly Report.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors set forth in our Annual Reportthe Company’s annual report on Form 10-K for the year ended December 31, 2016.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock ("Series 1"), par value $0.0001 per share. On April 7, 2017, the Company commenced the private placement of shares of Series 1, and warrants to acquire the Company's common stock, to accredited investors. During the third quarter of 2017, the Company had raised approximately $7.6 million, net of offering costs, in the Series 1 private placements and had issued 8,375 Series 1 shares and warrants to acquire 291,000 shares of our common stock issued and outstanding.
The Series 1 preferred stock and warrants have not been registered under the Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Company is relying on the private placement exemption from registration provided by Section 4(a)(2) of the Securities Act and by Rule 506(b) of Regulation D promulgated thereunder by the Securities and Exchange Commission (the "SEC"). The Company has filed file a Form D with the SEC in accordance with the requirements of Regulation D.
Use of Offering Proceeds
On October 22, 2015, the Company's registration statement on Form S-11 registering a public offering (No. 333-205893) of up to $550,000,000 in shares of the Company's common stock was declared effective under the Securities Act of 1933, as amended, or the Securities Act, and the Company commenced the initial public offering. The Company offered up to 20,000,000 shares of its common stock to the public in the primary offering at $25.00 per share and continues to offer up to 2,000,000 shares of its common stock pursuant to the distribution reinvestment plan at $25.00 per share. The Company entered into selling agreements with MVP American Securities, LLC ("MVP AS") and other non-affiliated selling agents to distribute shares of the Company's common stock to its clients. As of December 31, 2016, the Company ceased all selling efforts for the initial public offering but accepted additional subscriptions through March 31, 2017.
As of November 14, 2017, the Company had 2,612,182 shares of common stock issued and outstanding, 2,862 shares of preferred Series A stock and 21,629 shares of preferred Series 1 stock for a total of approximately $85.8 Million, less offering costs.
The following is a table of summary of offering proceeds from inception through September 30, 2017:
| Type | | Number of Shares - Preferred | | | Number of Shares - Common | | | Value | |
| Issuance of common stock | | | -- | | | | 2,451,238 | | | | 61,281,000 | |
| DRIP shares | | | -- | | | | 58,464 | | | | -- | |
| Issuance of preferred stock Series A | | | 2,862 | | | | -- | | | | 2,573,000 | |
| Issuance of preferred stock Series 1 | | | 13,445 | | | | -- | | | | 11,768,000 | |
| Dividend shares | | | -- | | | | 91,835 | | | | 2,296,000 | |
| Distributions | | | -- | | | | -- | | | | (1,210,000 | ) |
| Deferred offering costs | | | -- | | | | -- | | | | (1,086,000 | ) |
| Contribution from Advisor | | | -- | | | | -- | | | | 1,147,000 | |
| Total | | | 16,307 | | | | 2,601,537 | | | $ | 76,769,000 | |
From October 22, 2015 through September 30, 2017, the Company incurred organization and offering costs in connection with the issuance and distribution of the registered securities of approximately $1.1 million, which were paid to unrelated parties by the Sponsor. From October 22, 2015 through September 30, 2017, the net proceeds to the Company from its offerings, after deducting the total expenses and deferred offering costs incurred and paid by the Company as described above, were $76.8 million. A majority of these proceeds were used, along with other sources of debt financing, to make investments in parking facilities, and our portion of the total purchase price for these parking facilities was approximately $125.9 million, which includes our $2.8 million investment in the DST. In addition, a portion of these proceeds were used to make cash distributions of approximately $1.2 million to the Company's stockholders. The ratio of the costs of raising capital to the capital raised is approximately 1.5%.
Share Repurchase Program
As of September 30, 2017, the Company has not redeemed shares through the share repurchase program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE AND SAFETY DISCLOSURES
Not applicable
2022.ITEM 5. OTHER INFORMATION
During the third quarter of 2017, the Company is not aware of any information that was required to be disclosed in a report on Form 8-K that was not disclosed in a report on Form 8-K.
Exhibit No.2.1 | Description |
2.1(8) | First Amendment to Agreement and Plan of Merger, dated as of May 26, 2017,March 23, 2023, by and among MVP REIT, Inc., MVP REIT II, Inc., MVPFifth Wall Acquisition Corp. III, Queen Merger Sub, LLCCorp. I and MVP Realty Advisors, LLCMobile Infrastructure Corporation (Incorporated by reference as Exhibit 2.1 to Form 8-K filed March 23, 2023). |
3.1(1)3.1 | | Articles of Amendment and Restatement of MVPTHE PARKING REIT, II, Inc. (Incorporated by reference as Exhibit 3.1 to Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 filed September 24, 2015). |
3.2(2)3.2 | Bylaws | Articles of MVPAmendment of THE PARKING REIT, II, Inc. (Incorporated by reference as Exhibit 3.1 to Form 8-K filed December 18, 2017). |
3.3(7)3.3 | | Articles of Amendment of MOBILE INFRASTRUCTURE CORPORATION (Incorporated by reference as Exhibit 3.1 to Form 8-K filed November 12, 2021). |
| 3.4 | | Certificate of Correction to the Articles of Amendment and Restatement of Mobile Infrastructure Corporation (Incorporated by reference as Exhibit 3.1 to Form 8-K filed March 21, 2022). |
3.5 | | Articles Supplementary of MVP REIT II, Inc., designating 50,000 shares offor Series A Convertible Redeemable Preferred Stock of THE PARKING REIT, Inc. (Incorporated by reference as Exhibit 3.1 to Form 8-K filed October 28, 2016). |
3.3(9)3.6 | | Articles Supplementary of MVP REIT II, Inc., designating 97,000 shares offor Series 1 Convertible Redeemable Preferred Stock of THE PARKING REIT, Inc. (Incorporated by reference as Exhibit 3.1 to Form 8-K filed March 30, 2017). |
4.1(3)3.7 | | Amended & Restated Bylaws of MOBILE INFRASTRUCTURE CORPORATION. (Incorporated by reference as Exhibit 3.2 to Form of Subscription Agreement8-K filed November 12, 2021). |
4.2(4)31.1(*) | Distribution Reinvestment Plan |
4.3(5) | Amended and Restated Escrow Agreement, dated October 5, 2015, between MVP REIT II, Inc. and UMB Bank, N.A. |
4.4(6) | Second Amended and Restated Escrow Agreement, dated November 30, 2015, by and among MVP REIT II, Inc., MVP American Securities, LLC, and UMB Bank, N.A. |
4.5(7) | Form of warrants to acquire the Company's common stock |
10.1(8) | Second Amended and Restated Advisory Agreement, dated as of May 26, 2017, by and among MVP REIT II, Inc., MVP REIT II Operating Partnership, LP and MVP Realty Advisors, LLC |
10.2(8) | Termination and Fee Agreement, dated as of May 26, 2017, by and among MVP REIT, Inc., MVP REIT II, Inc., MVP Realty Advisors, LLC and MVP REIT II Operating Partnership, LP |
31.1(*) | Certification of Chief Executive Officer pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2(*) | | Certification of Chief Financial Officer pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. |
32(*) | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101(*) | | The following materials from the Company'sCompany’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2017,March 31, 2023, formatted in XBRL (eXtensibleiXBRL (inline extensible Business Reporting LanguageLanguage): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Stockholder'sStockholder’s Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Financial Statements. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. |
*104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | | Filed concurrently herewith. |
(1) | Filed previously with Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 on September 24, 2015, and incorporated herein by reference. |
(2) | Filed previously with the Registration Statement on Form S-11 on July 28, 2015, and incorporated herein by reference. |
(3) | Filed previously as Exhibit A to Supplement No. 1 to the Registrant's prospectus filed December 3, 2015, and incorporated herein by reference. |
(4) | Filed previously as Appendix D to the Registrant's prospectus filed October 23, 2015, and incorporated herein by reference. |
(5) | Filed previously with Pre-Effective Amendment No. 3 to the Registration Statement on Form S-11 on October 6, 2015, and incorporated herein by reference. |
(6) | Filed previously on Form 8-K on December 3, 2015, and incorporated herein by reference. |
(7) | Filed previously on Form 8-K on October 27, 2016 and incorporated herein by reference. |
(8) | Filed previously on Form 8-K on January 11, 2016 and incorporated herein by reference. |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | MVP REIT II, Inc.Mobile Infrastructure Corporation |
| | | |
| | By: | /s/ Michael V. ShustekManuel Chavez |
| | | Michael V. ShustekManuel Chavez |
| | | Chief Executive Officer and President |
| | Date: | November 15, 2017
May 12, 2023 |
| | | |
| | By: | /s/ Ed BentzenStephanie Hogue |
| | | Ed BentzenStephanie Hogue |
| | | President and Chief Financial Officer |
| | Date: | November 15, 2017
|
CERTIFICATIONS
I, Michael V. Shustek, certify that:
1. I have reviewed this Form 10-Q of MVP REIT II, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Intentionally omitted;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 15, 2017
/s/ Michael V. ShustekMay 12, 2023 |
Michael V. Shustek | | |
Chief Executive Officer and President
(Principal Executive Officer)
|
MVP REIT II, Inc. |
CERTIFICATIONS
I, Ed Bentzen, certify that:
1. I have reviewed this Form 10-Q of MVP REIT II, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Intentionally omitted;
(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 15, 2017
/s/ Ed Bentzen |
Ed Bentzen |
Chief Financial Officer |
(Principal Accounting Officer)
MVP REIT II, Inc.
|
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
Michael V. Shustek, as President and Chief Executive Officer of MVP REIT II, Inc. (the "Registrant"), and Ed Bentzen, as Chief Financial Officer of the Registrant, hereby certify, pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Registrant's Report on Form 10-Q for the nine months ended September 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: November 15, 2017
/s/ Michael V. Shustek |
Michael V. Shustek |
Chief Executive Officer and President
(Principal Executive Officer)
|
MVP REIT II, Inc. |
Date: November 15, 2017
/s/ Ed Bentzen |
Ed Bentzen |
Chief Financial Officer |
(Principal Accounting Officer)
MVP REIT II, Inc.
|
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