UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________
Commission file number 000-52610
LIGHTSTONE VALUE PLUS REIT I, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Maryland | 20-1237795 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| 1985 Cedar Bridge Avenue, Suite 1 | ||
Lakewood, New Jersey | 08701 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(732) 367-0129
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☑ | Smaller reporting company | ☑ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
As of AugustNovember 7, 2023, there were approximately million outstanding shares of common stock of Lightstone Value Plus REIT I, Inc., including shares issued pursuant to the dividend reinvestment plan.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
INDEX
i
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
| As of June 30, 2023 | As of December 31, 2022 | As of September 30, 2023 | As of December 31, 2022 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Assets | ||||||||||||||||
| Investment property: | ||||||||||||||||
| Land and improvements | $ | 95,788 | $ | 96,074 | $ | 95,776 | $ | 96,074 | ||||||||
| Building and improvements | 173,236 | 168,518 | 172,173 | 168,518 | ||||||||||||
| Furniture and fixtures | 17,086 | 17,184 | 17,133 | 17,184 | ||||||||||||
| Construction in progress | 1,248 | 22 | 1,343 | 22 | ||||||||||||
| Gross investment property | 287,358 | 281,798 | 286,425 | 281,798 | ||||||||||||
| Less: accumulated depreciation | (19,067 | ) | (15,728 | ) | (20,920 | ) | (15,728 | ) | ||||||||
| Net investment property | 268,291 | 266,070 | 265,505 | 266,070 | ||||||||||||
| Development project | 95,714 | 93,614 | 96,745 | 93,614 | ||||||||||||
| Investments in related parties | 738 | 6,898 | 435 | 6,898 | ||||||||||||
| Investment in unconsolidated affiliated entity | 17,447 | 19,794 | 16,421 | 19,794 | ||||||||||||
| Cash and cash equivalents | 11,559 | 12,211 | 8,548 | 12,211 | ||||||||||||
| Marketable securities | 43,402 | 45,924 | 39,053 | 45,924 | ||||||||||||
| Notes receivable, net | 34,918 | 48,059 | 35,000 | 48,059 | ||||||||||||
| Restricted cash | 4,951 | 10,372 | 2,394 | 10,372 | ||||||||||||
| Other assets | 9,213 | 6,952 | 9,502 | 6,952 | ||||||||||||
| Total Assets | $ | 486,233 | $ | 509,894 | $ | 473,603 | $ | 509,894 | ||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||
| Mortgages payable, net | $ | 258,114 | $ | 260,579 | $ | 256,558 | $ | 260,579 | ||||||||
| Accounts payable, accrued expenses and other liabilities | 17,185 | 18,716 | 18,921 | 18,716 | ||||||||||||
| Distributions payable | 3,807 | 3,825 | 1,897 | 3,825 | ||||||||||||
| Total Liabilities | 279,106 | 283,120 | 277,376 | 283,120 | ||||||||||||
| Commitments and contingencies | ||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||
| Company’s Stockholders’ Equity: | ||||||||||||||||
| Preferred shares, $ par value, million shares authorized, issued and outstanding | - | - | - | - | ||||||||||||
| Common stock, $ par value; million shares authorized, million and million shares issued and outstanding, respectively | 217 | 218 | 216 | 218 | ||||||||||||
| Additional paid-in-capital | 163,045 | 164,331 | 162,130 | 164,331 | ||||||||||||
| Accumulated other comprehensive loss | - | (159 | ) | - | (159 | ) | ||||||||||
| Accumulated surplus | 33,631 | 50,051 | 22,917 | 50,051 | ||||||||||||
| Total Company’s stockholders’ equity | 196,893 | 214,441 | 185,263 | 214,441 | ||||||||||||
| Noncontrolling interests | 10,234 | 12,333 | 10,964 | 12,333 | ||||||||||||
| Total Stockholders’ Equity | 207,127 | 226,774 | 196,227 | 226,774 | ||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 486,233 | $ | 509,894 | $ | 473,603 | $ | 509,894 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Rental revenues | $ | 2,537 | $ | 2,363 | $ | 4,950 | $ | 4,814 | $ | 2,584 | $ | 2,383 | $ | 7,534 | $ | 7,197 | ||||||||||||||||
| Hotel revenues | 12,943 | - | 20,487 | - | 13,259 | - | 33,746 | - | ||||||||||||||||||||||||
| Total revenues | 15,480 | 2,363 | 25,437 | 4,814 | 15,843 | 2,383 | 41,280 | 7,197 | ||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||
| Property operating expenses | 779 | 1,414 | 1,467 | 2,393 | 792 | 922 | 2,259 | 3,315 | ||||||||||||||||||||||||
| Hotel operating expenses | 9,058 | - | 16,661 | - | 8,828 | - | 25,489 | - | ||||||||||||||||||||||||
| Real estate taxes | 124 | 62 | 216 | 124 | 635 | 61 | 851 | 185 | ||||||||||||||||||||||||
| General and administrative costs | 952 | 598 | 1,964 | 1,172 | 1,065 | 538 | 3,029 | 1,710 | ||||||||||||||||||||||||
| Pre-opening costs | (32 | ) | 331 | 16 | 354 | 69 | 317 | 85 | 671 | |||||||||||||||||||||||
| Depreciation and amortization | 1,683 | 649 | 3,351 | 1,498 | 1,860 | 478 | 5,211 | 1,976 | ||||||||||||||||||||||||
| Total expenses | 12,564 | 3,054 | 23,675 | 5,541 | 13,249 | 2,316 | 36,924 | 7,857 | ||||||||||||||||||||||||
| Interest and dividend income | 1,824 | 2,117 | 4,120 | 4,392 | 1,929 | 2,320 | 6,049 | 6,712 | ||||||||||||||||||||||||
| Interest expense | (6,916 | ) | (363 | ) | (12,161 | ) | (750 | ) | (7,012 | ) | (677 | ) | (19,173 | ) | (1,427 | ) | ||||||||||||||||
| Gain on disposition of real estate | - | 49 | 1,121 | 49 | - | 1,105 | 1,121 | 1,154 | ||||||||||||||||||||||||
| (Loss)/gain on sale of marketable securities | - | (179 | ) | (359 | ) | 1,160 | (297 | ) | - | (656 | ) | 1,160 | ||||||||||||||||||||
| Unrealized gain/(loss) on marketable equity securities | 1,052 | (9,766 | ) | 501 | (18,774 | ) | ||||||||||||||||||||||||||
| Unrealized loss on marketable equity securities | (1,322 | ) | (1,190 | ) | (821 | ) | (19,964 | ) | ||||||||||||||||||||||||
| Mark to market adjustments on derivative financial instruments | 38 | 378 | (370 | ) | 1,242 | (680 | ) | 1,605 | (1,050 | ) | 2,847 | |||||||||||||||||||||
| Loss from investment in unconsolidated affiliated real estate entity | (1,140 | ) | - | (2,360 | ) | - | (1,261 | ) | - | (3,621 | ) | - | ||||||||||||||||||||
| Other income/(expense), net | 30 | - | 28 | (12 | ) | |||||||||||||||||||||||||||
| Loss on demolition | - | (16,593 | ) | - | (16,593 | ) | ||||||||||||||||||||||||||
| Other (expense)/income, net | (2,404 | ) | 4 | (2,376 | ) | (8 | ) | |||||||||||||||||||||||||
| Net loss | (2,196 | ) | (8,455 | ) | (7,718 | ) | (13,420 | ) | (8,453 | ) | (13,359 | ) | (16,171 | ) | (26,779 | ) | ||||||||||||||||
| Less: net income attributable to noncontrolling interests | (541 | ) | (228 | ) | (1,075 | ) | (600 | ) | (364 | ) | (183 | ) | (1,439 | ) | (783 | ) | ||||||||||||||||
| Net loss attributable to Company’s common shares | $ | (2,737 | ) | $ | (8,683 | ) | $ | (8,793 | ) | $ | (14,020 | ) | $ | (8,817 | ) | $ | (13,542 | ) | $ | (17,610 | ) | $ | (27,562 | ) | ||||||||
| Basic and diluted net loss per Company’s common share: | ||||||||||||||||||||||||||||||||
| Net loss per Company’s common share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||||||||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands)
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | (2,196 | ) | $ | (8,455 | ) | $ | (7,718 | ) | $ | (13,420 | ) | ||||
| Other comprehensive income/(loss): | ||||||||||||||||
| Holding (loss)/gain on available for sale debt securities | - | (267 | ) | (208 | ) | 1,026 | ||||||||||
| Reclassification adjustment for loss/(gain) included in net loss | - | 180 | 359 | (1,160 | ) | |||||||||||
| Other comprehensive (loss)/income: | - | (87 | ) | 151 | (134 | ) | ||||||||||
| Comprehensive loss | (2,196 | ) | (8,542 | ) | (7,567 | ) | (13,554 | ) | ||||||||
| Less: Comprehensive income attributable to noncontrolling interests | (541 | ) | (226 | ) | (1,067 | ) | (597 | ) | ||||||||
| Comprehensive loss attributable to the Company’s common shares | $ | (2,737 | ) | $ | (8,768 | ) | $ | (8,634 | ) | $ | (14,151 | ) | ||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | (8,453 | ) | $ | (13,359 | ) | $ | (16,171 | ) | $ | (26,779 | ) | ||||
| Other comprehensive income/(loss): | ||||||||||||||||
| Holding (loss)/gain on available for sale debt securities | - | (107 | ) | (208 | ) | 919 | ||||||||||
| Reclassification adjustment for loss/(gain) included in net loss | - | - | 359 | (1,160 | ) | |||||||||||
| Other comprehensive (loss)/income: | - | (107 | ) | 151 | (241 | ) | ||||||||||
| Comprehensive loss | (8,453 | ) | (13,466 | ) | (16,020 | ) | (27,020 | ) | ||||||||
| Less: Comprehensive income attributable to noncontrolling interests | (364 | ) | (181 | ) | (1,431 | ) | (778 | ) | ||||||||
| Comprehensive loss attributable to the Company’s common shares | $ | (8,817 | ) | $ | (13,647 | ) | $ | (17,451 | ) | $ | (27,798 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(Unaudited)
| Common | Additional Paid-In | Accumulated Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Income | Surplus | Interests | Equity | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, March 31, 2022 | 22,110 | $ | 221 | $ | 167,519 | $ | (86 | ) | $ | 83,924 | $ | 28,793 | $ | 280,371 | ||||||||||||||||||||||||||||||||||||||||||
| Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Loss | Surplus | Interests | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | 21,923 | $ | 219 | $ | 165,323 | $ | (171 | ) | $ | 71,402 | $ | 27,943 | $ | 264,716 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (8,683 | ) | 228 | (8,455 | ) | - | - | - | - | (13,542 | ) | 183 | (13,359 | ) | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | (85 | ) | �� | - | (2 | ) | (87 | ) | - | - | - | (105 | ) | - | (2 | ) | (107 | ) | |||||||||||||||||||||||||||||||||||
| Distributions declared(a) | - | - | - | - | (3,839 | ) | - | (3,839 | ) | - | - | - | - | (3,832 | ) | - | (3,832 | ) | ||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (1,076 | ) | (1,076 | ) | - | - | - | - | - | (14,973 | ) | (14,973 | ) | ||||||||||||||||||||||||||||||||||||||
| Redemption and cancellation of common shares | (194 | ) | (2 | ) | (2,279 | ) | - | - | - | (2,281 | ) | (58 | ) | - | (678 | ) | - | - | - | (678 | ) | |||||||||||||||||||||||||||||||||||
| Shares issued from distribution reinvestment program | 7 | - | 83 | - | - | - | 83 | 7 | - | 82 | - | - | - | 82 | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | 21,923 | $ | 219 | $ | 165,323 | $ | (171 | ) | $ | 71,402 | $ | 27,943 | $ | 264,716 | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2022 | 21,872 | $ | 219 | $ | 164,727 | $ | (276 | ) | $ | 54,028 | $ | 13,151 | $ | 231,849 | ||||||||||||||||||||||||||||||||||||||||||
| (a) | Distributions per share were |
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Additional Paid-In | Accumulated Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ | Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Income | Surplus | Interests | Equity | Shares | Amount | Capital | Loss | Surplus | Interests | Equity | |||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2021 | 22,181 | $ | 222 | $ | 168,363 | $ | (40 | ) | $ | 93,134 | $ | 22,546 | $ | 284,225 | 22,181 | $ | 222 | $ | 168,363 | $ | (40 | ) | $ | 93,134 | $ | 22,546 | $ | 284,225 | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (14,020 | ) | 600 | (13,420 | ) | - | - | - | - | (27,562 | ) | 783 | (26,779 | ) | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | �� | - | (131 | ) | - | (3 | ) | (134 | ) | - | - | - | (236 | ) | - | (5 | ) | (241 | ) | |||||||||||||||||||||||||||||||||||
| Distributions declared(a) | - | - | - | - | (7,712 | ) | - | (7,712 | ) | - | �� | - | - | - | (11,544 | ) | - | (11,544 | ) | |||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (17,095 | ) | (17,095 | ) | - | - | - | - | - | (32,068 | ) | (32,068 | ) | ||||||||||||||||||||||||||||||||||||||
| Contributions received from noncontrolling interests | - | - | - | - | - | 21,895 | 21,895 | - | - | - | - | - | 21,895 | 21,895 | ||||||||||||||||||||||||||||||||||||||||||
| Redemption and cancellation of common shares | (273 | ) | (3 | ) | (3,207 | ) | - | - | - | (3,210 | ) | (331 | ) | (3 | ) | (3,885 | ) | - | - | - | (3,888 | ) | ||||||||||||||||||||||||||||||||||
| Shares issued from distribution reinvestment program | 15 | - | 167 | - | - | - | 167 | 22 | - | 249 | - | - | - | 249 | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | 21,923 | $ | 219 | $ | 165,323 | $ | (171 | ) | $ | 71,402 | $ | 27,943 | $ | 264,716 | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2022 | 21,872 | $ | 219 | $ | 164,727 | $ | (276 | ) | $ | 54,028 | $ | 13,151 | $ | 231,849 | ||||||||||||||||||||||||||||||||||||||||||
| (a) | Distributions per share were |
| Common | Additional Paid-In | Accumulated Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Loss | Surplus | Interests | Equity | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, March 31, 2023 | 21,810 | $ | 218 | $ | 163,958 | $ | - | $ | 40,175 | $ | 10,658 | $ | 215,009 | |||||||||||||||||||||||||||||||||||||||||||
| Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Loss | Surplus | Interests | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | 21,735 | $ | 217 | $ | 163,045 | $ | - | $ | 33,631 | $ | 10,234 | $ | 207,127 | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (2,737 | ) | 541 | (2,196 | ) | - | - | - | - | (8,817 | ) | 364 | (8,453 | ) | ||||||||||||||||||||||||||||||||||||||
| Contributions received from noncontrolling interests | - | - | - | - | - | 1,523 | 1,523 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (1,157 | ) | (1,157 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions declared(a) | - | - | - | - | (3,807 | ) | - | (3,807 | ) | - | - | - | - | (1,897 | ) | - | (1,897 | ) | ||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (965 | ) | (965 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Redemption and cancellation of common shares | (82 | ) | (1 | ) | (997 | ) | - | - | - | (998 | ) | (82 | ) | (1 | ) | (1,000 | ) | - | - | - | (1,001 | ) | ||||||||||||||||||||||||||||||||||
| Shares issued from distribution reinvestment program | 7 | - | 84 | - | - | - | 84 | 7 | - | 85 | - | - | - | 85 | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | 21,735 | $ | 217 | $ | 163,045 | $ | - | $ | 33,631 | $ | 10,234 | $ | 207,127 | |||||||||||||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2023 | 21,660 | $ | 216 | $ | 162,130 | $ | - | $ | 22,917 | $ | 10,964 | $ | 196,227 | |||||||||||||||||||||||||||||||||||||||||||
| (a) | Distributions per share were |
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Additional Paid-In | Accumulated Comprehensive | Accumulated | Noncontrolling | Total Stockholders’ | Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Loss | Surplus | Interests | Equity | Shares | Amount | Capital | Loss | Surplus | Interests | Equity | |||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2022 | 21,840 | $ | 218 | $ | 164,331 | $ | (159 | ) | $ | 50,051 | $ | 12,333 | $ | 226,774 | 21,840 | $ | 218 | $ | 164,331 | $ | (159 | ) | $ | 50,051 | $ | 12,333 | $ | 226,774 | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (8,793 | ) | 1,075 | (7,718 | ) | - | - | - | - | (17,610 | ) | 1,439 | (16,171 | ) | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | 159 | - | (8 | ) | 151 | - | - | - | 159 | - | (8 | ) | 151 | ||||||||||||||||||||||||||||||||||||||||
| Contributions received from noncontrolling interests | - | - | - | - | - | 1,523 | 1,523 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | (4,323 | ) | (4,323 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions declared(a) | - | - | - | - | (7,627 | ) | - | (7,627 | ) | - | - | - | - | (9,524 | ) | (9,524 | ) | |||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (3,166 | ) | (3,166 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Redemption and cancellation of common shares | (119 | ) | (1 | ) | (1,453 | ) | - | - | - | (1,454 | ) | (201 | ) | (2 | ) | (2,453 | ) | - | - | - | (2,455 | ) | ||||||||||||||||||||||||||||||||||
| Shares issued from distribution reinvestment program | 14 | - | 167 | - | - | - | 167 | 21 | - | 252 | - | - | - | 252 | ||||||||||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | 21,735 | $ | 217 | $ | 163,045 | $ | - | $ | 33,631 | $ | 10,234 | $ | 207,127 | |||||||||||||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2023 | 21,660 | $ | 216 | $ | 162,130 | $ | - | $ | 22,917 | $ | 10,964 | $ | 196,227 | |||||||||||||||||||||||||||||||||||||||||||
| (a) | Distributions per share were |
The accompanying notes are an integral part of these consolidated financial statements.
4
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| For the Six Months Ended June 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net loss | $ | (7,718 | ) | $ | (13,420 | ) | $ | (16,171 | ) | $ | (26,779 | ) | ||||
| Adjustments to reconcile net loss to net cash (used in)/provided by operating activities: | ||||||||||||||||
| Adjustments to reconcile net loss to cash (used in)/provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 3,351 | 1,498 | 5,211 | 1,976 | ||||||||||||
| Gain on disposition of real estate | (1,121 | ) | - | (1,121 | ) | (1,154 | ) | |||||||||
| Loss from investment in unconsolidated affiliated real estate entity | 2,360 | - | 3,621 | - | ||||||||||||
| Loss on demolition | - | 16,593 | ||||||||||||||
| Mark to market adjustments on derivative financial instruments | 370 | (1,242 | ) | 1,050 | (2,847 | ) | ||||||||||
| Unrealized (gain)/loss on marketable equity securities | (501 | ) | 18,774 | |||||||||||||
| Unrealized loss on marketable equity securities | 821 | 19,964 | ||||||||||||||
| Loss/(gain) on sale of marketable securities | 359 | (1,160 | ) | 656 | (1,160 | ) | ||||||||||
| Amortization of deferred financing costs | 1,745 | 138 | 2,475 | 252 | ||||||||||||
| Noncash interest income | (859 | ) | (1,764 | ) | (2,934 | ) | (2,995 | ) | ||||||||
| Other non-cash adjustments | (5 | ) | (36 | ) | 30 | (29 | ) | |||||||||
| Changes in assets and liabilities: | ||||||||||||||||
| Increase in other assets | (2,506 | ) | (585 | ) | (1,698 | ) | (1,406 | ) | ||||||||
| (Decrease)/increase in accounts payable, accrued expenses and other liabilities | (1,077 | ) | 5,825 | (52 | ) | 6,550 | ||||||||||
| Increase in due to related parties | 65 | 73 | 894 | 68 | ||||||||||||
| Cash (used in)/provided by operating activities | (5,537 | ) | 8,101 | (7,218 | ) | 9,033 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Purchase of development property and investment property | (8,599 | ) | (36,398 | ) | (8,516 | ) | (54,401 | ) | ||||||||
| Purchase of marketable securities | (982 | ) | (12,052 | ) | (9,284 | ) | (12,052 | ) | ||||||||
| Proceeds from sale of marketable securities | 3,797 | 8,345 | 14,828 | 14,326 | ||||||||||||
| Proceeds from disposition of real estate | 1,382 | - | 1,382 | - | ||||||||||||
| Investment in joint venture | (4 | ) | - | (4 | ) | - | ||||||||||
| Distributions from joint venture | 163 | 51 | 467 | 79 | ||||||||||||
| Proceeds from redemption of preferred investment in related party | 6,000 | 4,000 | 6,000 | 8,500 | ||||||||||||
| Funding of notes receivable | (300 | ) | (43,970 | ) | (300 | ) | (42,970 | ) | ||||||||
| Release of reserves on notes receivable | 300 | - | 300 | (1,450 | ) | |||||||||||
| Proceeds from repayment of notes receivable | 14,000 | 27,090 | 14,000 | 27,540 | ||||||||||||
| Investment in unconsolidated affiliated real estate entity | (13 | ) | - | (247 | ) | - | ||||||||||
| Cash provided by/(used in) investing activities | 15,744 | (52,934 | ) | 18,626 | (60,428 | ) | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds from mortgage financing | 7,816 | 29,262 | 7,899 | 74,318 | ||||||||||||
| Mortgage principal payments | (11,973 | ) | (691 | ) | (14,468 | ) | (1,034 | ) | ||||||||
| Payment of loan fees and expenses | (25 | ) | (522 | ) | (25 | ) | (627 | ) | ||||||||
| Redemption and cancellation of common shares | (1,454 | ) | (3,210 | ) | (2,455 | ) | (3,888 | ) | ||||||||
| Contributions received from noncontrolling interests | - | 21,895 | 1,523 | 21,895 | ||||||||||||
| Distributions paid to noncontrolling interests | (3,166 | ) | (17,095 | ) | (4,323 | ) | (32,068 | ) | ||||||||
| Distributions paid to Company’s common stockholders | (7,478 | ) | (7,590 | ) | (11,200 | ) | (11,349 | ) | ||||||||
| Cash (used in)/provided financing activities | (16,280 | ) | 22,049 | (23,049 | ) | 47,247 | ||||||||||
| Change in cash, cash equivalents and restricted cash | (6,073 | ) | (22,784 | ) | (11,641 | ) | (4,148 | ) | ||||||||
| Cash, cash equivalents and restricted cash, beginning of year | 22,583 | 42,592 | 22,583 | 42,592 | ||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 16,510 | $ | 19,808 | $ | 10,942 | $ | 38,444 | ||||||||
| See Note 2 for supplemental cash flow information. | ||||||||||||||||
| The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented: | ||||||||||||||||
| Cash and cash equivalents | $ | 11,559 | $ | 17,222 | $ | 8,548 | $ | 37,872 | ||||||||
| Restricted cash | 4,951 | 2,586 | 2,394 | 572 | ||||||||||||
| Total cash, cash equivalents and restricted cash | $ | 16,510 | $ | 19,808 | $ | 10,942 | $ | 38,444 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 1. | Business and Structure |
Lightstone Value Plus REIT I, Inc., a Maryland corporation (“Lightstone REIT I”), formed on June 8, 2004, which has elected to be taxed and qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. Lightstone REIT I was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States.
Lightstone REIT I is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT, L.P. (the “Operating Partnership”), a Delaware limited partnership formed on July 12, 2004. As of JuneSeptember 30, 2023, Lightstone REIT I held a 98% general partnership interest in the its Operating Partnership’s common units (“Common Units”).
Lightstone REIT I and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT I, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through its Operating Partnership, the Company owns, operates and develops commercial and residential properties and makes real estate-related investments, principally in the United States. The Company’s real estate investments are held by it alone or jointly with other parties. The Company also originates or acquires mortgage loans secured by real estate. Although most of its investments are of these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes is in its best interests. Since its inception, the Company has owned and managed various commercial and residential properties located throughout the United States. The Company evaluates all of its real estate investments as one operating segment.
As of JuneSeptember 30, 2023, the Company (i) has ownership interests in and consolidates two operating properties, one development property and certain land holdings and (ii) has ownership interests through two unconsolidated joint ventures in nine multifamily residential properties and sevenfive commercial hotel properties. Additionally, as of JuneSeptember 30, 2023, the Company has one other real estate-related investment consisting of a promissory loan it originated, through a joint venture with a related party, to an unaffiliated third-party borrower.
With respect to its consolidated operating properties, the Company wholly owns a 296-room303-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”), located in the Lower East Side neighborhood in the Manhattan borough of New York City, which it developed, constructed and opened on October 27, 2022 and has a 59.2% majority ownership interest in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”), a joint venture between the Company and a related party, which developed, constructed and owns a 199-unit luxury, multifamily residential property (“Gantry Park Landing”), located in the Long Island City neighborhood in the Queens borough of New York City.
With respect to its consolidated development property, the Company wholly owns land parcels located at 355 & 399 Exterior Street in the Mott Haven neighborhood in the Bronx borough of New York City, on which it plans,expects subject to economic and local marketcertain conditions and regulations, to construct a proposed mixed-use multifamily residential and commercial retail project (the “Exterior Street Project”).
The Company also wholly owns and consolidates certain adjacent land parcels (the “St. Augustine Land Holdings) located in St. Augustine, Florida.
6
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Additionally, the Company holds a 19.0% joint venture ownership interest in Columbus Portfolio Member LLC (the “Columbus Joint Venture”), which owns nine multifamily residential properties, which its accounts for using the equity method of accounting and it holds a 2.5% joint venture ownership interest in LVP Holdco JV LLC (the “Hotel Joint Venture”) which owns sevenfive hotel properties, which the Company accounts for using a measurement alternative under which the Hotel Joint Venture is measured at cost, adjusted for observable price changes and impairments, if any. The Hotel Joint Venture subsequently sold two of its hotels during July 2023. Both the Columbus Joint Venture and the Hotel Joint Venture are between the Company and related parties.
The Company’s advisor is Lightstone Value Plus REIT, LLC (the “Advisor”), which is majority owned by David Lichtenstein. On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units. The Company’s Advisor also owns shares of the Company’s common stock (“Common Shares”) which were issued on July 6, 2004 for $200, or $ per share. Mr. Lichtenstein also is the majority owner of the equity interests of The Lightstone Group, LLC. The Lightstone Group, LLC served as the sponsor (the “Sponsor”) during the Company’s initial public offering (the “Offering”), which terminated on October 10, 2008. The Company’s Advisor, together with its board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on the Company’s behalf and managing its day-to-day operations. Through his ownership and control of The Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP, LLC, a Delaware limited liability company, which owns an aggregate of $30.0 million of special general partner interests (“SLP Units”) in the Operating Partnership which were purchased, at a cost of $100,000 per unit, in connection with the Company’s Offering. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT I or the Operating Partnership.
The Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management of the Company’s assets.
The Company’s Advisor has affiliates which may manage and develop certain of its properties. However, the Company also contracts with other unaffiliated third-party property managers.
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading.
Related Parties
The Sponsor, Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Certain of these entities are entitled to compensation for services related to the investment, management and disposition of the Company’s assets. The compensation is based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
7
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Noncontrolling Interests
Partners of Operating Partnership
On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units in the Operating Partnership. The Advisor has the right to convert the Common Units into cash or, at the option of the Company, an equal number of shares of Common Shares.
In connection with the Offering, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP Units. As the majority owner of the SLP Units, Mr. Lichtenstein is the beneficial owner of a 99% interest in such SLP Units and thus receives an indirect benefit from any distributions made in respect thereof. These SLP Units may be entitled to a portion of any regular and liquidation distributions that the Company makes to its stockholders, but only after the Company’s stockholders have received a stated preferred return.
In addition, an aggregate 497,209 Common Units were issued to other unrelated parties during the years ended December 31, 2008 and 2009 and remain outstanding as of JuneSeptember 30, 2023.
Other Noncontrolling Interests in Consolidated Subsidiaries
Other noncontrolling interests in consolidated subsidiaries include the joint venture ownership interests held by either the Sponsor or its affiliates in (i) Pro-DFJV Holdings LLC (“PRO”), (ii) the 2nd Street Joint Venture and (iii) other entities that have originated promissory notes to unaffiliated third parties (see Note 6). PRO’s holdings principally consist of Marco OP Units and Marco II OP Units (see Note 7). The 2nd Street Joint Venture owns Gantry Park Landing.
| 2. | Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT I and its Operating Partnership and its subsidiaries (over which Lightstone REIT I exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable accounting principles generally accepted in the United States of America (“GAAP”), and if deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest but have significant influence, the Company accounts for the investment using the equity method of accounting.
There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether the Company is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.
8
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus REIT I, Inc. and its Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate and real-estate related investments, marketable securities, notes receivable, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2022 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2005. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.
To qualify or maintain our qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, it is subject to U.S. federal and state income and franchise taxes from these activities.
The Company’s income tax expense is included in other expense, net on its consolidated statements of operations. During the three and nine months ended September 30, 2023, the Company recorded income tax expense of $2.5 million, primarily consisting of federal and state income tax related to the redemptions of its preferred investments in related parties. During the nine months ended September 30, 2022, the Company recorded an income tax expense of $0.1 million, primarily consisting of state income tax.
As of JuneSeptember 30, 2023 and December 31, 2022, the Company had no material uncertain income tax positions.
9
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Revenues
The following table represents the total hotel revenues from hotel operations on a disaggregated basis:
| Schedule of revenues on a disaggregated | ||||||||||||||||
| For the Three Months ended June 30, 2023 | For the Six Months ended June 30, 2023 | For the Three Months ended September 30, 2023 | For the Nine Months ended September 30, 2023 | |||||||||||||
| Hotel revenues | ||||||||||||||||
| Room | $ | 6,705 | $ | 9,700 | $ | 6,804 | $ | 16,504 | ||||||||
| Food, beverage and other | 6,238 | 10,787 | 6,455 | 17,242 | ||||||||||||
| Total hotel revenues | $ | 12,943 | $ | 20,487 | $ | 13,259 | $ | 33,746 | ||||||||
Land Parcel Sale
During the first quarter of 2023, the Company completed the disposition of a parcel of land, which was part of its St. Augustine Land Holdings, to an unrelated third party for a contractual sales price of $1.5 million and recognized a gain on disposition of real estate of $1.1 million during the sixnine months ended JuneSeptember 30, 2023.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard introduces an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses for financial instruments measured at amortized cost. For trade receivables, other receivables, and held-to-maturity debt instruments, entities are required to use a new forward looking expected loss model that generally will result in an earlier recognition of allowances for losses. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. The update was effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted the new standard, as of January 1, 2023, and it did not have a material impact on the consolidated financial statements.
Adverse Developments Affecting the Financial Services Industry and Concentration of Risk
As of JuneSeptember 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.
10
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Current Environment
The Company’s operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, the Company’s business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions, may adversely affect the Company’s results of operations and financial performance.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s presentation.
Supplemental Cash Flow Information
Supplemental cash flow information for the periods indicated is as follows:
| Summary of supplemental cash flow information | ||||||||||||||||
| For the Six Months Ended June 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cash paid for interest | $ | 11,856 | $ | 5,395 | $ | 19,566 | $ | 9,691 | ||||||||
| Distributions declared but not paid | $ | 3,807 | $ | 3,840 | $ | 1,897 | $ | 3,831 | ||||||||
| Capital expenditures for investment property in accounts payable, accrued expenses and other liabilities | $ | 1,208 | $ | 3,450 | $ | 1,251 | $ | 2,059 | ||||||||
| Amortization of deferred financing costs included in development projects | $ | - | $ | 1,253 | $ | 139 | $ | 2,094 | ||||||||
| Holding loss/gain on marketable securities | $ | 151 | $ | 134 | $ | 151 | $ | 241 | ||||||||
| Value of shares issued from distribution reinvestment program | $ | 167 | $ | 167 | $ | 252 | $ | 249 | ||||||||
| Proceeds from mortgage financing held by related party | $ | - | $ | 28,643 | ||||||||||||
| 3. | Development Project - Exterior Street Project |
In February 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street in the Mott Haven neighborhood in the Bronx borough of New York City from unaffiliated third parties for an aggregate purchase price of $59.0million, excluding closing and other acquisition related costs. In September 2021, the Company subsequently acquired an additional adjacent parcel of land at cost from an affiliate of its Advisor for $1.0million in order to achieve certain zoning compliance. On these three land parcels the Company plans, subject to economic and local marketcertain conditions, and regulations, to construct a proposed mixed-use multifamily residential and commercial retail property (the “Exterior Street Project”). In lightAs a result of certaincurrent unfavorable economic and local market conditions and regulations, the company decided inCompany temporarily paused its active development activities associated with the 2ndExterior Street Project during the second quarter of 2023 to pauseand therefore has ceased capitalization of interest and other carrying costs. There can be no assurances that the unfavorable circumstances will improve and the Company will resume active development activities and ceased capitalizing interest and real estate taxes. ultimately construct the Exterior Street Project.
Through JuneSeptember 30, 2023 and December 31, 2022, the Company has incurred and capitalized $95.7 96.7million and $93.6million of costs related to the development of the Exterior Street Project. During the sixnine months ended JuneSeptember 30, 2023, $1.5million and during the three and sixnine months ended JuneSeptember 30, 2022, $0.7 0.9million and $1.2 2.1million, respectively, of interest was capitalized to the Exterior Street Project, which is classified as development project on the consolidated balance sheets.
11
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 4. | Lower East Side Moxy Hotel |
In December 2018, the Company, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land located at 147-151 Bowery, in the Lower East Side neighborhood of the borough of Manhattan in New York City, from unaffiliated third parties for aggregate consideration of $56.5 million, excluding closing and other acquisition related costs. Additionally, in December 2018, the Company, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street in the Lower East Side neighborhood, from an unaffiliated third party for $2.4 million, excluding closing and other acquisition related costs. The land and air rights were acquired for the development and construction of a 296-room303-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). On June 3, 2021, the Company entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Moxy Lower East Side Developer”) pursuant to which the Lower East Side Moxy Developer is beingwas paid a development fee equal to 3% of hard and soft costs incurred in connection with the development and construction of the Lower East Side Moxy Hotel. The Advisor and its affiliates arewere also reimbursed for certain development-related costs attributable to the Lower East Side Moxy Hotel. Additionally on June 3, 2021, the Company obtained construction financing for the Lower East Side Moxy Hotel. The Lower East Side Moxy Hotel opened on October 27, 2022 and all four of its food and beverage venues opened during the fourth quarter of 2022.
The Company incurred pre-opening costs of $0.1 million during both three and nine months ended September 30, 2023 and $0.3 million and $0.40.7 million during the three and sixnine months ended JuneSeptember 30, 2022, respectively, related to the Lower East Side Moxy Hotel. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
| 5. | Investment in Unconsolidated Affiliated Real Estate Entity |
Columbus Joint Venture
On November 29, 2022, the Company, CRE Columbus Member (“Converge”), a majority owned subsidiary of Converge Holdings LLC, a reinsurance business owned by the Sponsor, and LEL Columbus Member LLC (the “BVI member”), a wholly owned subsidiary of Lightstone Enterprises Limited (“BVI”), a real estate investment company owned by the Sponsor, entered into a joint venture agreement to form Columbus Portfolio Member LLC (“the Columbus Joint Venture”) for the purpose of acquiring nine multifamily properties (the “Columbus Properties”) consisting of 2,564 units located in the area of Columbus, Ohio for a contractual purchase price of $465.0 million. The Company has an ownership interest of 19% in the Columbus Joint Venture. Converge and the BVI Member, which are both related parties, have ownership interests of 19% and 62%, respectively. Additionally, the manager of the Columbus Joint Venture is LEL Bronx Manager LLC (“Manager”), an entity wholly owned by BVI.
On November 29, 2022, the Columbus Joint Venture completed the purchase of the Columbus Properties. The acquisition was funded with $74.3 million of cash and $390.7 million of aggregate proceeds from preferred investments from unrelated third-parties and loans from two financial institutions. In connection with the acquisition and financings, the total cash paid, including closing costs, was $92.3 million and the Company paid $17.5 million representing its 19.0% pro rata share. In connection with the acquisition, the Company also paid the Advisor a separate acquisition fee of $2.4 million, equal to 2.75% of the Company’s pro-rata share of the contractual purchase price which is reflected in the carrying value of the Company’s investment in unconsolidated affiliated real estate entity on the consolidated balance sheets. During the sixnine months ended JuneSeptember 30, 2023, the Company’s made $130.2 million of additional capital contributions to the Columbus Joint Venture.
12
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company has determined that the Columbus Joint Venture is a variable interest entity but the Company is not the primary beneficiary. The Company accounts for its ownership interest in the Columbus Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Columbus Joint Venture. All capital contributions and distributions of earnings from the Columbus Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Columbus Joint Venture are made to the members pursuant to the terms of the Columbus Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of November 29, 2022 with respect to its membership interest of 19.0% in the Columbus Joint Venture.
In connection with the purchase of the Columbus Properties on November 29, 2022, the Columbus Joint Venture obtained senior loans from two different financial institutions. The first financial institution provided four separate senior mortgage loans, all to subsidiaries of the Columbus Joint Venture, aggregating $133.6 million. These four loans bear interest at SOFR + 2.19%, provide for interest-only payments for the first six years of their term and mature in December 2032. Each of these four senior mortgage loans is individually collateralized by one of the Columbus Properties (collectively, the “Columbus Portfolio I Properties”). The second financial institution provided five separate senior loans, all to subsidiaries of the Columbus Joint Venture, aggregating $167.2 million. These five senior loans bear interest at 4.85%, provide for interest-only payments for the first two years of their term and initially mature in December 2027, but may be further extended for an additional five years, subject to satisfaction of certain conditions. Each of these five senior mortgage loans is individually collateralized by one of the Columbus Properties (collectively, the “Columbus Portfolio II Properties”).
Additionally, in connection with the purchase of the Columbus Properties on November 29, 2022, the Columbus Joint Venture obtained an aggregate of $90.0 million in financing through two preferred investments (the “Preferred Investments”) from unrelated third parties. The first preferred investment (the “Columbus Portfolio I Preferred Investment”) of $38.6 million is collateralized by the Columbus Portfolio I Properties, bears interest at 11.25%, with a minimum monthly pay rate of 4.00% with any shortfall accrued to principal and has a mandatory redemption date of December 1, 2032. The second preferred investment (the “Columbus Portfolio II Preferred Investment”) of $51.4 million is collateralized by the Columbus Portfolio II Properties, bears interest at 11.25%, with a minimum monthly pay rate of 4.00% with the any shortfall accrued to principal, and has a mandatory redemption date of December 1, 2027. As of September 30, 2023, the aggregate unpaid interest included in the outstanding balance of the Preferred Investments was $5.1 million. Furthermore, the Preferred Investments are subordinate to the nine senior mortgage loans.
Because the Preferred Investments have mandatory redemption dates, the Columbus Joint Venture Company treats them as financial liabilities and includes them in mortgages and loans payable on its condensed balance sheet. The Company’s Sponsor (the “Guarantor”) has fully guaranteed the nine senior mortgage loans and the Preferred Investments (the “Debt Guarantee”). Each of the members of the Columbus Joint Venture have agreed to reimburse the Guarantor for their pro rata share of any balance that becomes due under the Debt Guarantee, of which the Company’s share is up to 19%. The Company has determined that the fair value of the Debt Guarantee is immaterial.
1213
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
In connection with the closing of the Columbus Properties, the Columbus Joint Venture simultaneously entered into two mortgage loans from financial institutions in the aggregate amount of $300.7 million and received two preferred investments from unaffiliated third parties in the aggregate amount of $90.0 million (collectively, the “Loans”) The Loans are collateralized by the Columbus Properties. The Sponsor (the “Guarantor”) has fully guaranteed the Columbus Joint Venture’s obligation to repay the outstanding balance of the Loans (the “Loan Guarantee”). Each of the joint venture members have agreed to reimburse the Guarantor for their pro rata share of any balance that may become due under the Loan Guarantee, of which the Company’s share is up to 19% of the outstanding balance. The Company has determined that the fair value of the Loan Guarantee is immaterial.
Columbus Joint Venture Financial Information
The following table represents the condensed statementstatements of operations for the Columbus Joint Venture:
| Schedule of condensed statement of operations for the Columbus joint venture | ||||||||||||||||
| For the Three Months Ended June 30, 2023 | For the Six Months Ended June 30, 2023 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2023 | |||||||||||||
| Revenues | $ | 10,496 | $ | 21,007 | $ | 10,778 | $ | 31,785 | ||||||||
| Property operating expenses | 5,387 | 10,279 | 5,219 | 15,498 | ||||||||||||
| General and administrative income | 129 | 84 | ||||||||||||||
| General and administrative expense | 84 | 168 | ||||||||||||||
| Depreciation and amortization | 4,773 | 9,519 | 4,826 | 14,345 | ||||||||||||
| Operating income | 207 | 1,125 | 649 | 1,774 | ||||||||||||
| Interest expense and other, net | (6,080 | ) | (13,286 | ) | (7,152 | ) | (20,438 | ) | ||||||||
| Net loss | $ | (5,873 | ) | $ | (12,161 | ) | $ | (6,503 | ) | $ | (18,664 | ) | ||||
| Company’s share of net loss (19.0%) | $ | (1,116 | ) | $ | (2,311 | ) | $ | (1,236 | ) | $ | (3,547 | ) | ||||
| Additional depreciation and amortization expense(1) | (24 | ) | (49 | ) | (25 | ) | (74 | ) | ||||||||
| Company’s loss from investment | $ | (1,140 | ) | $ | (2,360 | ) | $ | (1,261 | ) | $ | (3,621 | ) | ||||
| (1) | Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the interest in the Columbus Joint Venture and the amount of the underlying equity in net assets of the Columbus Joint Venture. |
The following table represents the condensed balance sheetsheets for the Columbus Joint Venture:
| Schedule of condensed balance sheet for the Columbus joint venture | ||||||||||||||||
| As of | As of | As of | As of | |||||||||||||
| June 30, 2023 | December 31, 2022 | September 30, 2023 | December 31, 2022 | |||||||||||||
| Investment property, net | $ | 453,335 | $ | 457,339 | $ | 452,410 | $ | 457,339 | ||||||||
| Cash and restricted cash | 14,356 | 15,770 | 15,894 | 15,770 | ||||||||||||
| Other assets | 6,141 | 10,096 | 3,739 | 10,096 | ||||||||||||
| Total assets | $ | 473,832 | $ | 483,205 | $ | 472,043 | $ | 483,205 | ||||||||
| Mortgages and loans payable, net | $ | 386,648 | $ | 383,266 | $ | 388,629 | $ | 383,266 | ||||||||
| Other liabilities | 7,861 | 8,495 | 9,362 | 8,495 | ||||||||||||
| Members’ equity | 79,323 | 91,444 | 74,052 | 91,444 | ||||||||||||
| Total liabilities and members’ equity | $ | 473,832 | $ | 483,205 | $ | 472,043 | $ | 483,205 | ||||||||
1314
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 6. | Investments in Related Parties |
Preferred Investments
The Company previously entered into agreements with various related party entities that provided for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitled it to certain prescribed monthly preferred distributions. As of December 31, 2022, the Company had one remaining Preferred Investment, which was its 40 East End Avenue Preferred Investment, that had an outstanding balance of $6.0 million. During the six months ended June 30,first and second quarters of 2023, the Company redeemed the remaining $6.02.3 million and $3.7 million, respectively, of its only remaining Preferred Investment, which was the 40 East End Avenue Preferred Investment.Investment and as a result, it has been fully redeemed and the Company has no remaining Preferred Investments.
The Preferred Investments are summarized as follows:
| Schedule of preferred investments | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Investment Balance | Investment Income(1) | Preferred Investment Balance | Investment Income(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend | As of June 30, | As of December 31, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Investments | Dividend | As of September 30, | As of December 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| Rate | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | Rate | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||
| 40 East End Avenue | 12% | $ | - | $ | 6,000 | $ | 75 | $ | 182 | $ | 254 | $ | 362 | 12% | $ | - | $ | 6,000 | $ | - | $ | 184 | $ | 254 | $ | 546 | ||||||||||||||||||||||||||||
| East 11th Street | 12% | - | - | - | 230 | - | 485 | 12% | - | - | - | 108 | - | 593 | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | - | $ | 6,000 | $ | 75 | $ | 412 | $ | 254 | $ | 847 | $ | - | $ | 6,000 | $ | - | $ | 292 | $ | 254 | $ | 1,139 | ||||||||||||||||||||||||||||||
Note:
| (1) | Included in interest and dividend income on the consolidated statements of operations. |
Hotel Joint Venture
The Company has a 2.5% membership interest in the Hotel Joint Venture, which held ownership interests in sevenfive hotel properties as of JuneSeptember 30, 20232023. Previously, the Hotel Joint Venture held ownership interests in seven hotel properties but subsequently sold two of its hotel properties during July 2023. During July 2023, the Company received a distribution of $0.5 million from the Hotel Joint Venture for its respective share of the net proceeds from the sale of the aforementioned hotel properties. The carrying value of itsthe Company’s investment in the Hotel Joint Venture was $0.70.4 million and $0.9 million, as of JuneSeptember 30, 2023 and December 31, 2022, respectively, which is included in investments in related parties on the consolidated balance sheets.
1415
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 7. | Notes Receivable |
The Company has formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).
The NR Subsidiaries and NR Affiliates may have varying ownership interests in the NR Joint Ventures, however; certain other wholly-owned subsidiaries of the Operating Partnership serve as the manager and are the sole decision-maker for each of the NR Joint Ventures.
The Company has determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, the Company has consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.
The Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00% to 1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.
The Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional extension options subject to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension fees. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
Origination fees are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied against the monthly interest due over the term.
During the sixnine months ended JuneSeptember 30, 2023, both the NR Subsidiaries and the NR Affiliates made aggregate contributions to the NR Joint Ventures of $1.5 million. Additionally, during the nine months ended September 30, 2023, the NR Joint Ventures made aggregate distributions of $1.31.6 million to both the NR Subsidiaries and NR Affiliates, based on their respective membership interests. During the sixnine months ended JuneSeptember 30, 2022, both the NR Subsidiaries and the NR Affiliates made aggregate contributions to the NR Joint Ventures of $21.9 million, principally to fund their respective shares of the Joint Venture Promissory Note that was originated. Additionally, during the sixnine months ended JuneSeptember 30, 2022, the NR Joint Ventures made aggregate distributions of $15.0$29.3 million to both the NR Subsidiaries and NR Affiliates, based on their respective membership interests.
LSC 1543 7th LLC, the NR Joint Venture that originated the Joint Venture Promissory Note (the “LSC 1543 7th LLC Note Receivable”) with a remaining outstanding principal balance of $35.0 million as of June 30, 2023, is currently in discussions with the Joint Venture Borrower with respect to the terms for an extension to the LSC 1543 7th LLC Note Receivable, which is expected to be completed on or before its initial scheduled maturity date of August 31, 2023.
1516
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
As of September 30, 2023, the NR Joint Ventures, through LSC 1543 7th LLC, had one remaining Joint Venture Promissory Note, the LSC 1543 7th LLC Note Receivable, which has an outstanding principal balance of $35.0 million. As a result of financial difficulties, the Joint Venture Borrower under the LSC 1543 7th LLC Note Receivable (the “LSC 1543 7th LLC Borrower”) discontinued making monthly interest payments during the second quarter of 2023 and the LSC 1543 7th LLC Note Receivable subsequently matured on August 31, 2023. As of September 30, 2023, the accrued and unpaid interest and fees related to the LSC 1543 7th LLC Note Receivable totaled $2.0 million, which is included in other assets on the consolidated balance sheet.
LSC 1543 7th LLC is currently in negotiations with the LSC 1543 7th LLC Borrower with respect to potential resolutions of the matter; including a restructuring or modification of the terms of the LSC 1543 7th LLC Note Receivable, the placement of the underlying collateral for sale, or a deed-in-lieu of foreclosure transfer of title of the underlying collateral; however, there can be no assurances that LSC 1543 7th LLC will be successful in such endeavors. Based on a recent third-party valuation firm’s appraisal, the Company currently believes the fair value of the underlying collateral for the LSC 1543 7th LLC Note Receivable exceeds the outstanding principal balance of $35.0 million plus the accrued and unpaid interest and fees of $2.0 million and therefore, no allowance for credit losses was deemed necessary as of September 30, 2023.
The following tables summarize the Note Receivable as of the dates indicated:
| Summary of notes receivable | ||||||||||||||||||||||||||||||||||||
| Joint Venture/Lender | Company’s Ownership Percentage | Loan Commitment Amount | Origination Fee | Origination Date | Maturity Date | Contractual Interest Rate | Outstanding Principal | Reserves | Unamortized Origination Fee | Carrying Value | Unfunded Commitment | |||||||||||||||||||||||||
| As of June 30, 2023 | ||||||||||||||||||||||||||||||||||||
| LSC 1543 7th LLC | 50% | $ | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 35,000 | $ | - | $ | (82 | ) | $ | 34,918 | $ | - | ||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| LSC 1543 7th LLC | 50% | $ | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 49,000 | $ | (614 | ) | $ | (327 | ) | $ | 48,059 | $ | - | |||||||||||||||||
| Summary of notes receivable | |||||||||||||||||||||||||||||||||||||||
| Joint Venture/Lender | Company’s Ownership | Loan Commitment | Origination | Origination | Initial Maturity | Contractual Interest | Outstanding | Unamortized Origination | Carrying | Unfunded | |||||||||||||||||||||||||||||
| Percentage | Amount | Fee | Date | Date | Rate | Principal | Reserves | Fee | Value | Commitment | |||||||||||||||||||||||||||||
| As of September 30, 2023 | |||||||||||||||||||||||||||||||||||||||
| LSC 1543 7th LLC | 50% | $ | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 35,000 | $ | - | $ | - | $ | 35,000 | $ | - | ||||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||
| LSC 1543 7th LLC | 50% | $ | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 49,000 | $ | (614 | ) | $ | (327 | ) | $ | 48,059 | $ | - | ||||||||||||||||||||
The following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations) for each of the Joint Venture Promissory Notes during the periods indicated:
| Summarizes the interest earned for each of the joint venture promissory notes | ||||||||||||||||||||||||||||||||
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| Joint Venture/Lender | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
| LSC 1543 7th LLC | $ | 1,201 | 1,038 | $ | 2,699 | $ | 1,727 | $ | 1,340 | $ | 1,230 | $ | 4,039 | $ | 2,957 | |||||||||||||||||
| LSC 11640 Mayfield LLC | - | - | - | 455 | - | - | - | 455 | ||||||||||||||||||||||||
| Total | $ | 1,201 | $ | 1,038 | $ | 2,699 | $ | 2,182 | $ | 1,340 | $ | 1,230 | $ | 4,039 | $ | 3,412 | ||||||||||||||||
1617
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 8. | Marketable Securities, Derivative Financial Instruments, Fair Value Measurements and Notes Payable |
Marketable Securities
The following is a summary of the Company’s available for sale securities:
| Summary of available for sale securities and other investments | ||||||||||||||||||||||||||||||||
| As of June 30, 2023 | As of September 30, 2023 | |||||||||||||||||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||
| Marketable Securities: | ||||||||||||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||||
| Common and Preferred Equity Securities | $ | 20,421 | $ | 72 | $ | (1,254 | ) | $ | 19,239 | $ | 17,394 | $ | - | $ | (945 | ) | $ | 16,449 | ||||||||||||||
| Marco OP Units and Marco II OP Units | 19,227 | 4,936 | - | 24,163 | 19,227 | 3,377 | - | 22,604 | ||||||||||||||||||||||||
| $ | 39,648 | $ | 5,008 | $ | (1,254 | ) | $ | 43,402 | $ | 36,621 | $ | 3,377 | $ | (945 | ) | $ | 39,053 | |||||||||||||||
| As of December 31, 2022 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities: | ||||||||||||||||
| Common and Preferred Equity Securities | $ | 22,993 | $ | - | $ | (2,103 | ) | $ | 20,890 | |||||||
| Marco OP Units and Marco II OP Units | 19,227 | 5,355 | - | 24,582 | ||||||||||||
| 42,220 | 5,355 | (2,103 | ) | 45,472 | ||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate Bonds | 602 | - | (150 | ) | 452 | |||||||||||
| Total | $ | 42,822 | $ | 5,355 | $ | (2,253 | ) | $ | 45,924 | |||||||
| As of December 31, 2022 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities: | ||||||||||||||||
| Common and Preferred Equity Securities | $ | 22,993 | $ | - | $ | (2,103 | ) | $ | 20,890 | |||||||
| Marco OP Units and Marco II OP Units | 19,227 | 5,355 | - | 24,582 | ||||||||||||
| 42,220 | 5,355 | (2,103 | ) | 45,472 | ||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate Bonds | 602 | - | (150 | ) | 452 | |||||||||||
| Total | $ | 42,822 | $ | 5,355 | $ | (2,253 | ) | $ | 45,924 | |||||||
As of both JuneSeptember 30, 2023 and December 31, 2022, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695 were owned by PRO. The Marco OP Units and the Marco II OP Units are both exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of Simon Property Group, Inc. (“Simon Inc.”), a public REIT that is an owner and operator of shopping malls and outlet centers. Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units to Simon OP Units which must be immediately delivered to Simon Inc. in exchange for cash or similar number of shares of Simon Inc.’s common stock (“Simon Stock”). Accordingly, the Marco OP Units and Marco II OP Units are valued based on the closing price of Simon Stock, which was $ per share and $ per share as of JuneSeptember 30, 2023 and 2022, respectively. Additionally, the closing price of Simon Stock was $ per share as of December 31, 2022.
Throughout 2022 and continuing into 2023, financial markets have been experiencing increases in interest rates primarily as a result of higher inflation, leading to the lower market prices of the Company equity’s securities, especially those highly sensitive to movements in interest rates, such as REITs and preferred securities. Because of the change in the closing price of Simon Stock and the market price of the Company’s other equity securities, the Company incurred unrealized gainslosses of $1.11.3 million and $0.50.8 million for the three and sixnine months ended JuneSeptember 30, 2023, respectively, and unrealized losses of $9.81.2 million and $18.820.0 million for the three and sixnine months ended JuneSeptember 30, 2022, respectively. These unrealized losses incurred on the Company’s marketable equity securities are included in its consolidated statements of operations.
1718
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Derivative Financial Instruments
The Company has entered into two interest rate cap contracts with unrelated financial institutions in order to reduce the effect of interest rate fluctuations or risk of certain real estate investment’s interest expense on its variable rate debt. The Company is exposed to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss due to non-performance to be minimal.
The Company is accounting for the interest rate cap contracts as economic hedges, marking these contracts to market, taking into account present interest rates compared to the contracted fixed rate over the life of the contract and recording the unrealized gain or loss on the interest rate cap contracts on the consolidated statements of operations.
For the three and sixnine months ended JuneSeptember 30, 2023, the Company recorded an unrealized gain of $38 and unrealized losses of $0.40.7 million and of $1.1 million, respectively, and during the three and sixnine months ended JuneSeptember 30, 2022, the Company recorded unrealized gains of $0.41.6 million and $1.22.8 million, respectively, on the consolidated statements of operations, representing the change in the fair value of these economic hedges during such periods.
The two interest rate cap contracts have notional amounts of $90.0 million and $40.0 million, respectively, and effectively capcapped the LIBOR rate at 3.00% through June 30, 2023, and caps its replacement rate thereafterof SOFR at 3.00%. thereafter through their expiration dates. Both interest rate cap contracts mature on June 3, 2024. The aggregate fair values of the interest rate cap contracts of $2.9$2.1 2,8802,144 million and $3.3 3,279 million as of JuneSeptember 30, 2023 and December 31, 2022, respectively, are included in other assets on the consolidated balance sheets.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
1819
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Marketable securities and derivative financial instruments measured at fair value on a recurring basis as of the dates indicated are as follows:
| Schedule of marketable securities measured at fair value on a recurring basis | ||||||||||||||||||||||||||||||||
| Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
| As of June 30, 2023 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
| As of September 30, 2023 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
| Marketable Securities: | ||||||||||||||||||||||||||||||||
| Common and Preferred Equity Securities | $ | 1,119 | $ | 18,120 | $ | - | $ | 19,239 | $ | 1,047 | $ | 15,402 | $ | - | $ | 16,449 | ||||||||||||||||
| Marco OP and OP II Units | - | 24,163 | - | 24,163 | - | 22,604 | - | 22,604 | ||||||||||||||||||||||||
| Total | $ | 1,119 | $ | 42,283 | $ | - | $ | 43,402 | $ | 1,047 | $ | 38,006 | $ | - | $ | 39,053 | ||||||||||||||||
| Derivative Financial Instruments: | ||||||||||||||||||||||||||||||||
| Interest Rate Cap Contracts | $ | - | $ | 2,880 | $ | - | $ | 2,880 | $ | - | $ | 2,144 | $ | - | $ | 2,144 | ||||||||||||||||
| Fair Value Measurement Using | ||||||||||||||||
| As of December 31, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Marketable Securities: | ||||||||||||||||
| Common and Preferred Equity Securities | $ | 1,138 | $ | 19,752 | $ | - | $ | 20,890 | ||||||||
| Marco OP and OP II Units | - | 24,582 | - | 24,582 | ||||||||||||
| Corporate Bonds | - | 452 | - | 452 | ||||||||||||
| Total | $ | 1,138 | $ | 44,786 | $ | - | $ | 45,924 | ||||||||
| Derivative Financial Instruments: | ||||||||||||||||
| Interest Rate Cap Contracts | $ | - | $ | 3,279 | $ | - | $ | 3,279 | ||||||||
The fair values of the Company’s common equity securities are measured using readily quoted prices for these investments which are listed for trade on active markets. The fair values of the Company’s preferred equity securities and corporate bonds are measured using readily available quoted prices for these securities; however, the markets for these securities are not active. Additionally, as noted and disclosed above, the Company’s Marco OP and OP II units are both ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and OP II units.
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
19
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Notes Payable
Margin Loan
The Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at LIBORSOFR plus 0.85% (6.07%(6.17% as of JuneSeptember 30, 2023) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were no amounts outstanding under this Margin Loan as of JuneSeptember 30, 2023 and December 31, 2022.
Line of Credit
The Company has a non-revolving credit facility (the “Line of Credit”) that provides for borrowings up to a maximum of $20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, which matures on November 30, 2024 and bears interest at LIBORSOFR plus 1.35% (6.57%(6.67% as of JuneSeptember 30, 2023). Additionally, the Line of Credit provides for a replacement benchmark rate in connection with the phase-out of LIBOR, which is expected to be for periods after June 30, 2023. The Line of Credit is collateralized by an aggregate of of Marco OP Units and Marco II OP Units and is guaranteed by PRO. As of JuneSeptember 30, 2023, the amount of borrowings available to be drawn under the Line of Credit was $13.312.4 million. NoThere were no amounts were outstanding under the Line of Credit as of both JuneSeptember 30, 2023 and December 31, 2022.
20
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 9. | Mortgages Payable, Net |
Mortgages payable, net consists of the following:
| Schedule of mortgages payable | |||||||||||||||||||||||||||||||||||||||
| Property/Investment | Interest Rate | Weighted Average Interest Rate for the Six Months Ended June 30, 2023 | Maturity Date | Amount Due at Maturity | As of June 30, 2023 | As of December 31, 2022 | Interest Rate | Weighted Average Interest Rate for the Nine Months Ended September 30, 2023 | Maturity Date | Amount Due at Maturity | As of September 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||
| Gantry Park Landing | 4.48% | 4.48% | November 2024 | $ | 65,317 | $ | 67,428 | $ | 68,151 | 4.48% | 4.48% | November 2024 | $ | 65,317 | $ | 67,069 | $ | 68,151 | |||||||||||||||||||||
| Lower East Side Moxy Hotel Senior | LIBOR + 7.50% (floor of 7.75%) | 10.40% | June 2024 | 90,000 | 90,000 | 82,811 | SOFR + 7.36% (floor of 7.64%) | 12.44% | June 2024 | 90,000 | 90,000 | 82,811 | |||||||||||||||||||||||||||
| Lower East Side Moxy Hotel Junior | LIBOR + 13.50% (floor of 14.00%) | 16.72% | June 2024 | 40,000 | 40,000 | 40,000 | SOFR + 13.61% (floor of 13.89%) | 18.79% | June 2024 | 40,000 | 40,000 | 40,000 | |||||||||||||||||||||||||||
| Exterior Street Project | SOFR + 2.60% | 7.45% | November 2023 | 35,000 | 35,000 | 35,000 | SOFR + 2.85% | 7.62% | November 2024 | 35,000 | 35,000 | 35,000 | |||||||||||||||||||||||||||
| Exterior Street Project Supplemental | SOFR + 2.60% | 7.45% | November 2023 | 7,000 | �� | 7,000 | 7,000 | SOFR + 2.85% | 7.62% | November 2024 | 7,000 | 7,000 | 7,000 | ||||||||||||||||||||||||||
| LSC 1543 7th LLC Note Receivable | SOFR + 3.50% | 8.50% | December 2023 | 21,529 | 21,529 | 32,152 | SOFR + 3.50% | 8.77% | February 2024 | 19,476 | 19,476 | 32,152 | |||||||||||||||||||||||||||
| Total mortgages payable | 9.21% | $ | 258,846 | 260,957 | 265,114 | 10.29% | $ | 256,793 | 258,545 | 265,114 | |||||||||||||||||||||||||||||
| Less: Deferred financing costs | (2,843 | ) | (4,535 | ) | (1,987 | ) | (4,535 | ) | |||||||||||||||||||||||||||||||
| Total mortgages payable, net | $ | 258,114 | $ | 260,579 | $ | 256,558 | $ | 260,579 | |||||||||||||||||||||||||||||||
One-month LIBORSOFR as of JuneSeptember 30, 2023 and December 31, 2022 was 5.22%5.32% and 4.39%4.36%, respectively. One-month SOFRLIBOR as of June 30, 2023 and December 31, 2022 was 5.14% and 4.36%4.39%. The Company’s loans are secured by the indicated real estate/investment and are non-recourse to the Company, unless otherwise indicated.
2021
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
LSC 1543 7th LLC Loan
On June 30, 2022, LSC 1543 7th LLC obtained a loan of up to $33.1 million (the “LSC 1543 7th LLC Loan”) which bears interest at SOFR + 3.50% (8.64% as of JuneSeptember 30, 2023). The LSC 1543 7th LLC Loan is initially scheduled to mature on December 30, 2023, but may be further extended through December 30, 2024 and September 20, 2025, through the exercise of two extension options. The LSC 1543 7th LLC Loan requires monthly interest-only payments with the outstanding principal balance due at its maturity date and is collateralized by a nonrecourse loan originated bythe LSC 1543 7th LLC Note Receivable. During the first quarter of 2023, LSC 1543 7th LLC received a payment of $14.0 million on the LSC 1543 7th LLC Note Receivable and used a portion of the proceeds to repay $11.3 million of the LSC 1543 7th LLC Loan, which reduced the outstanding balance to $21.5 million. The LSC 1543 7th LLC Loan was initially scheduled to mature on December 30, 2023, however, on September 5, 2023, LSC 1543 7th LLC exercised the option provided under the LSC 1543 7th LLC Loan to extend the maturity date to February 29, 2024. In connection with this extension, LSC 1543 7th LLC made a principal paydown of $2.1 million which reduced the outstanding balance of the LSC 1543 7th LLC Loan to $19.5 million. Additionally, LSC 1543 7th LLC funded $0.9 million into a cash collateral reserve account, which will be applied to the payment of interest.
Moxy Construction Loans
On June 3, 2021, the Company, through a wholly owned subsidiary, closed on a recourse construction loan facility (the “Moxy Senior Loan”) providing for up to $90.0 million of funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. At closing, $35.6 million of proceeds were initially advanced under the Moxy Senior Loan, which were used to repay in full a then outstanding mortgage loan. The Moxy Senior Loan bears interest at LIBOR plus 7.50%, subject to an 7.75% floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. Additionally, the Moxy Senior Loan provides for a replacement benchmark rate for periods after June 30, 2023 in connection with the phase-out of LIBOR. The Moxy Senior Loan is collateralized by the Lower East Side Moxy Hotel. As of June 30, 2023, the outstanding principal balance of the Moxy Senior Loan was $90.0 million, the interest rate was 12.72%. Additionally, the Company was required by the lender to deposit the $4.7 million of key money received from Marriott during the fourth quarter of 2022 into an escrow account (included in restricted cash on the consolidated balance sheet as of December 31, 2022), all of which was subsequently used to fund remaining construction costs for the project during the first quarter of 2023.
Simultaneously on June 3, 2021, the Company, through the same wholly owned subsidiary, also entered into a mezzanine construction loan facility (the “Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Construction Loans”) providing for up to $40.0 million of additional funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. The Moxy Junior Loan bearsConstruction Loans provided for a replacement benchmark rate in connection with the phase-out of LIBOR and effective on June 30, 2023, the Moxy Senior Loan’s interest atrate converted from LIBOR plus 13.50%7.25%, subjectwith a floor of 7.75%, to SOFR plus 7.36%, with a 14.00% floor (18.72% as of June 30, 2023)7.64%, and the Moxy Junior Loan’s interest rate converted from LIBOR plus 13.50%, with a floor of 14.00%, to SOFR plus 13.61%, with a floor of 13.89%.
The Moxy Construction Loans initially maturesmature on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. Additionally,The Moxy Construction Loans are collateralized by the Lower East Side Moxy Junior Loan provides for a replacement benchmark rate for periods after June 30, 2023 in connection withHotel; however the phase-out of LIBOR. The Moxy Junior Loan is subordinate to the Moxy Senior Loan. As of September 30, 2023, the outstanding principal balance of the Moxy Senior Loan but also collateralizedand Moxy Junior Loan was $90.0 million and $40.0 million, respectively, and there was no remaining availability as they were fully drawn.
The Company was required by the Lower East Side Moxy Hotel. The Company has provided a principal guarantee of uplender to deposit the $7.04.7 million with respectof key money received from Marriott during the fourth quarter of 2022 into an escrow account (included in restricted cash on the consolidated balance sheet as of December 31, 2022), all of which was subsequently used to fund remaining construction costs for the Moxy Junior Loan.project during the first quarter of 2023.
In connection with the Moxy Construction Loans, the Company provided certain completion and carry cost guarantees. Additionally, the Moxy Construction Loans provide for the lenders to trap excess cash flow, if any, generated from the operations of the Lower East Side Moxy Hotel until it achieves certain prescribed financial ratios for two consecutive quarters. To-date, the Lower East Side Moxy Hotel, which opened in October 2022 and therefore, is still in its ramp-up period, has not achieved any of the prescribed financial ratios.
The Company has also entered into two interest rate cap agreements with notional amountsprovided a principal guarantee of up to $90.07.0 million and $40.0 million pursuantwith respect to which LIBOR through June 30, 2023 and its replacement rate thereafter is capped at 3.00% through June 3, 2024. Furthermore, in connection with the Moxy Construction Loans, the Company paid $5.3 million of loan fees and expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of June 30, 2023 and December 31, 2022.Junior Loan.
2122
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company has also entered into two interest rate cap agreements with notional amounts of $90.0 million and $40.0 million pursuant to which the LIBOR rate was capped at 3.00% through June 30, 2023, and its replacement rate of SOFR is capped at 3.00% thereafter through June 3, 2024. Furthermore, in connection with the Moxy Construction Loans, the Company paid $5.3 million of loan fees and expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of September 30, 2023 and December 31, 2022.
Exterior Street Loans
On March 29, 2019, the Company obtained a $35.0 million loan (the “Exterior Street Loan”) from a financial institution which, commencing on October 10, 2020, bore interest at LIBOR plus 2.25% through November 24, 2022. On December 21, 2021, the loan agreement was amended to provide an additional $7.0million loan (the “Exterior Street Supplemental Loan” and collectively with the Exterior Street Loan, the “Exterior Street Loans”) which bore interest at LIBOR plus 2.50% through November 24, 2022. The Exterior Street Loans require monthly interest-only payments with the outstanding principal balances due in full at their maturity date. The Exterior Street Loans are collateralized by the Exterior Street Project. On November 22, 2022, the Company and the financial institution entered into an additional amendment to the Exterior Street Loans pursuant to which the interest rate on the Exterior Street Loans was adjusted to SOFR plus 2.60% (7.74%and their maturity dates were extended to November 24, 2023. On October 31, 2023, the Company and the financial institution entered into an additional amendment to the Exterior Street Loans pursuant to which the interest rate on the Exterior Street Loans was adjusted to SOFR plus 2.85% (8.17% as of JuneSeptember 30, 2023) and their maturity dates were extended to November 24, 2023.2024.
The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of JuneSeptember 30, 2023:
| Scheduled of contractually principal maturities during next five years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | |||||||||||||||||||||||||||||||||||||||||||
| Principal maturities | $ | 64,260 | $ | 196,697 | $ | - | $ | - | $ | - | $ | - | $ | 260,957 | $ | 372 | $ | 258,173 | $ | - | $ | - | $ | - | $ | - | $ | 258,545 | ||||||||||||||||||||||||||||
| Less: Deferred financing costs | (2,843 | ) | (1,987 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total principal maturities, net | $ | 258,114 | $ | 256,558 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Certain of the Company’s debt agreements require the maintenance of certainprescribed ratios, including debt service coverage. As of JuneSeptember 30, 2023, the Company was in compliance with all of its financial debt covenants; except for the those for the Moxy Construction Loans, as discussed above. Additionally, certain of our mortgages payable also contain clauses providing for prepayment penalties.
23
Debt MaturitiesLIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Exterior Street Loans (outstanding aggregate principal balance of $42.0 million as of June 30, 2023) mature on November 24, 2023. The Company currently intends to seek to extend or refinance the Exterior Street Loans on or before their maturity date.Debt Maturities
The LSC 1543 7th LLC Loan (outstanding principal balance of $21.5$19.5 million as of JuneSeptember 30, 2023) is scheduled to initially mature on December 30, 2023, but may be further extended through December 30, 2024 and September 20, 2025, through the exercise of two extension options.February 29, 2024. The Company currently intends to repay the LSC 1543 7th LLC Loan with theany proceeds received from the expected repayment of the LSC 1543 7th LLC Note Receivable, which has an outstanding principal balance of $35.0 million, or to seek to further extend or refinance the LSC 1543 7th LLC Loan pursuant to its first extension option on or before its scheduled maturity date.
The Moxy Construction Loans (outstanding aggregate principal balance of $130.0$130.0 million as of JuneSeptember 30, 2023) mature on June 3, 2024. The Company currently intendsexpects to refinance the Moxy Construction Loans on or before their initial maturity dates of June 3, 2024; however, there can be no assurances that it will be successful in such endeavors. If the Company is unable to refinance the Moxy Construction Loans on or before their initial maturity date, it will then seek to exercise the first of their two one-year extension options.
However, if the Company is unable to extend or refinance its maturing indebtedness at favorable terms, it willmay look to repay the then outstanding principal balances with available cash and/or proceeds from selective asset sales. The Company has no additional significant maturities of mortgage debt over the next 12 months from the date of these consolidated financial statements.
22
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 10. | Equity |
DistributionDistributions on Common Shares
On May 10,August 11, 2023, the Company’s Board of Directors authorized and the Company declared a distribution of $ per share for the quarterly period ending JuneSeptember 30, 2023. On July 15, 2023 payable to stockholders of record at the close of business on the last day of the quarter-end. The quarterly distribution was the pro rata equivalent of an annual distribution of $ per share, or an annualized rate of 3.5% assuming a purchase price of $ per share. The distribution, which totaled $1.9 million, was paid in full on or about October 15, 2023 using a combination of cash and approximately shares of the Company’s common stock issued pursuant to the Company’s distribution reinvestment program (“DRIP”), at a discounted price of $ per share, equal to 95% of the Company’s most recently published estimated net asset value per share of $ as of September 30, 2022.
On August 11, 2023, the Company’s Board of Directors authorized and the Company declared a distribution of $ per share for the quarterly period ending September 30, 2023. The quarterly distribution is the pro rata equivalent of an annual distribution of $ per share, or an annualized rate of 3.5% assuming a purchase price of $ per share. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter-end. The stockholders Stockholders have an option to elect the receipt of shares under the Company’s DRIP.DRIP in lieu of payment of cash for distributions from the Company.
Because the quarterly distribution declared by the Board of Directors on the Common Sharescommon shares for the quarterly period ending on September 30, 2023 doesdid not equal at least an annualized rate of 7.0% assuming a purchase price of $10.00 per share, no distributions were declared on the SLP Units.
On November 10, 2023, the Board of Directors determined to suspend regular quarterly distributions. Until distributions on common shares are brought current to at least an annualized rate of 7.0% assuming a purchase price of $10.00 per share, no distributions will be declared on the SLP Units. Any future distributions on the SLP Units will always be subordinated until stockholders receive a stated preferred return.
Future distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, the Company’s ability to refinance near-term debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
24
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
SRP
The Company’s share repurchase program (the “SRP”) may provide its stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to the Company, subject to restrictions.
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective March 18, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our current estimated net asset value per share of common stock (“NAV per Share”), as determined by the Board of Directors and reported by the Company from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration. On March 18, 2022, the Board of Directors approved an increase to the annual threshold for death redemptions from up to 0.5% to 1.0%.
23
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
At the above noted dates, the Board of Directors established that on an annual basis, the Company would not redeem in excess of 1.0% and 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro rationproration if either type of redemption requests exceeded the annual limitation.
For the sixnine months ended JuneSeptember 30, 2023, the Company repurchased 201,195 Common Shares at a weighted average price per share of $. For the sixnine months ended JuneSeptember 30, 2022, the Company repurchased Common Shares at a weighted average price per share of $.
Net Earnings Per Share
Basic net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Dilutive income per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented dilutive net income per share is equivalent to basic net income per share.
25
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 11. | Related Party Transactions |
The Company has various agreements, including an advisory agreement, with the Advisor and Lightstone Value Plus REIT Management LLC (the “Property Manager”) to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance sheets.
The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:
| Summary of Amount recorded in pursuant to related party arrangement | ||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Asset management fees (general and administrative costs) | $ | 551 | $ | 171 | $ | 1,107 | $ | 325 | $ | 539 | $ | 124 | $ | 1,646 | $ | 449 | ||||||||||||||||
| Property management fees (property operating expenses) | 75 | 74 | 147 | 155 | 76 | 68 | 224 | 223 | ||||||||||||||||||||||||
| Development fees and cost reimbursement(1) | 235 | 733 | 641 | 1,617 | 192 | 641 | 833 | 2,258 | ||||||||||||||||||||||||
| Total | $ | 861 | $ | 978 | $ | 1,895 | $ | 2,097 | $ | 807 | $ | 833 | $ | 2,703 | $ | 2,930 | ||||||||||||||||
| (1) | Development fees and the reimbursement of development-related costs that the Company pays to the Advisor and its affiliates are capitalized and are included in the carrying value of the associated development project which are classified as development projects on the consolidated balance sheets until construction is substantially completed and the associated assets are placed in service. As of December 31, 2022, the Company owed the Advisor and its affiliated $0.7 million, for development fees, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. |
See Notes 3, 4 and 5 for other related party transactions.
24
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
In connection with the Company’s Offering, Lightstone SLP, LLC purchased an aggregate of $30.0 million of SLP Units which are included in noncontrolling interests in the consolidated balance sheets. These SLP Units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership.
During boththe first two quarters of 2023, distributions of $1.0 million were declared and paid on the SLP Units. No distributions have been declared or paid on the SLP Units for quarterly periods ending after June 30, 2023. During the three and sixnine months ended JuneSeptember 30, 2023 and 2022, distributions of $0.5 million and $1.01.5 million, respectively, were declared and paid on the SLP units.
26
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 12. | Financial Instruments |
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, other assets, accounts payable, accrued expenses and other liabilities, due to related parties, tenant allowances and deposits payable and deferred rental income approximate their fair values because of the short maturity of these instruments. The carrying amounts of the notes receivable approximate theirapproximates its fair valuesvalue because the interest rates arerate is variable and reflective of market rates.
The carrying amount and estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:
| Schedule of mortgage debt | ||||||||||||||||||||||||||||||||
As of June 30, | As of December 31, 2022 | As of September 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||||||||||||||
| Mortgages payable | $ | 261.0 | $ | 260.5 | $ | 265.1 | $ | 265.1 | $ | 258.5 | $ | 257.1 | $ | 265.1 | $ | 265.1 | ||||||||||||||||
The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.
25
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 13. | Commitments and Contingencies |
Hotel Franchise Agreement
The Lower East Side Moxy Hotel operates pursuant to a 30-year franchise agreement (the “Hotel Franchise Agreement”) with Marriott International, Inc. (“Marriott”). The Hotel Franchise Agreement provides for the Company to pay franchise fees and marketing fund charges equal to certain prescribed percentages of gross room sales, as defined. Additionally, pursuant to the terms of the Hotel Franchise Agreement, the Company received a key money (“Key Money”) payment of $4.7 million from Marriott during the fourth quarter of 2022. The Key Money, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets is being amortized as a reduction to franchise fees over the term of the Hotel Franchise Agreement. As of JuneSeptember 30, 2023 and December 31, 2022, the remaining unamortized balance of the Key Money was $4.6 million and $4.7 million, respectively. Pursuant to the terms of the Hotel Franchise Agreement, the Company may be obligated to return the unamortized portion of the key money back to Marriott upon the occurrence of certain events. The franchise fees and marketing fund charges are recorded as a component of hotel operating expenses in the consolidated statements of operations.
Hotel Management Agreements
With respect to the Lower East Side Moxy Hotel, the Company has entered into a hotel management agreement, food and beverage operations management agreement and an asset management agreement (collectively, the “Hotel Management Agreements”) with various third-party management companies pursuant to which they provide oversight and management over the operation of the Lower East Side Moxy Hotel and its food and beverage venues and receive payment of certain prescribed management fees, generally based on a percentage of revenues and certain incentives for exceeding targeted earnings thresholds. The management fees are recorded as a component of hotel operating expenses on the consolidated statements of operations. The Hotel Management Agreements have initial terms ranging from 5 to 20 years.
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.
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PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus REIT I, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus REIT I, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT, L.P. and its wholly owned subsidiaries, which we collectively refer to as “the Operating Partnership.” Dollar amounts are presented in thousands, except per share data, revenue per available room (“RevPAR”), average daily rate (“ADR”), annualized revenue per square foot and where indicated in millions.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus REIT I, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated net asset value per share of our common stock (“NAV per Share”), and other matters. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:
| ● | market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as inflation, recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases; | |
| ● | the availability of cash flow from operating activities for distributions, if required to maintain our status as a real estate investment trust, or REIT; | |
| ● | conflicts of interest arising out of our relationships with our advisor and its affiliates; | |
| ● | our ability to retain our executive officers and other key individuals who provide advisory and property management services to us; | |
| ● | our level of debt and the terms and limitations imposed on us by our debt agreements; | |
| ● | the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt; |
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| ● | our ability to make accretive investments; |
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| ● | our ability to diversify our portfolio of assets; |
| ● | changes in market factors that could impact our rental rates and operating costs; | |
| ● | our ability to secure leases at favorable rental rates; | |
| ● | our ability to sell our assets at a price and on a timeline consistent with our investment objectives; | |
| ● | impairment charges; | |
| ● | unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and | |
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| factors that could affect our ability to qualify as a real estate investment trust. |
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
Cautionary Note
The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
Business and Structure
Lightstone Value Plus REIT I, Inc. (the “Lightstone REIT I”), (together with its operating partnership, Lightstone Value Plus REIT, L.P. (the “Operating Partnership”), the “Company”, also referred to as “we”, “our” or “us” herein) has and expects to continue to acquire and operate or develop in the future, commercial and, residential properties and/or make real estate-related investments, principally in the United States. Our acquisitions and investments are, principally conducted through the Operating Partnership, and may include both portfolios and individual properties. We evaluate all of our real estate investments as one operating segment. As of JuneSeptember 30, 2023, we held a 98% general partnership interest in our Operating Partnership’s common units.
As of JuneSeptember 30, 2023, we (i) have ownership interests in and consolidate two operating properties, one development property and certain land holdings and (ii) have ownership interests through two unconsolidated joint ventures in nine multifamily residential properties and sevenfive commercial hotel properties. Additionally, as of JuneSeptember 30, 2023, we have one other real estate-related investment consisting of a promissory loan we originated through a joint venture with a related party, to an unaffiliated third-party borrower. We evaluate all of our real estate investments as one operating segment.
With respect to our consolidated operating properties, we wholly own a 296-room303-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”), located in the Lower East Side neighborhood in the Manhattan borough of New York City, which we developed, constructed and opened on October 27, 2022 and have a 59.2% majority ownership interest in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”), a joint venture between us and a related party, which developed, constructed and owns a 199-unit luxury, multifamily residential property (“Gantry Park Landing”), located in the Long Island City neighborhood in the Queens borough of New York City.
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With respect to our consolidated development property, we wholly own land parcels located at 355 & 399 Exterior Street in the Mott Haven neighborhood in the Bronx borough of New York City, on which we plan,expect, subject to economic and local marketcertain conditions, and regulations, to construct a proposed mixed-use multifamily residential and commercial retail project (the “Exterior Street Project”).
We also wholly own and consolidate certain adjacent land parcels (the “St. Augustine Land Holdings) located in St. Augustine, Florida.
Additionally, we hold a 19.0% joint venture ownership interest in Columbus Portfolio Member LLC (the “Columbus Joint Venture”), which owns nine multifamily residential properties, which we account for using the equity method of accounting and we hold a 2.5% joint venture ownership interest in LVP Holdco JV LLC (the “Hotel Joint Venture”) which owns sevenfive hotel properties, which we account for using a measurement alternative under which the Hotel Joint Venture is measured at cost, adjusted for observable price changes and impairments, if any. The Hotel Joint Venture subsequently sold two of its hotel properties during July 2023. Both the Columbus Joint Venture and the Hotel Joint Venture are between us and related parties.
We do not have employees. We entered into an advisory agreement pursuant to which Lightstone Value Plus REIT, LLC (the “Advisor”) supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors (the “Board of Directors”). We pay the Advisor fees for services related to the investment and management of our assets, and we will reimburse the Advisor for certain expenses incurred on our behalf.
To maintain our qualification as a REIT, we engage in certain activities through taxable REIT subsidiaries (“TRSs”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.
Investment Strategy and Policies
We have and expect to continue to generally make our real estate investments in fee title or a long-term leasehold estate through the Operating Partnership or indirectly through special purpose limited liability companies or through investments in joint ventures, partnerships, co-tenancies, or other co-ownership arrangements with the developers of the properties or other persons.
We have not and do not intend to make significant investments in single family residential properties; leisure home sites; farms; ranches; timberlands; unimproved properties not intended to be developed; or mining properties.
Not more than 10% of our total assets may be invested in unimproved real property. For purposes of this paragraph, “unimproved real properties” does not include properties acquired for the purpose of producing rental or other operating income, properties under construction and properties for which development or construction is planned within one year. Additionally, we do not invest in contracts for the sale of real estate unless in recordable form and appropriately recorded.
Although we are not limited as to the geographic area where we may conduct our operations, we have invested and may continue to invest in properties located near the existing operations of our Sponsor, in order to achieve economies of scale where possible.
Adverse Developments Affecting the Financial Services Industry and Concentration of Credit Risk
As of JuneSeptember 30, 2023 and December 31, 2022, we had cash deposited in certain financial institutions in excess of federally insured levels. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash. However, in March and April of 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on our operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, our ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on our business, financial condition and results of operations.
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Current Environment
Our operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions, may adversely affect our results of operations and financial performance.
Wholly Owned and Consolidated Real Estate Properties:
As of JuneSeptember 30, 2023, we (i) have ownership interests in and consolidate two operating properties, one development property and certain land holdings and (ii) have ownership interests through two unconsolidated joint ventures in nine multifamily residential properties and sevenfive commercial hotel properties.
Consolidated Properties
Lower East Side Moxy Hotel
We wholly own a 296-room303-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”), located in the Lower East Side neighborhood in the Manhattan borough of New York City, which we developed, constructed and opened on October 27, 2022. The following table contains certain information for the Lower East Side Moxy Hotel for the dates indicated.
| Year to Date |
| Percentage Occupied | RevPAR for the Six Months Ended | ADR for the Six Months Ended | ||||||||||||||||||
| Location | Year Built | Available Rooms | June 30, 2023 | June 30, 2023 | June 30, 2023 | |||||||||||||||||
| Lower East Side Moxy Hotel | Bowery, New York | 2022 | 54,843 | 71 | % | $ | 176.86 | $ | 249.39 | |||||||||||||
| Year to Date | Percentage Occupied for the Nine Months Ended | RevPAR for the | ADR for the Nine Months Ended | |||||||||||||||||
| Location | Year Built | Available Rooms | September 30, 2023 | September 30, 2023 | September 30, 2023 | |||||||||||||||
| Lower East Side Moxy Hotel | Bowery, New York | 2022 | 82,719 | 76 | % | $ | 199.52 | $ | 262.92 | |||||||||||
Gantry Park Landing
We have a 59.2% majority ownership interest in a joint venture, between us and a related party, which developed, constructed and owns a 199-unit, luxury multifamily property (“Gantry Park Landing”), located in the Long Island City neighborhood in the Queens borough of New York City. The following table contains certain information for Gantry Park Landing for the dates indicated.
| Location | Year Built | Leasable Units | Percentage Occupied as of June 30, 2023 | Annualized Revenues based on rents at June 30, 2023 | Annualized Revenues per unit at June 30, 2023 | |||||||||||||||||
| Gantry Park Landing | Queens, New York | 2013 | 199 | 98 | % | $ | 9.4 million | $ | 47,957 | |||||||||||||
| Location | Year Built | Leasable Units | Percentage Occupied | Annualized Revenues based on rents at September 30, 2023 | Annualized Revenues per unit at September 30, 2023 | |||||||||||||||
| Gantry Park Landing | Queens, New York | 2013 | 199 | 98 | % | $ | 10.0 million | $ | 50,780 | |||||||||||
Annualized revenue is defined as the minimum monthly payments due as of JuneSeptember 30, 2023 annualized.
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Exterior Street Project
In February 2019, we acquired two adjacent parcels of land located at 355 and 399 Exterior Street, located in the Mott Haven neighborhood in the Bronx borough of New York City, and subsequently acquired an additional adjacent wedge parcel in September 2021. On these three land parcels we plan, subject to economic and local marketcertain conditions, and regulations, to construct a proposed mixed-use multifamily residential and commercial retail project (“Exterior Street Project”). Through JuneSeptember 30, 2023, we have incurred and capitalized $95.7$96.7 million of costs related to the development of the Exterior Street Project.
St. Augustine Land Holdings
Effective July 15, 2022, we ceased operations of our wholly owned St. Augustine Outlet Center, a retail property located in St. Augustine, Florida, and shortly thereafter, commenced demolition of the property’s building and improvements in order to prepare the various land parcels for potential sale and/or lease. The demolition of the property’s buildings and improvements was substantially completed during the third quarter of 2022. As a result, we own various adjacent land parcels (the “St. Augustine Land Holdings”) which are included in land and improvements on the consolidated balance sheets. During the first quarter of 2023, we completed the disposition of a parcel of land, which was part of the St. Augustine Land Holdings, to an unrelated third party for a contractual sales price of $1.5 million and recognized a gain on disposition of real estate of $1.1 million during the sixnine months ended JuneSeptember 30, 2023. The aggregate carrying value of the St. Augustine Land Holdings was $4.6 million and $4.9 million as of JuneSeptember 30, 2023 and December 31, 2022, respectively.
Unconsolidated Properties
Columbus Joint Venture
We hold a 19.0% joint venture ownership interest in the Columbus Joint Venture, which owns nine multifamily residential properties, which we account for using the equity method of accounting. The Columbus Joint Venture is between us and related parties. The following table contains certain information for these properties for the dates indicated.
| Percentage Occupied as of | Annualized Revenues based on rents at | Annualized Revenue per unit at | ||||||||||||||||||||
| Location | Year Built | Leasable Units | June 30, 2023 | June 30, 2023 | June 30, 2023 | |||||||||||||||||
| 9 multifamily residential properties within the Columbus Joint Venture | Columbus, Ohio | 2004 | 2,564 | 90 | % | $ | 41.1 Million | $ | 17,883 | |||||||||||||
| Percentage Occupied as of | Annualized Revenues based on rents at | Annualized Revenue per unit at | ||||||||||||||||||
| Location | Year Built | Leasable Units | September 30, 2023 | September 30, 2023 | September 30, 2023 | |||||||||||||||
| 9 multifamily residential properties within the Columbus Joint Venture | Columbus, Ohio | 2004 | 2,564 | 91 | % | $ | 42.8 million | $ | 18,340 | |||||||||||
Hotel Joint Venture
We hold a 2.5% joint venture ownership interest in the Hotel Joint Venture, a joint venture between us and a related party, which owns sevenfive hotel properties, which we account for using a measurement alternative under which the Hotel Joint Venture is measured at cost, adjusted for observable price changes and impairments, if any. The Hotel Joint Venture subsequently sold two of its hotel properties during July 2023.
The following information generally applies to our investments in our real estate properties:
| ● | we believe our real estate properties are adequately covered by insurance and suitable for their intended purpose; |
| ● | our real estate properties are located in markets where we are subject to competition in attracting and retaining tenants; and |
| ● | depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements. |
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Results of Operations
Significant Transactions and Events during 2023 and 2022
Columbus Joint Venture - Acquisition of Columbus Properties
On November 29, 2022, we along with CRE Columbus Member (“Converge”), a majority owned subsidiary of Converge Holdings LLC, a reinsurance business owned by the Sponsor, and LEL Columbus Member LLC (the “BVI Member”), a wholly owned subsidiary of Lightstone Enterprises Limited (“BVI”), a real estate investment company owned by the Sponsor, entered into a joint venture agreement to form the Columbus Joint Venture for the purpose of acquiring nine multifamily properties (the “Columbus Properties”) located in the area of Columbus, Ohio for a contractual purchase price of $465.0 million. We have an ownership interest of 19% in the Columbus Joint Venture. Converge and the BVI Member, which are both related parties, have ownership interests of 19% and 62%, respectively. Additionally, the Manager of the Columbus Joint Venture is LEL Bronx Manager LLC, an entity wholly owned by BVI.
On November 29, 2022, the Columbus Joint Venture completed the purchase of the Columbus Properties. The acquisition was funded with $74.3 million of cash and $390.7 millionmillion of aggregate proceeds from preferred investments from unrelated third-parties and loans from two financial institutions. In connection with the acquisition and financings, the total cash paid, including closing, financing and other transaction costs and pro-rations, was $92.3 million and we paid $17.5 million representing our 19.0% pro rata share. In connection with the acquisition, we also paid the Advisor a separate acquisition fee of $2.4 million, equal to 2.75% of our pro-rata share of the contractual purchase price which is reflected in the carrying value of our investment in unconsolidated affiliated real estate entity on the consolidated balance sheets. Commencing on the date of acquisition, we have accounted for our ownership interest in the Columbus Joint Venture in accordance with the equity method of accounting.
Opening of Lower East Side Moxy Hotel
On October 27, 2022, we substantially completed the development of our wholly owned Lower East Side Moxy Hotel located in the Lower East Side neighborhood in the Manhattan borough of New York City and it opened for business. Additionally, all four of the food and beverage venues within the Lower East Side Moxy Hotel opened during the fourth quarter of 2022.
Closure and Demolition of the St. Augustine Outlet Center
We wholly owned the St. Augustine Outlet Center, a retail center located in St. Augustine, Florida, which was originally built in 1998 and subsequently acquired by us in 2006 and renovated and further expanded in 2008 to 0.3 million of gross leasable area. During the COVID-19 pandemic, the occupancy of our St. Augustine Outlet Center significantly declined and because of limited leasing success, we began exploring various strategic alternatives for the property. As a result, during the third quarter of 2021, we determined that we would no longer continue to pursue leasing of space to tenants and therefore, began to enter into lease termination agreements with certain tenants and also provided notice to our other tenants that we would not renew their leases at the scheduled expiration of their lease. Due to this change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet Center, we recorded a non-cash loss on impairment of real estate of $11.3 million during the third quarter of 2021.
Because of the aforementioned lease terminations and scheduled expirations, substantially all of the tenants vacated the property during the first quarter of 2022 and on June 29, 2022, we entered into a lease termination agreement with the property’s final tenant providing for them to receive an aggregate of $0.8 million provided they vacated the property no later than July 15, 2022. The final tenant vacated the property in July 2022 and we ceased operations of the St. Augustine Outlet Center effective July 15, 2022 and shortly thereafter, commenced demolition of the property’s building and improvements in order to prepare the various land parcels for potential sale and/or lease. The demolition of the property’s buildings and improvements was substantially completed during the third quarter of 2022 and we recognized a loss on demolition of $16.6 million consisting of the write-off of the carrying value of the property’s building and improvements plus related costs.
In connection with the terms of certain of the lease termination agreements, we agreed to make various payments to certain tenants provided they closed their store and vacated the property. We expense lease termination fees in the period the lease termination agreement is executed and such expenses are included in property operating expenses on the consolidated statements of operations.
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Results of Operations
For the Three Months Ended JuneSeptember 30, 2023 vs. JuneSeptember 30, 2022
Consolidated
Rental revenues
Our rental revenues are comprised of rental income and tenant recovery income. Total rental revenues increased slightly by $0.1$0.2 million to $2.5$2.6 million for the three months ended JuneSeptember 30, 2023 compared to $2.4 million for the same period in 2022. This increase reflects higher rental revenues for Gantry Park Landing primarily resulting from higher average monthly rent per unit.
Hotel revenues
Hotel revenues were $12.9$13.3 million for the three months ended JuneSeptember 30, 2023 for the Lower East Side Moxy Hotel, which opened on October 27, 2022. Hotel revenues consisted of $6.7$6.8 million of room revenue and $6.2$6.5 million of food, beverage and other revenue.
Property operating expenses
Property operating expenses decreased slightly by $0.6$0.1 million to $0.8 million for the three months ended JuneSeptember 30, 2023 compared to $1.4$0.9 million for the same period in 2022. The decrease reflects lower property operating costs of $0.3 million resulting from the closure of the St. Augustine Outlet Center, which ceased operations effective July 15, 2022.
Hotel operating expenses
Hotel operating expenses were $9.1$8.8 million for the three months ended JuneSeptember 30, 2023 for the Lower East Side Moxy Hotel, which opened on October 27, 2022. Hotel operating expenses consisted of $3.9$3.7 million of room expense and $5.2$5.1 million of food and beverage costs.
Real estate taxes
Real estate taxes were $0.1increased by $0.5 million to $0.6 million for both of the three months ended JuneSeptember 30, 2023 andcompared to $0.1 million for the same period in 2022. The increase is primarily attributable to real estate taxes for the Lower East Side Moxy Hotel, which opened on October 27, 2022.
General and administrative costs
General and administrative costs increased by $0.4$0.6 million to $1.0$1.1 million for the three months ended JuneSeptember 30, 2023 compared to $0.6$0.5 million for the same period in 2022. The increase is primarily attributable to an increase in asset management fees resulting from our acquisition and investment activities.
Pre-opening costs
We incurred pre-opening costs of $0.1 million and $0.3 million related to the Lower East Side Moxy Hotel, including its food and beverage venues, during the three months ended September 30, 2023 and 2022, respectively. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
Depreciation and amortization
Depreciation and amortization increased by $1.1$1.4 million to $1.7$1.9 million for the three months ended JuneSeptember 30, 2023 compared to $0.6$0.5 million for the same period in 2022. The increase is primarily attributable to higher depreciation of $1.3 million for the Lower East Side Moxy Hotel, which opened on October 27, 2022, partially offset by lower depreciation and amortization of $0.3 million for the St. Augustine Outlet Center, which ceased operations effective July 15, 2022.
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Interest and dividend income
Interest and dividend income decreased by $0.3$0.4 million to $1.8$1.9 million for the three months ended JuneSeptember 30, 2023 compared to $2.1$2.3 million for the same period in 2022. The decrease primarily reflects lower interest income earned on our preferred investments of $0.3 million and lower interest and dividend income earned on our available cash and investments in marketable securitiesas a result of $0.2 million partially offset by higher interest income earned on our notes receivable of $0.1 million.redemptions.
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Interest expense
Interest expense, including amortization of deferred financing costs, increased by $6.5$6.3 million to $6.9$7.0 million for the three months ended JuneSeptember 30, 2023 compared to $0.4$0.7 million for the same period in 2022. Interest expense is primarily attributable to financings associated with our investments and reflects both changes inhigher market interest rates on our variable rate indebtedness during the 2023 period and change in the weighted average principal outstanding during the periods. Additionally, theThe significant increase in interest expense is directlyalso attributable to the cessation of the capitalization of all interest expense associated with the Moxy Construction Loans in connection with the substantial completion of the development and construction of the Lower East Side Moxy Hotel when its construction was substantially completed and it opened on October 27, 2022.2022 and the cessation of the capitalization of interest on the Exterior Street Project during the second quarter of 2023 in connection with our decision to temporarily pause active development activities. During the during the three months ended JuneSeptember 30, 2023, we did not capitalize any interest to the development projects on our consolidated balance sheet. During the three months ended September 30, 2022, $3.8we capitalized an aggregate of $4.9 million of interest attributable to the Moxy Construction Loans was capitalized to construction in progressdevelopment projects on theour consolidated balance sheet because the Lower East Side Moxy Hotel was under construction.sheet.
Unrealized gain/(loss)loss on marketable equity securities
During the three months ended JuneSeptember 30, 2023 and 2022, we recorded an unrealized gainlosses on marketable equity securities of $1.1$1.3 million and an unrealized loss of $9.8$1.2 million, respectively. These unrealized gains and losses represented the change in the fair value of our marketable equity securities during those periods.
(Loss)/gain on sale of marketable securities
During the three months ended JuneSeptember 30, 2022,2023, we recorded a loss on the sale of marketable securities of $0.2$0.3 million. This loss represented the difference between the sales price and carrying value of our marketable securities sold during those periods.
Mark to market adjustments on derivative financial instruments
During the three months ended JuneSeptember 30, 2023 and 2022, we recorded a negative mark to market adjustment of $0.7 million and a positive mark to market adjustmentsadjustment of $38 and $0.4$1.6 million, respectively. These mark to market adjustments represented the change in the fair value of our interest rate cap contracts during the period.
Gain on disposition of real estate
During the third quarter of 2022, we recognized a gain on disposition of real estate of $1.1 million related to Oakview, a shopping center located in Omaha, Nebraska, which we previously disposed of in September 2017.
Loss from investment in unconsolidated affiliated real estate entity
Our loss from investment in unconsolidated affiliated real estate entity was $1.1$1.3 million during the three months ended JuneSeptember 30, 2023. Our loss from investment in unconsolidated affiliated real estate entity is attributable to our unconsolidated 19.0% membership interest in the Columbus Joint Venture. We commenced recording our allocated portion of earnings beginning as of November 29, 2022 with respect to our membership interest of 19.0% in the Columbus Joint Venture.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) parties that hold units in the Operating Partnership, (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the ownership interests in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates and (iv) the ownership interest in various joint ventures held by affiliates of our Sponsor that have originated nonrecourse loans to unaffiliated third-party borrowers.
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For the SixNine Months Ended JuneSeptember 30, 2023 vs. JuneSeptember 30, 2022
Consolidated
Rental revenues
Our rental revenues are comprised of rental income and tenant recovery income. Total rental revenues increased by $0.2$0.3 million to $5.0$7.5 million for the sixnine months ended JuneSeptember 30, 2023 compared to $4.8$7.2 million for the same period in 2022. This increase reflects higher rental revenues of $0.5 million for Gantry Park Landing primarily resulting from higher average monthly rent per unit offset by lower rental revenues of $0.2 million for the St. Augustine Outlet Center resulting from substantially all of its tenants vacating during the first quarter of 2022 and us subsequently ceasing operations of the property effective July 15, 2022.
Hotel revenues
Hotel revenues were $20.5$33.7 million for the sixnine months ended JuneSeptember 30, 2023 for the Lower East Side Moxy Hotel, which opened on October 27, 2022. Hotel revenues consisted of $9.7$16.5 million of room revenue and $10.8$17.2 million of food, beverage and other revenue.
Property operating expenses
Property operating expenses decreased by $0.9$1.0 million to $1.5$2.3 million for the sixnine months ended JuneSeptember 30, 2023 compared to $2.4$3.3 million for the same period in 2022. The decrease reflects lower property operating costs of $1.2$1.1 million resulting from the closure of the St. Augustine Outlet Center, which ceased operations effective July 15, 2022.
Hotel operating expenses
Hotel operating expenses were $16.7$25.5 million for the sixnine months ended JuneSeptember 30, 2023 for the Lower East Side Moxy Hotel, which opened on October 27, 2022. Hotel operating expenses consisted of $6.7$10.4 million of room expense and $10.0$15.1 million of food and beverage costs.
Real estate taxes
Real estate taxes increased slightly by $0.1$0.7 million to $0.2$0.9 million for the sixnine months ended JuneSeptember 30, 2023 compared to $0.1$0.2 million for the same period in 2022. The increase is primarily attributable to real estate taxes for the Lower East Side Moxy Hotel, which opened on October 27, 2022.
General and administrative costs
General and administrative costs increased by $0.8$1.3 million to $2.0$3.0 million for the sixnine months ended JuneSeptember 30, 2023 compared to $1.2$1.7 million for the same period in 2022. The increase is primarily attributable to an increase in asset management fees resulting from our acquisition and investment activities.
Pre-opening costs
We incurred pre-opening costs of $16$0.1 million and $0.3$0.7 million related to the Lower East Side Moxy Hotel, including its food and beverage venues, during the sixnine months ended JuneSeptember 30, 2023 and 2022, respectively. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
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Depreciation and amortization
Depreciation and amortization increased by $1.9$3.2 million to $3.4$5.2 million for the sixnine months ended JuneSeptember 30, 2023 compared to $1.5$2.0 million for the same period in 2022. The increase is attributable to higher depreciation of $2.5$3.9 million for the Lower East Side Moxy Hotel, which opened on October 27, 2022, partially offset by lower depreciation and amortization of $0.7$0.8 million for the St. Augustine Outlet Center, which ceased operations effective July 15, 2022.2022 and was substantially demolished during the third quarter of 2023.
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Interest and dividend income
Interest and dividend income decreased by $0.3$0.7 million to $4.1$6.0 million for the sixnine months ended JuneSeptember 30, 2023 compared to $4.4$6.7 million for the same period in 2022. The decrease primarily reflects lower interest income earned on our preferred investments of $0.6$0.9 million and lower interest and dividend income earned on our available cash and investments in marketable securitiesas a result of $0.2 million offset by higher interest income earned on our notes receivable of $0.5 millionredemptions.
Interest expense
Interest expense, including amortization of deferred financing costs, increased by $11.4$17.8 million to $12.2$19.2 million for the sixnine months ended JuneSeptember 30, 2023 compared to $0.8$1.4 million for the same period in 2022. Interest expense is primarily attributable to financings associated with our investments and reflects both changes inhigher market interest rates on our variable rate indebtedness during the 2023 period and changes in the weighted average principal outstanding during the periods. Additionally, the
The significant increase in interest expense is directlyalso attributable to the cessation of the capitalization of all interest expense associated with the Moxy Construction Loans in connection with the substantial completion of the development and construction of the Lower East Side Moxy Hotel on October 27, 2022.2022 effective when its construction was substantially completed and it opened on October 27, 2022 and the cessation of the capitalization of interest on the Exterior street Project during the second quarter of 2023 in connection with our decision to temporarily pause active development activities. During the sixnine months ended JuneSeptember 30, 2023 and 2022, $7.0we capitalized an aggregate of $1.5 million and $11.9 million, respectively, of interest attributable to the Moxy Construction Loans was capitalized to construction in progressdevelopment projects on theour consolidated balance sheet because the Lower East Side Moxy Hotel was under construction.sheets.
Unrealized gain/(loss)loss on marketable equity securities
During the sixnine months ended JuneSeptember 30, 2023 and 2022, we recorded an unrealized gainlosses on marketable equity securities of $0.5$0.8 million and an unrealized loss of $18.8$20.0 million, respectively. These unrealized gains and losses represented the change in the fair value of our marketable equity securities during those periods.
Gain/(Loss)/gain on sale of marketable securities
During the sixnine months ended JuneSeptember 30, 2023, we recorded a loss on the sale of marketable securities of $0.4$0.7 million and during the sixnine months ended JuneSeptember 30, 2022, we recorded a gain on the sale of marketable securities of $1.2 million. These gains and losses represented the difference between the sales price and carrying value of our marketable securities sold during those periods.
Mark to market adjustments on derivative financial instruments
During the sixnine months ended JuneSeptember 30, 2023 and 2022, we recorded a negative mark to market adjustment of $0.4$1.1 million and a positive mark to market adjustment of $1.2$2.8 million, respectively. These mark to market adjustments represented the change in the fair value of our interest rate cap contracts during the period.
Gain on disposition of real estate
During the sixnine months ended JuneSeptember 30, 2023, we recognized a gain on the disposition of real estate of $1.1 million related to the sale of a parcel of land which was part of the St. Augustine Land Holdings.
During the third quarter of 2022, we recognized a gain on disposition of real estate of $1.1 million related to Oakview, a shopping center located in Omaha, Nebraska, which we previously disposed of in September 2017.
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Loss from investment in unconsolidated affiliated real estate entity
Our loss from investment in unconsolidated affiliated real estate entity was $2.4$3.6 million during the sixnine months ended JuneSeptember 30, 2023. Our loss from investment in unconsolidated affiliated real estate entity is attributable to our unconsolidated 19.0% membership interest in the Columbus Joint Venture. We commenced recording our allocated portion of profit/loss beginning as of November 29, 2022 with respect to our membership interest of 19.0% in the Columbus Joint Venture.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) parties that hold units in the Operating Partnership, (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the ownership interests in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates and (iv) the ownership interest in various joint ventures held by affiliates of our Sponsor that have originated nonrecourse loans to unaffiliated third-party borrowers.
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Financial Condition, Liquidity and Capital Resources
Overview:
As of JuneSeptember 30, 2023, we had $11.6$8.5 million of cash on hand, $5.0$2.4 million of restricted cash and $43.4$39.1 million of marketable securities. We also have the ability to make draws from a line of credit up to $20.0 million, subject to certain conditions (see “Notes Payable – Line of Credit”). and a margin loan. We currently believe that these items along with revenues from our operating properties; interest and dividend income earned on our marketable securities and notes receivable; as well as proceeds received from the potential sales of our marketable securities and repayment of our notes receivable will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this report, which primarily consist of our anticipated operating expenses, scheduled debt service (excluding balloon payments due at maturity), capital expenditures (including certain of our development activities), contributions to our unconsolidated affiliated real estate entity (Columbus Joint Venture), redemptions and cancellations of shares of our common stock and distributions to our shareholders, if any, required to maintain our status as a REIT for the foreseeable future. However, we may also obtain additional funds through selective asset dispositions, joint venture arrangements, new borrowings and refinancing of existing debt.
Additionally,
During the second quarter of 2023 we have anotherdecided to temporarily pause active development activities associated with our one remaining development project, the Exterior Street Project, which is currently underdue to current unfavorable economic and local market conditions and regulations. There can be no assurances that the unfavorable circumstances will improve and we will resume active development activities and ultimately construct the Exterior Street Project. However, if we do resume active development activities for whichthe Exterior Street Project, we expectwill need to seekobtain construction financing and/or seek a joint venture arrangement to fund a substantial portion of its future development and construction costs. See “Exterior Street Project” for additional information.
Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for so-called “balloon” payments.
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Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan and line of credit collateralized by the securities held with the financial institution that provided the margin loan and line of credit as well as a portion of our Marco OP Units. These loans are due on demand and any outstanding balance must be paid upon the liquidation of securities.
Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a justification showing that a higher level is appropriate, the approval of the Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As of JuneSeptember 30, 2023, our total borrowings of $261.0$258.5 million represented 115%119% of net assets.
Any future properties that we may acquire or investments we may make may be funded through a combination of borrowings, proceeds generated from the sale and redemption of our marketable securities, available for sale, proceeds received from the selective disposition of our properties and proceeds received from the repayment of our note receivable. These borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.
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We may also obtain lines of credit to be used to acquire properties or real estate-related assets. These lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital or permanent financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.
We have various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and its affiliates to perform such services as provided in these agreements.
In addition to meeting working capital needs and distributions, if any, to our stockholders, our capital resources are used to make certain payments to our Advisor and its affiliates, including payments related to asset acquisition fees, development fees and leasing commissions, asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor, provided our shareholders.
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and our independent directors.
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The following table represents the fees incurred associated with the payments to our Advisor and its affiliates:
| For the Three Months Ended | For the Six Months Ended | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Asset management fees (general and administrative costs) | $ | 551 | $ | 171 | $ | 1,107 | $ | 325 | $ | 539 | $ | 124 | $ | 1,646 | $ | 449 | ||||||||||||||||
| Property management fees (property operating expenses) | 75 | 74 | 147 | 155 | 76 | 68 | 224 | 223 | ||||||||||||||||||||||||
| Development fees and cost reimbursement(1) | 235 | 733 | 641 | 1,617 | 192 | 641 | 833 | 2,258 | ||||||||||||||||||||||||
| Total | $ | 861 | $ | 978 | $ | 1,895 | $ | 2,097 | $ | 807 | $ | 833 | $ | 2,703 | $ | 2,930 | ||||||||||||||||
| (1) | Development fees and the reimbursement of development-related costs that we pay to the Advisor and its affiliates are capitalized and are included in the carrying value of the associated development project which are classified as development projects on the consolidated balance sheets. As of December 31, 2022, |
Additionally, we may be required to make distributions on the special general partner interests (“SLP Units”) in the Operating Partnership held by Lightstone SLP, LLC, an affiliate of the Advisor provided our stockholders have received a stated preferred return. In connection with our initial public offering, Lightstone SLP, LLC purchased an aggregate of $30.0 million of SLP Units. These SLP Units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. However, any future distributions on the SLP Units will always be subordinated until stockholders receive a stated preferred return.
During both the three and six months ended June 30,first two quarters of 2023, and 2022, distributions of $0.5 million and $1.0 million were declared and paid on the SLP Units. No distributions have been declared or paid on the SLP Units for quarterly periods ending after June 30, 2023. During the three and nine months ended September 30, 2022, distributions of $0.5 million and $1.5 million, respectively, were declared and paid on the SLP units.
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Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
For the Six Months Ended | For the September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cash flows (used in)/provided by operating activities | $ | (5,537 | ) | $ | 8,101 | $ | (7,218 | ) | $ | 9,033 | ||||||
| Cash flows provided by/(used in) investing activities | 15,744 | (52,934 | ) | 18,626 | (60,428 | ) | ||||||||||
| Cash flows (used in)/provided by financing activities | (16,280 | ) | 22,049 | (23,049 | ) | 47,247 | ||||||||||
| Change in cash, cash equivalents and restricted cash | (6,073 | ) | (22,784 | ) | (11,641 | ) | (4,148 | ) | ||||||||
| Cash, cash equivalents and restricted cash, beginning of year | 22,583 | 42,592 | 22,583 | 42,592 | ||||||||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 16,510 | $ | 19,808 | $ | 10,942 | $ | 38,444 | ||||||||
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Operating activities
The cash used in operating activities of $5.5$7.2 million for the sixnine months ended JuneSeptember 30, 2023 consists of the following:
| ● | cash outflows of |
| ● | cash outflows of |
Investing activities
The cash provided by investing activities of $15.7$18.6 million for the sixnine months ended JuneSeptember 30, 2023 consists primarily of the following:
| ● | purchases for development and investment property of |
| ● | aggregate proceeds from the full redemption of our preferred investment in related parties of $6.0 million; |
| ● | proceeds from the sale of a parcel of land of $1.4 million; |
| ● | distributions of $0.5 million received from the Hotel Joint Venture; |
| ● | aggregate capital contributions of $0.3 million to the Columbus Joint Venture; |
| ● | net proceeds from sales of marketable securities of |
| ● | proceeds from the repayment of notes receivable of $14.0 million. |
Financing activities
The cash used in financing activities of $16.3$23.0 million for the sixnine months ended JuneSeptember 30, 2023 is primarily related to the following:
| ● | debt principal payments of |
| ● | net proceeds from mortgage financing of |
| ● | redemptions and cancellation of common shares of |
| ● | distributions to our noncontrolling interests of |
| ● | distributions to our common shareholders of |
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Lower East Side Moxy Hotel
In December 2018, we, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land located at 147-151 Bowery, in the Lower East Side neighborhood of the borough of Manhattan in New York City, from unaffiliated third parties for aggregate consideration of $56.5 million, excluding closing and other acquisition related costs. Additionally, in December 2018, we, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, also in the Lower East Side neighborhood, from an unaffiliated third party for $2.4 million, excluding closing and other acquisition related costs. The land and air rights were acquired for the development and construction of the Lower East Side Moxy Hotel. On June 3, 2021,we entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Moxy Lower East Side Developer”) pursuant to which the Lower East Side Moxy Developer is being paid a development fee equal to 3% of hard and soft costs incurred in connection with the development and construction of the Lower East Side Moxy Hotel. The Advisor and its affiliates are also reimbursed for certain development-related costs attributable to the Lower East Side Moxy Hotel. Additionally on June 3, 2021, we obtained construction financing for the Lower East Side Moxy Hotel. The Lower East Side Moxy Hotel opened on October 27, 2022 and all four of its food and beverage venues opened during the fourth quarter of 2022.
Moxy Construction Loans
On June 3, 2021, we, through a wholly owned subsidiary, closed on a recourse construction loan facility (the “Moxy Senior Loan”) providing for up to $90.0 million of funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. At closing, $35.6 million of proceeds were initially advanced under the Moxy Senior Loan, which were used to repay in full a then outstanding mortgage loan. The Moxy Senior Loan bears interest at LIBOR plus 7.50%, subject to an 7.75% floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. Additionally, the Moxy Senior Loan provides for a replacement benchmark rate for periods after June 30, 2023 in connection with the phase-out of LIBOR. The Moxy Senior Loan is collateralized by the Lower East Side Moxy Hotel. As of June 30, 2023, the outstanding principal balance of the Moxy Senior Loan was $90.0 million, the interest rate was 12.72%. Additionally, we were required by the lender to deposit the $4.7 million of key money received from Marriott during the fourth quarter of 2022 into an escrow account (included in restricted cash on the consolidated balance sheet as of December 31, 2022), all of which was subsequently used to fund remaining construction costs for the project during the first quarter of 2023.
Simultaneously on June 3, 2021, we, through the same wholly owned subsidiary, also entered into a mezzanine construction loan facility (the “Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Construction Loans”) providing for up to $40.0 million of additional funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. The Moxy Construction Loans provided for a replacement benchmark rate in connection with the phase-out of LIBOR and effective on June 30, 2023, the Moxy Senior Loan’s interest rate converted from LIBOR plus 7.25%, with a floor of 7.75%, to SOFR plus 7.36%, with a floor of 7.64%, and the Moxy Junior Loan bearsLoan’s interest atrate converted from LIBOR plus 13.50%, subjectwith a floor of 14.00%, to SOFR plus 13.61%, with a 14.00% floor (18.72% as of June 30, 2023), and13.89%.
The Moxy Construction Loans initially maturesmature on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. Additionally,The Moxy Construction Loans are collateralized by the Lower East Side Moxy Junior Loan provides for a replacement benchmark rate for periods after June 30, 2023 in connection withHotel; however the phase-out of LIBOR. The Moxy Junior Loan is subordinate to the Moxy Senior Loan but also collateralized by the Lower East Side Moxy Hotel. We provided a principal guarantee of up to $7.0 million with respect to the Moxy Junior Loan. As of JuneSeptember 30, 2023, the outstanding aggregate principal balance of the Moxy Senior Loan and Moxy Junior Loan was $90.0 million and $40.0 million.million, respectively, and there was no remaining availability as they were fully drawn.
We were required by the lender to deposit the $4.7 million of key money received from Marriott during the fourth quarter of 2022 into an escrow account (included in restricted cash on the consolidated balance sheet as of December 31, 2022), all of which was subsequently used to fund remaining construction costs for the project during the first quarter of 2023.
In connection with the Moxy Construction Loans, we provided certain completion and carry cost guarantees. Additionally, the Moxy Construction Loans provide for the lenders to trap excess cash flow, if any, generated from the operations of the Lower East Side Moxy Hotel until it achieves certain prescribed financial ratios for two consecutive quarters. To-date, the Lower East Side Moxy Hotel, which opened in October 2022 and therefore, is still in its ramp-up period, has not achieved any of the prescribed financial ratios. We have provided a principal guarantee of up to $7.0 million with respect to the Moxy Junior Loan.
We have also entered into two interest rate cap agreements with notional amounts of $90.0 million and $40.0 million pursuant to which the LIBOR rate was capped at 3.00% through June 30, 2023, and its replacement rate thereafterof SOFR is capped at 3.00% thereafter through June 3, 2024. Furthermore, in connection with the Moxy Construction Loans, we paid $5.3 million of loan fees and expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of both JuneSeptember 30, 2023 and December 31, 2022.
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Preferred Investments
We previously entered into agreements with various related party entities that provided for us to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitled us to certain prescribed monthly preferred distributions. During the six months ended June 30, 2023,As of December 31, 2022, we redeemed the remaining $6.0 million of our onlyhad one remaining Preferred Investment, which was our 40 East End Avenue Preferred Investment, that had an outstanding balance of $6.0 million. During the first and second quarters of 2023, we redeemed $2.3 million and $3.7 million, respectively, of the 40 East End Avenue Preferred Investment.Investment and as a result, it has been fully redeemed and we haves no remaining Preferred Investments.
The Preferred Investments are summarized as follows:
| Preferred Investment Balance | Investment Income(1) | Preferred Investment Balance | Investment Income(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend | As of June 30, | As of December 31, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Investments | Dividend | As of September 30, | As of December 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| Rate | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | Rate | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||
| 40 East End Avenue | 12% | $ | - | $ | 6,000 | $ | 75 | $ | 182 | $ | 254 | $ | 362 | 12% | $ | - | $ | 6,000 | $ | - | $ | 184 | $ | 254 | $ | 546 | ||||||||||||||||||||||||||||
| East 11th Street | 12% | - | - | - | 230 | 485 | 12% | - | - | - | 108 | - | 593 | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | - | $ | 6,000 | $ | 75 | $ | 412 | $ | 254 | $ | 847 | $ | - | $ | 6,000 | $ | - | $ | 292 | $ | 254 | $ | 1,139 | ||||||||||||||||||||||||||||||
Note:
| (1) | Included in interest and dividend income on the consolidated statements of operations. |
Notes Receivable
We formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly owned subsidiaries of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).
We determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, we consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.
The Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00% to 1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.
The Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional one-year extension options subject to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension fees. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
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The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets. The origination fees received are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied against the monthly interest due over the initial term.
As of September 30, 2023, the NR Joint Ventures, through LSC 1543 7th LLC, the NR Joint Venture that originated thehad one remaining Joint Venture Promissory Note, (the “LSCthe LSC 1543 7th LLC Note Receivable”) withReceivable, which has an outstanding principal balance of $35.0 million asmillion. As a result of June 30, 2023, is currently in discussions withfinancial difficulties, the Joint Venture Borrower under the LSC 1543 7th LLC Note Receivable (the “LSC 1543 7th LLC Borrower”) discontinued making monthly interest payments during the second quarter of 2023 and the LSC 1543 7th LLC Note Receivable subsequently matured on August 31, 2023. As of September 30, 2023, the accrued and unpaid interest and fees related to the LSC 1543 7th LLC Note Receivable totaled $2.0 million, which is included in other assets on the consolidated balance sheet.
LSC 1543 7th LLC is currently in negotiations with the LSC 1543 7th LLC Borrower with respect to potential resolutions of the matter; including a restructuring or modification of the terms for an extension of the LSC 1543 7th LLC Note Receivable, which is expected tothe placement of the underlying collateral for sale, or a deed-in-lieu of foreclosure transfer of title of the underlying collateral; however, there can be completedno assurances that LSC 1543 7th LLC will be successful in such endeavors. Based on or before its initial scheduled maturity datea recent third-party valuation firm’s appraisal, we currently believe the fair value of August 31,the underlying collateral for the LSC 1543 7th LLC Note Receivable exceeds the outstanding principal balance of $35.0 million plus the accrued and unpaid interest and fees of $2.0 million and therefore, no allowance for credit losses was deemed necessary as of September 30, 2023.
The Note Receivable is summarized as follows:
| Joint Venture/Lender | Company’s Ownership Percentage | Loan Commitment Amount | Origination Fee | Origination Date | Maturity Date | Contractual Interest Rate | Outstanding Principal | Reserves | Unamortized Origination Fee | Carrying Value | Unfunded Commitment | |||||||||||||||||||||||||
| As of June 30, 2023 | ||||||||||||||||||||||||||||||||||||
| LSC 1543 7th LLC | 50% | $ | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 35,000 | $ | - | $ | (82 | ) | $ | 34,918 | $ | - | ||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| LSC 1543 7th LLC | 50% | $ | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 49,000 | $ | (614 | ) | $ | (327 | ) | $ | 48,059 | $ | - | |||||||||||||||||
| Joint Venture/Lender | Company’s Ownership | Loan Commitment | Origination | Origination | Initial Maturity | Contractual Interest | Outstanding | Unamortized Origination | Carrying | Unfunded | |||||||||||||||||||||||||||||
| Percentage | Amount | Fee | Date | Date | Rate | Principal | Reserves | Fee | Value | Commitment | |||||||||||||||||||||||||||||
| As of September 30, 2023 | |||||||||||||||||||||||||||||||||||||||
| LSC 1543 7th LLC | 50% | $ | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 35,000 | $ | - | $ | - | $ | 35,000 | $ | - | ||||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||
| LSC 1543 7th LLC | 50% | $ | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 49,000 | $ | (614 | ) | $ | (327 | ) | $ | 48,059 | $ | - | ||||||||||||||||||||
The following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations) for each of the Joint Venture Promissory Notes during the periods indicated:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| Joint Venture/Lender | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||
| LSC 1543 7th LLC | $ | 1,201 | 1,038 | $ | 2,699 | $ | 1,727 | $ | 1,340 | $ | 1,230 | $ | 4,039 | $ | 2,957 | |||||||||||||||||
| LSC 11640 Mayfield LLC | - | - | - | 455 | - | - | - | 455 | ||||||||||||||||||||||||
| Total | $ | 1,201 | $ | 1,038 | $ | 2,699 | $ | 2,182 | $ | 1,340 | $ | 1,230 | $ | 4,039 | $ | 3,412 | ||||||||||||||||
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LSC 1543 7th LLC Loan
On June 30, 2022, LSC 1543 7th LLC obtained a loan of up to $33.1 million (the “LSC 1543 7th LLC Loan”) which bears interest at SOFR + 3.50% (8.64% as of JuneSeptember 30, 2023). The LSC 1543 7th LLC Loan is initially scheduled to mature on December 30, 2023, but may be further extended through December 30, 2024 and September 20, 2025, through the exercise of two extension options. The LSC 1543 7th LLC Loan requires monthly interest-only payments with the outstanding principal balance due at its maturity date and is collateralized by the LSC 1543 7th LLC Note Receivable. During the first quarter of 2023, LSC 1543 7th LLC received a payment of $14.0 million on the LSC 1543 7th LLC Note Receivable and used a portion of the proceeds to repay $11.3 million of the LSC 1543 7th LLC Loan, which reduced the outstanding balance to $21.5 million. The LSC 1543 7th LLC Loan was initially scheduled to mature on December 30, 2023, however, on September 5, 2023, LSC 1543 7th LLC exercised the option provided by the LSC 1543 7th LLC Loan to extend the maturity date to February 29, 2024. In connection with this extension, LSC 1543 7th LLC made a principal paydown of $2.1 million which reduced the outstanding balance of the LSC 1543 7th LLC Loan to $19.5 million. Additionally, LSC 1543 7th LLC funded $0.9 million into a cash collateral reserve account, which will be applied to the payment of interest.
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Exterior Street Project
In February 2019, we, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street in the Mott Haven neighborhood in the Bronx borough of New York City from unaffiliated third parties for an aggregate purchase price of $59.0 million, excluding closing and other acquisition related costs. In September 2021, we subsequently acquired an additional adjacent parcel of land at cost from an affiliate of the Advisor for $1.0 million in order to achieve certain zoning compliance. On these three land parcels we plan, subject to economic and local marketcertain conditions, and regulations, to construct a proposed mixed-use multifamily residential and commercial retail property (the “Exterior Street Project”). In light
As a result of certaincurrent unfavorable economic and local market conditions and regulations, we decided intemporarily paused our active development activities associated with the 2ndExterior Street Project during the second quarter of 2023 to pauseand therefore have ceased capitalization of interest and other carrying costs. There can be no assurances that the unfavorable circumstances will improve and we resume active development activities and ceased capitalizing interest and real estate taxes. ultimately construct the Exterior Street Project.
Through JuneSeptember 30, 2023, we have incurred and capitalized $95.7$96.7 million of costs related to the development of the Exterior Street Project.
Exterior Street Loans
On March 29, 2019, we obtained a $35.0 million loan (the “Exterior Street Loan”) from a financial institution which, commencing on October 10, 2020, bore interest at LIBOR plus 2.25% through November 24, 2022. On December 21, 2021, the loan agreement was amended to provide an additional $7.0 million loan (the “Exterior Street Supplemental Loan” and collectively with the Exterior Street Loan, the “Exterior Street Loans”) which bore interest at LIBOR plus 2.50% through November 24, 2002. The Exterior Street Loans require monthly interest-only payments with the outstanding principal balances due in full at their maturity date. The Exterior Street Loans are collateralized by the Exterior Street Project. On November 22, 2022, we and the financial institution entered into an additionalthe second amendment to the Exterior Street Loans pursuant to which the interest rate on the Exterior Street Loans were adjusted to SOFR plus 2.60% (7.74% as of JuneSeptember 30, 2023) and their maturity dates were extended to November 24, 2023. As of JuneSeptember 30, 2023, the outstanding aggregate principal balance of the Exterior Street Loans was $42.0 million. On October 31, 2023, we and the financial institution entered into an additional amendment to the Exterior Street Loans pursuant to which the interest rate on the Exterior Street Loans was adjusted to SOFR plus 2.85% (8.17% as of September 30, 2023) and their maturity dates were extended to November 24, 2024.
The Exterior Street Loan requires monthly interest-only payments with the outstanding balance due in full at its maturity date. The Exterior Street Loan is collateralized by the Exterior Street Project.
OurDuring the second quarter of 2023 we decided to temporarily pause active development activities associated with our one remaining development project, the Exterior Street Project, is currently under developmentdue to current unfavorable economic and local market conditions and regulations. There can be no assurances that the unfavorable circumstances will improve and we expectwill resume active development activities and ultimately construct the Exterior Street Project. However, if we do resume active development activities for the Exterior Street Project, we will need to seekobtain construction financing and/or seek a joint venture arrangement to fund a substantial portion of its future development and construction costs. Current and future economic conditions as well as other uncertainties may (i) affect our ability to obtain construction financing, and/or (ii) cause delays or increase costs associated with building materials or construction services necessary for construction, which could adversely impact our ability to either ultimately commence and/or complete construction as planned, on budget or at all for the Exterior Street Project.
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Contractual Obligations
The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of JuneSeptember 30, 2023.
| Contractual Obligations | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | ||||||||||||||||||||||||||||||||||||||||||
| Mortgage Payable | $ | 64,260 | $ | 196,697 | $ | - | $ | - | $ | - | $ | - | $ | 260,957 | $ | 372 | $ | 258,173 | $ | - | $ | - | $ | - | $ | - | $ | 258,545 | ||||||||||||||||||||||||||||
| Interest Payments1 | 13,580 | 12,699 | - | - | - | - | 26,279 | 6,851 | 16,320 | - | - | - | - | 23,171 | ||||||||||||||||||||||||||||||||||||||||||
| Total Contractual Obligations | $ | 77,840 | $ | 209,396 | $ | - | $ | - | $ | - | $ | - | $ | 287,236 | $ | 7,223 | $ | 274,493 | $ | - | $ | - | $ | - | $ | - | $ | 281,716 | ||||||||||||||||||||||||||||
| 1) | These amounts represent future interest payments related to mortgage payable obligations based on the fixed and variable interest rates specified in the associated debt agreement. All variable rate debt agreements are based on the one month |
Certain of our debt agreements require the maintenance of prescribed ratios, including debt service coverage. As of JuneSeptember 30, 2023, we were in compliance with respect to all of our financial debt covenants, except for those for the Moxy Construction Loans, as discussed above.
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Notes Payable
Margin Loan
We have access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of our marketable securities. The Margin Loan, which is due on demand, bears interest at LIBORSOFR plus 0.85% (6.07%(6.17% as of JuneSeptember 30, 2023) and is collateralized by the marketable securities in our account. The amounts available to us under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. There were no amounts outstanding under the Margin Loan as of JuneSeptember 30, 2023 and December 31, 2022.
Line of Credit
We have a non-revolving credit facility (the “Line of Credit”) with a financial institution that provides for borrowings up to a maximum of $20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, which matures on November 30, 2024 and bears interest at LIBORSOFR plus 1.35% (6.57%(6.67% as of JuneSeptember 30, 2023). Additionally, the Line of Credit provides for a replacement benchmark rate in connection with the phase-out of LIBOR, which is expected to be for periods after June 30, 2023. The Line of Credit is collateralized by an aggregate of 209,243 of Marco OP Units and Marco II OP Units and wasis guaranteed by PRO. As of JuneSeptember 30, 2023, the amount of borrowings available to be drawn under the Line of Credit was $13.3$12.4 million. NoThere were no amounts were outstanding under the Line of Credit as of both JuneSeptember 30, 2023 and December 31, 2022.
Debt Maturities
The Exterior Street Loans (outstanding aggregate principal balance of $42.0 million as of June 30, 2023) mature on November 24, 2023. We currently intend to seek to extend or refinance the Exterior Street Loans on or before their maturity date.
The LSC 1543 7th LLC Loan (outstanding principal balance of $21.5$19.5 million as of JuneSeptember 30, 2023) is scheduled to initially mature on December 30, 2023, but may be further extended through December 30, 2024 and September 20, 2025, through the exercise of two extension options.February 29, 2024. We currently intend to repay the LSC 1543 7th LLC Loan with theany proceeds from the expected repayment of the LSC 1543 7th LLC Note Receivable, which has an outstanding principal balance of $35.0 million, or to seek to further extend or refinance the LSC 1543 7th LLC Loan pursuant to its first extension option on or before its scheduled maturity date.
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The Moxy Construction Loans (outstanding aggregate principal balance of $130.0 million as of JuneSeptember 30, 2023) mature on June 3, 2024. We currently intendexpect to refinance the Moxy Construction Loans on or before their initial maturity dates of June 3, 2024; however, there can be no assurances that we will be successful in such endeavors. If we are unable to refinance the Moxy Construction Loans on or before their initial maturity date, we will then seek to exercise the first of their two one-year extension options.
However, if we are unable to extend or refinance any of our maturing indebtedness at favorable terms, we will look to repay the then outstanding balance with available cash and/or proceeds from selective asset sales. We have no additional significant maturities of mortgage debt over the next 12 months from the date of these consolidated financial statements.
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Distributions
Common Shares
On May 10,August 11, 2023, theour Board of Directors authorized and we declared a distribution of $0.0875 per share for the three-monthquarterly period ending JuneSeptember 30, 2023 payable to stockholders of $3.8record at the close of business on the last day of the quarter-end. The quarterly distribution was the pro rata equivalent of an annual distribution of $0.35 per share, or an annualized rate of 3.5% assuming a purchase price of $10.00 per share. The distribution, which totaled $1.9 million, was paid in full on or about October 15, 2023 using a combination of cash and approximately 7,0003,600 shares of our common stock issued pursuant to our distribution reinvestment program (“DRIP”), at a discounted price of $11.58 per share, equal to 95% of our most currentrecently published estimated net asset value (“NAV”) per share of $12.19 as of September 30, 2022.
On August 11, 2023, the Board of Directors authorized and we declared a distribution of $0.0875 per share for the quarterly period ending September 30, 2023. The quarterly distribution is the pro rata equivalent of an annual distribution of $0.35 per share, or an annualized rate of 3.5% assuming a purchase price of $10.00 per share. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter-end. The stockholders Stockholders have an option to elect the receipt of shares under our DRIP.DRIP in lieu of payment of cash for distributions from us.
Because the quarterly distribution declared by the Board of Directors on the common shares for the quarterly period ending on September 30, 2023 did not equal at least an annualized rate of 7.0% assuming a purchase price of $10.00 per share, no distributions were declared on the SLP Units.
On November 10, 2023, the Board of Directors determined to suspend regular quarterly distributions. Until distributions on common shares are brought current to at least an annualized rate of 7.0% assuming a purchase price of $10.00 per share, no distributions will be declared on the SLP Units. Any future distributions on the SLP Units will always be subordinated until stockholders receive a stated preferred return.
Future distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, our ability to refinance near-term debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. We cannot assure that any future distributions will be made or that we will maintain any particular level of distributions that we have previously established or may establish.
SLP Units
Because the quarterly distribution declared by the Board of Directors on Common Shares for the quarterly period ending September 30, 2023 does not equate to at least an annualized rate of 7.0%, assuming a purchase price of $10.00 per share, no distributions were declared on the SLP Units. Any future distributions on the SLP Units will always be subordinated until stockholders receive a stated preferred return.
Future distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, our ability to refinance near-term debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. We cannot assure that any future distributions will be made or that we will maintain any particular level of distributions that we have previously established or may establish.
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SRP
Our share repurchase program (the “SRP”) may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to restrictions.
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective March 15, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our current estimated net asset value per share of common stock, as determined by the Board of Directors and reported by us from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration. On March 18, 2022, the Board of Directors approved an increase to the annual threshold for death redemptions from up to 0.5% to 1.0%.
At the above noted dates, the Board of Directors established that on an annual basis, we would not redeem in excess of 1.0% and 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests are expected to be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.
For the sixnine months ended JuneSeptember 30, 2023, we repurchased 119,300201,195 Common Shares at a weighted average price per share of $12.19. For the sixnine months ended JuneSeptember 30, 2022, we repurchased 273,135330,738 Common Shares at a weighted average price per share of $11.75.
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Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations (“FFO”), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT’s definition.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
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Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
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We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to straight line rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.
We believe that, because MFFO excludes costs that we consider more reflective of other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
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The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.
| For the Three Months Ended | For the Six Months Ended | For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||||||||||||
| Net loss | $ | (2,196 | ) | $ | (8,455 | ) | $ | (7,718 | ) | $ | (13,420 | ) | $ | (8,453 | ) | $ | (13,359 | ) | $ | (16,171 | ) | $ | (26,779 | ) | ||||||||
| FFO adjustments: | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 1,683 | 649 | 3,351 | 1,498 | 1,860 | 478 | 5,211 | 1,976 | ||||||||||||||||||||||||
| Adjustments to equity earnings from unconsolidated affiliated entity | 932 | - | 1,858 | - | 942 | - | 2,800 | - | ||||||||||||||||||||||||
| Loss on demolition | - | 16,593 | - | 16,593 | ||||||||||||||||||||||||||||
| Income tax on redemptions of preferred investments in related parties | 2,474 | - | 2,474 | |||||||||||||||||||||||||||||
| Gain on disposal of investment property | - | (49 | ) | (1,121 | ) | (49 | ) | - | (1,105 | ) | (1,121 | ) | (1,154 | ) | ||||||||||||||||||
| FFO | 419 | (7,855 | ) | (3,630 | ) | (11,971 | ) | (3,177 | ) | 2,607 | (6,807 | ) | (9,364 | ) | ||||||||||||||||||
| MFFO adjustments: | ||||||||||||||||||||||||||||||||
| Noncash adjustments: | ||||||||||||||||||||||||||||||||
| Mark to market adjustments(1) | (1,090 | ) | 9,387 | (131 | ) | 17,531 | 2,002 | (415 | ) | 1,871 | 17,116 | |||||||||||||||||||||
| Loss/(gain) on sale of marketable securities(2) | - | 179 | 359 | (1,160 | ) | 297 | - | 656 | (1,160 | ) | ||||||||||||||||||||||
| MFFO | (671 | ) | 1,711 | (3,402 | ) | 4,400 | (878 | ) | 2,192 | (4,280 | ) | 6,592 | ||||||||||||||||||||
| Straight-line rent(3) | (13 | ) | 2 | (2 | ) | 25 | 12 | 2 | 10 | 27 | ||||||||||||||||||||||
| MFFO - IPA recommended format | $ | (684 | ) | $ | 1,713 | $ | (3,404 | ) | $ | 4,425 | $ | (866 | ) | $ | 2,194 | $ | (4,270 | ) | $ | 6,619 | ||||||||||||
| Net loss | $ | (2,196 | ) | $ | (8,455 | ) | $ | (7,718 | ) | $ | (13,420 | ) | $ | (8,453 | ) | $ | (13,359 | ) | $ | (16,171 | ) | $ | (26,779 | ) | ||||||||
| Less: income attributable to noncontrolling interests | (541 | ) | (228 | ) | (1,075 | ) | (600 | ) | (364 | ) | (183 | ) | (1,439 | ) | (783 | ) | ||||||||||||||||
| Net loss applicable to Company’s common shares | $ | (2,737 | ) | $ | (8,683 | ) | $ | (8,793 | ) | $ | (14,020 | ) | $ | (8,817 | ) | $ | (13,542 | ) | $ | (17,610 | ) | $ | (27,562 | ) | ||||||||
| Net loss per common share, basic and diluted | $ | (0.13 | ) | $ | (0.40 | ) | $ | (0.40 | ) | $ | (0.64 | ) | $ | (0.41 | ) | $ | (0.62 | ) | $ | (0.81 | ) | $ | (1.25 | ) | ||||||||
| FFO | $ | 419 | $ | (7,855 | ) | $ | (3,630 | ) | $ | (11,971 | ) | $ | (3,177 | ) | $ | 2,607 | $ | (6,807 | ) | $ | (9,364 | ) | ||||||||||
| Less: FFO attributable to noncontrolling interests | (822 | ) | (402 | ) | (1,490 | ) | (953 | ) | (645 | ) | (698 | ) | (2,134 | ) | (1,650 | ) | ||||||||||||||||
| FFO attributable to Company’s common shares | $ | (403 | ) | $ | (8,257 | ) | $ | (5,120 | ) | $ | (12,924 | ) | $ | (3,822 | ) | $ | 1,909 | $ | (8,941 | ) | $ | (11,014 | ) | |||||||||
| FFO per common share, basic and diluted | $ | (0.02 | ) | $ | (0.38 | ) | $ | (0.24 | ) | $ | (0.59 | ) | $ | (0.18 | ) | $ | 0.09 | $ | (0.41 | ) | $ | (0.50 | ) | |||||||||
| MFFO - IPA recommended format | $ | (684 | ) | $ | 1,713 | $ | (3,404 | ) | $ | 4,425 | $ | (866 | ) | $ | 2,194 | $ | (4,270 | ) | $ | 6,619 | ||||||||||||
| Less: MFFO attributable to noncontrolling interests | (760 | ) | (937 | ) | (1,511 | ) | (1,887 | ) | (767 | ) | (736 | ) | (2,278 | ) | (2,623 | ) | ||||||||||||||||
| MFFO attributable to Company’s common shares | $ | (1,444 | ) | $ | 776 | $ | (4,915 | ) | $ | 2,538 | $ | (1,633 | ) | $ | 1,458 | $ | (6,548 | ) | $ | 3,996 | ||||||||||||
| Weighted average number of common shares outstanding, basic and diluted | 21,755 | 21,974 | 21,786 | 22,051 | 21,679 | 21,887 | 21,750 | 21,996 | ||||||||||||||||||||||||
Notes:
| (1) | Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable equity securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP. |
| (2) | Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods. |
| (3) | Under GAAP, rental revenue is recognized on a straight-line basis. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance. |
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The table below presents our cumulative distributions paid and cumulative FFO attributable to our common shares:
| From inception through | ||||||||
| June 30, 2023 | From inception through September 30, 2023 | |||||||
| FFO attributable to Company’s common shares | $ | 251,819 | $ | 247,998 | ||||
| Distributions paid | $ | 286,382 | $ | 290,189 | ||||
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.
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PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS
From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LIGHTSTONE VALUE PLUS REIT I, INC. | ||
| Date: | By: | /s/ David Lichtenstein |
| David Lichtenstein | ||
| Chairman and Chief Executive Officer (Principal Executive Officer) | ||
| Date: | By: | /s/ Seth Molod |
| Seth Molod | ||
Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
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