UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark one)
| [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018March 31, 2019
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: 333-205893000-55760
| THE PARKING REIT, INC. |
| (Exact name of registrant as specified in its charter) |
| MARYLAND | 47-3945882 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
8880 W. SUNSET RD SUITE 240, LAS VEGAS, NV 89148
Registrant's Telephone Number, including Area Code: (702) 534-5577
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 [ X ]X] No [ ]
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months, (oror for such shorter period that the registrant was required to submit and post such files).files.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting 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 bib-212b-2 of the Act).
Yes [ ] No [ X ]
| Title of each class | Trading symbols(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
As of November 9, 2018,May 14, 2019, the registrant had 6,545,3666,940,261 shares of common stock outstanding.
| Page | ||
THE PARKING REIT, INC.
| September 30, 2018 | December 31, 2017 | As of March 31, 2019 | As of December 31, 2018 | |||||||||||||
| (UNAUDITED) | (unaudited) | |||||||||||||||
| ASSETS | ASSETS | ASSETS | ||||||||||||||
| Investments in real estate and fixed assets | ||||||||||||||||
| Investments in real estate | ||||||||||||||||
| Land and improvements | $ | 143,202,000 | $ | 131,169,000 | $ | 141,534,000 | $ | 142,607,000 | ||||||||
| Buildings and improvements | 166,158,000 | 153,456,000 | 168,120,000 | 170,206,000 | ||||||||||||
| Construction in progress | 4,121,000 | 750,000 | 1,433,000 | 1,872,000 | ||||||||||||
| Intangible assets | 2,288,000 | 2,427,000 | ||||||||||||||
| Software | 63,000 | -- | ||||||||||||||
| Intangible Assets | 2,288,000 | 2,288,000 | ||||||||||||||
| 315,832,000 | 287,802,000 | 313,375,000 | 316,973,000 | |||||||||||||
| Accumulated depreciation and amortization | (5,847,000 | ) | (2,231,000 | ) | ||||||||||||
| Accumulated depreciation | (8,201,000 | ) | (7,110,000 | ) | ||||||||||||
| Total investments in real estate, net | 309,985,000 | 285,571,000 | 305,174,000 | 309,863,000 | ||||||||||||
| Assets held for sale | 2,531,000 | 6,543,000 | ||||||||||||||
| Fixed Assets, net of depreciation of $26,000 | 37,000 | 42,000 | ||||||||||||||
| Assets held for sale, net of depreciation of $212,000 | 3,632,000 | -- | ||||||||||||||
| Cash | 5,284,000 | 8,501,000 | 5,628,000 | 5,106,000 | ||||||||||||
| Cash – restricted | 3,929,000 | 8,229,000 | 2,758,000 | 4,329,000 | ||||||||||||
| Prepaid expenses | 705,000 | 184,000 | 849,000 | 616,000 | ||||||||||||
| Accounts receivable | 1,269,000 | 409,000 | 274,000 | 712,000 | ||||||||||||
| Investment in DST | 2,821,000 | 2,821,000 | 2,839,000 | 2,821,000 | ||||||||||||
| Deposits | 419,000 | 675,000 | ||||||||||||||
| Due from related parties | -- | 3,000 | ||||||||||||||
| Other assets | 64,000 | 10,000 | 94,000 | 79,000 | ||||||||||||
| Total assets | $ | 327,007,000 | $ | 312,943,000 | $ | 321,285,000 | $ | 323,571,000 | ||||||||
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | ||||||||||||||
| Liabilities | ||||||||||||||||
| Notes payable, net of unamortized loan issuance costs of approximately $1.5 million and $1.9 million as of September 30, 2018 and December 31, 2017, respectively | $ | 117,082,000 | $ | 123,770,000 | ||||||||||||
| Lines of credit, net of unamortized loan issuance costs of approximately $0.6 million and $0.5 million as of September 30, 2018 and December 31, 2017, respectively | 38,511,000 | 22,302,000 | ||||||||||||||
| Notes payable, net of unamortized loan issuance costs of approximately $2.5 million as of March 31, 2019 and $2.4 million as of December 31, 2018 | $ | 157,168,000 | $ | 155,961,000 | ||||||||||||
| Accounts payable and accrued liabilities | 5,542,000 | 3,913,000 | 3,776,000 | 4,605,000 | ||||||||||||
| Security deposit | 141,000 | 202,000 | ||||||||||||||
| Due to related parties | 258,000 | 385,000 | ||||||||||||||
| Accounts payable and accrued liabilities – related party | 602,000 | 653,000 | ||||||||||||||
| Security Deposit | 139,000 | 139,000 | ||||||||||||||
| Deferred revenue | 509,000 | 195,000 | 55,000 | 93,000 | ||||||||||||
| Total liabilities | 162,043,000 | 150,767,000 | 161,740,000 | 161,451,000 | ||||||||||||
| Commitments and contingencies | -- | -- | -- | -- | ||||||||||||
| Equity | ||||||||||||||||
| The Parking REIT, Inc. Stockholders' Equity | ||||||||||||||||
| Preferred stock Series A, $0.0001 par value, 50,000 shares authorized, 2,862 shares issued and outstanding (stated liquidation value of $2,862,000) as of September 30, 2018 and December 31, 2017, respectively. | -- | -- | ||||||||||||||
| Preferred stock Series 1; $0.0001 par value, 97,000 shares authorized, 39,811 and 29,789 shares issued and outstanding (stated liquidation value of $ 39,811,000 and $29,789,000) as of September 30, 2018 and December 31, 2017, respectively. | -- | -- | ||||||||||||||
| Non-voting, non-participating convertible stock, $0.0001 par value, no shares issued and outstanding | -- | -- | ||||||||||||||
| Common stock, $0.0001 par value, 98,999,000 shares authorized, 6,547,977 and 6,532,009 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | -- | -- | ||||||||||||||
| Preferred stock Series A, $0.0001 par value, 50,000 shares authorized, 2,862 shares issued and outstanding (stated liquidation value of $2,862,000 as of March 31, 2019 and December 31, 2018) | -- | -- | ||||||||||||||
| Preferred stock Series 1; $0.0001 par value, 97,000 shares authorized, 39,811 shares issued and outstanding (stated liquidation value of $39,811,000 as of March 31, 2019 and December 31, 2018) | -- | -- | ||||||||||||||
| Non-voting, non-participating convertible stock, $0.0001 par value 1,000 shares authorized, no shares issued and outstanding | -- | -- | ||||||||||||||
| Common stock, $0.0001 par value, 98,999,000 shares authorized, 6,540,364 and 6,542,797 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | -- | -- | ||||||||||||||
| Additional paid-in capital | 184,260,000 | 177,598,000 | 182,572,000 | 183,382,000 | ||||||||||||
| Accumulated deficit | (22,058,000 | ) | (18,173,000 | ) | (25,706,000 | ) | (23,953,000 | ) | ||||||||
| Total The Parking REIT, Inc. Shareholders' Equity | 162,202,000 | 159,425,000 | 156,866,000 | 159,429,000 | ||||||||||||
| Non-controlling interest | 2,762,000 | 2,751,000 | 2,679,000 | 2,691,000 | ||||||||||||
| Total equity | 164,964,000 | 162,176,000 | 159,545,000 | 162,120,000 | ||||||||||||
| Total liabilities and equity | $ | 327,007,000 | $ | 312,943,000 | $ | 321,285,000 | $ | 323,571,000 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
THE PARKING REIT, INC.
(UNAUDITED)
| For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues | ||||||||||||||||
| Base rent income | $ | 4,992,000 | $ | 2,206,000 | $ | 14,511,000 | $ | 5,740,000 | ||||||||
| Management agreement | -- | -- | -- | 518,000 | ||||||||||||
| Percentage rent income | 1,010,000 | 16,000 | 1,776,000 | 523,000 | ||||||||||||
| Total revenues | 6,002,000 | 2,222,000 | 16,287,000 | 6,781,000 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Property taxes | 668,000 | 90,000 | 1,963,000 | 279,000 | ||||||||||||
| Property operating expense | 305,000 | 273,000 | 1,041,000 | 608,000 | ||||||||||||
| Asset management expense – related party | 313,000 | 345,000 | 2,000,000 | 839,000 | ||||||||||||
| General and administrative | 1,246,000 | 400,000 | 6,092,000 | 1,051,000 | ||||||||||||
| Merger costs | -- | 824,000 | -- | 1,596,000 | ||||||||||||
| Acquisition expenses | 7,000 | 113,000 | 411,000 | 2,156,000 | ||||||||||||
| Acquisition expenses – related party | -- | -- | -- | 1,710,000 | ||||||||||||
| Depreciation and amortization | 1,262,000 | 508,000 | 3,653,000 | 1,404,000 | ||||||||||||
| Total operating expenses | 3,801,000 | 2,553,000 | 15,160,000 | 9,643,000 | ||||||||||||
| Income (loss) from operations | 2,201,000 | (331,000 | ) | 1,127,000 | (2,862,000 | ) | ||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (2,170,000 | ) | (1,297,000 | ) | (6,337,000 | ) | (3,146,000 | ) | ||||||||
| Distribution income – related party | -- | 75,000 | -- | 174,000 | ||||||||||||
| Gain from sale of investment in real estate | 962,000 | 1,200,000 | 1,971,000 | 1,200,000 | ||||||||||||
| Other income | 7,000 | -- | 62,000 | -- | ||||||||||||
| Income from DST | 52,000 | -- | 154,000 | -- | ||||||||||||
| Income from investment in equity method investee | -- | 2,000 | -- | 19,000 | ||||||||||||
| Total other expense | (1,149,000 | ) | (20,000 | ) | (4,150,000 | ) | (1,753,000 | ) | ||||||||
| Net income (loss) | 1,052,000 | (351,000 | ) | (3,023,000 | ) | (4,615,000 | ) | |||||||||
| Net income attributable to non-controlling interest | 40,000 | 41,000 | 45,000 | 269,000 | ||||||||||||
| Net income (loss) attributable to The Parking REIT, Inc.'s stockholders | $ | 1,012,000 | $ | (392,000 | ) | $ | (3,068,000 | ) | $ | (4,884,000 | ) | |||||
| Preferred stock distributions declared - Series A | (54,000 | ) | (55,000 | ) | (151,000 | ) | (101,000 | ) | ||||||||
| Preferred stock distributions declared - Series 1 | (697,000 | ) | (157,000 | ) | (1,908,000 | ) | (172,000 | ) | ||||||||
| Net income (loss) attributable to The Parking REIT, Inc.'s common stockholders | 261,000 | (604,000 | ) | (5,127,000 | ) | (5,157,000 | ) | |||||||||
| Basic and diluted income (loss) per weighted average common share: | ||||||||||||||||
| Net income (loss) per share attributable to The Parking REIT, Inc.'s common stockholders - basic and diluted | $ | 0.04 | $ | (0.23 | ) | $ | (0.78 | ) | $ | (2.05 | ) | |||||
| Distributions declared per common share | $ | -- | $ | 0.19 | $ | 0.12 | $ | 0.56 | ||||||||
| Weighted average common shares outstanding, basic and diluted | 6,549,512 | 2,577,514 | 6,552,203 | 2,516,496 | ||||||||||||
| Preferred stock | Common stock | |||||||||||||||
| Number of Shares | Par Value | Number of Shares | Par Value | Additional Paid-in Capital | Accumulated Deficit | Non-controlling interest | Total | |||||||||
| Balance, December 31, 2017 | 32,651 | $ | -- | 6,532,009 | $ | -- | $ | 177,598,000 | $ | (18,173,000) | $ | 2,751,000 | $ | 162,176,000 | ||
| Distributions to non-controlling interest | -- | -- | -- | -- | -- | -- | (34,000) | (34,000) | ||||||||
| Issuance of common stock – DRIP | -- | -- | 11,326 | -- | 307,000 | -- | -- | 307,000 | ||||||||
| Issuance of preferred Series 1 | 10,022 | -- | -- | -- | 9,089,000 | -- | -- | 9,089,000 | ||||||||
| Redeemed Shares | -- | -- | (28,037) | -- | (685,000) | -- | -- | (685,000) | ||||||||
| Distributions - Common | -- | -- | -- | -- | (807,000) | -- | -- | (807,000) | ||||||||
| Distributions – Series A | -- | -- | -- | -- | (151,000) | -- | -- | (151,000) | ||||||||
| Distributions – Series 1 | -- | -- | -- | -- | (1,908,000) | -- | -- | (1,908,000) | ||||||||
| Stock dividend | -- | -- | 32,679 | -- | 817,000 | (817,000) | -- | -- | ||||||||
| Net income (loss) | -- | -- | -- | -- | -- | (3,068,000) | 45,000 | (3,023,000) | ||||||||
| Balance, September 30, 2018 | 42,673 | $ | -- | 6,547,977 | $ | -- | $ | 184,260,000 | $ | (22,058,000) | $ | 2,762,000 | $ | 164,964,000 | ||
For The Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenues | ||||||||
| Base rent income | $ | 5,054,000 | $ | 4,716,000 | ||||
| Percentage rent income | 301,000 | 375,000 | ||||||
| Total revenues | 5,355,000 | 5,091,000 | ||||||
| Operating expenses | ||||||||
| Property taxes | 793,000 | 636,000 | ||||||
| Property operating expense | 379,000 | 308,000 | ||||||
| Asset management expense – related party | 854,000 | 832,000 | ||||||
| General and administrative | 850,000 | 1,107,000 | ||||||
| Professional fees | 666,000 | 1,921,000 | ||||||
| Acquisition expenses | 4,000 | 217,000 | ||||||
| Depreciation and amortization | 1,308,000 | 1,194,000 | ||||||
| Total operating expenses | 4,854,000 | 6,215,000 | ||||||
| Income (loss) from operations | 501,000 | (1,124,000 | ) | |||||
| Other income (expense) | ||||||||
| Interest expense | (2,356,000 | ) | (1,948,000 | ) | ||||
| Other Income | 31,000 | -- | ||||||
| Income from DST | 70,000 | 52,000 | ||||||
| Total other expense | (2,255,000 | ) | (1,896,000 | ) | ||||
| Net loss | (1,754,000 | ) | (3,020,000 | ) | ||||
| Less net income (loss) attributable to non-controlling interest | (1,000 | ) | 2,000 | |||||
Net loss attributable to The Parking REIT, Inc.'s stockholders | $ | (1,753,000 | ) | $ | (3,022,000 | ) | ||
| Preferred stock distributions declared - Series A | (54,000 | ) | (43,000 | ) | ||||
| Preferred stock distributions declared - Series 1 | (696,000 | ) | (523,000 | ) | ||||
Net loss attributable to The Parking REIT, Inc.'s common stockholders | (2,503,000 | ) | (3,588,000 | ) | ||||
| Basic and diluted loss per weighted average common share: | ||||||||
| Net loss per share attributable to The Parking REIT, Inc.'s common stockholders - basic and diluted | $ | (0.38 | ) | $ | (0.55 | ) | ||
| Distributions declared per common share | $ | -- | $ | 0.12 | ||||
| Weighted average common shares outstanding, basic and diluted | 6,542,057 | 6,550,728 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
THE PARKING REIT, INC.
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(UNAUDITED)
| Preferred stock | Common stock | |||||||||||||||||||||||||||||||
| Number of Shares | Par Value | Number of Shares | Par Value | Additional Paid-in Capital | Accumulated Deficit | Non-controlling interest | Total | |||||||||||||||||||||||||
| Balance, December 31, 2018 | 42,673 | $ | -- | 6,542,797 | $ | -- | $ | 183,382,000 | $ | (23,953,000 | ) | $ | 2,691,000 | $ | 162,120,000 | |||||||||||||||||
| Distributions to non-controlling interest | -- | -- | -- | -- | -- | -- | (11,000 | ) | (11,000 | ) | ||||||||||||||||||||||
| Redeemed Shares | -- | -- | (2,433 | ) | -- | (60,000 | ) | -- | -- | (60,000 | ) | |||||||||||||||||||||
| Distributions – Series A | -- | -- | - | -- | (54,000 | ) | -- | -- | (54,000 | ) | ||||||||||||||||||||||
| Distributions – Series 1 | -- | -- | -- | -- | (696,000 | ) | -- | -- | (696,000 | ) | ||||||||||||||||||||||
| Net income (loss) | -- | -- | -- | -- | -- | (1,753,000 | ) | (1,000 | ) | (1,754,000 | ) | |||||||||||||||||||||
| Balance, March 31, 2019 | 42,673 | $ | -- | 6,540,364 | $ | -- | $ | 182,572,000 | $ | (25,706,000 | ) | $ | 2,679,000 | $ | 159,545,000 | |||||||||||||||||
| Preferred stock | Common stock | |||||||||||||||||||||||||||||||
| Number of Shares | Par Value | Number of Shares | Par Value | Additional Paid-in Capital | Accumulated Deficit | Non-controlling interest | Total | |||||||||||||||||||||||||
| Balance, December 31, 2017 | 32,651 | $ | 6,532,009 | $ | -- | $ | 177,598,000 | $ | (18,173,000 | ) | $ | 2,751,000 | $ | 162,176,000 | ||||||||||||||||||
| Distributions to non-controlling interest | -- | -- | -- | -- | -- | -- | (13,000 | ) | (13,000 | ) | ||||||||||||||||||||||
| Issuance of common stock – DRIP | -- | -- | 11,326 | -- | 283,000 | -- | -- | 283,000 | ||||||||||||||||||||||||
| Issuance of preferred Series 1 | 10,022 | -- | -- | -- | 9,090,000 | -- | -- | 9,090,000 | ||||||||||||||||||||||||
| Redeemed Shares | (7,636 | ) | (191,000 | ) | -- | (191,000 | ) | |||||||||||||||||||||||||
| Distributions - Common | -- | -- | -- | -- | (817,000 | ) | -- | (817,000 | ) | |||||||||||||||||||||||
| Distributions – Series A | -- | -- | -- | -- | (43,000 | ) | -- | -- | (43,000 | ) | ||||||||||||||||||||||
| Distributions – Series 1 | -- | -- | -- | -- | (523,000 | ) | -- | -- | (523,000 | ) | ||||||||||||||||||||||
| Stock dividend | -- | -- | 32,679 | -- | 817,000 | (817,000 | ) | -- | -- | |||||||||||||||||||||||
| Net income (loss) | -- | -- | -- | -- | -- | (3,022,000 | ) | 2,000 | (3,020,000 | ) | ||||||||||||||||||||||
| Balance, March 31, 2018 | 42,673 | $ | 6,568,378 | $ | -- | $ | 186,214,000 | $ | (22,012,000 | ) | $ | 2,740,000 | $ | 166,942,000 | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
THE PARKING REIT, INC.
For the Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | (3,023,000 | ) | $ | (4,615,000 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 3,653,000 | 1,404,000 | ||||||
| Amortization of loan costs | 646,000 | 335,000 | ||||||
| Gain from sale of investment in real estate | (1,971,000 | ) | (1,200,000 | ) | ||||
| Income from investment in equity method investee | -- | (19,000 | ) | |||||
| Distribution from MVP REIT | -- | (122,000 | ) | |||||
| Distribution from DST | (154,000 | ) | (52,000 | ) | ||||
| Changes in operating assets and liabilities | ||||||||
| Due to/from related parties | (127,000 | ) | (2,164,000 | ) | ||||
| Accounts payable | 1,704,000 | 1,028,000 | ||||||
| Loan Fees | (368,000 | ) | -- | |||||
| Security deposits | 253,000 | 298,000 | ||||||
| Other assets | (54,000 | ) | 258,000 | |||||
| Assets held for sale | -- | 623,000 | ||||||
| Accounts receivable | (860,000 | ) | 93,000 | |||||
| Prepaid expenses | (557,000 | ) | 60,000 | |||||
| Net cash used in operating activities | $ | (858,000 | ) | $ | (4,073,000 | ) | ||
| Cash flows from investing activities: | ||||||||
| Purchase of investment in real estate | (28,938,000 | ) | (81,200,000 | ) | ||||
| Investment in assets held for sale | -- | (1,015,000 | ) | |||||
| Investment in DST | -- | (2,821,000 | ) | |||||
| Building improvements | (4,602,000 | ) | (1,962,000 | ) | ||||
| Fixed asset purchase | (63,000 | ) | -- | |||||
| Proceeds from Investments | 154,000 | 87,000 | ||||||
| Proceeds from sale of investment in real estate | 7,487,000 | 1,577,000 | ||||||
| Deposits applied to purchase of investment in real estate | 256,000 | 4,216,000 | ||||||
| Investment in cost method investee | -- | (8,000 | ) | |||||
| Investment in cost method investee – held for sale | -- | (2,000 | ) | |||||
| Investment in equity method investee | -- | (50,000 | ) | |||||
| Proceeds from non-controlling interest | -- | 5,075,000 | ||||||
| Net cash used in investing activities | (25,706,000 | ) | (76,103,000 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from note payable | 5,488,000 | 75,752,000 | ||||||
| Payments on note payable | (1,512,000 | ) | (1,388,000 | ) | ||||
| Proceeds from line of credit | 23,100,000 | 32,643,000 | ||||||
| Payments made on line of credit | (13,840,000 | ) | (39,526,000 | ) | ||||
| Loan fees paid | -- | (1,111,000 | ) | |||||
| Distribution to non-controlling interest | (34,000 | ) | (1,809,000 | ) | ||||
| Distribution from investment in equity method investee | -- | 237,000 | ||||||
| Proceeds from issuance of common stock | -- | 5,826,000 | ||||||
| Proceeds from issuance of preferred stock | 9,089,000 | 14,341,000 | ||||||
| Redeemed shares | (685,000 | ) | -- | |||||
| Dividends paid to stockholders | (2,559,000 | ) | (1,837,000 | ) | ||||
| Net cash provided by financing activities | 19,047,000 | 83,128,000 | ||||||
| Net change in cash and cash equivalents and restricted cash | (7,517,000 | ) | 2,952,000 | |||||
| Cash and cash equivalents and restricted cash, beginning of period | 16,730,000 | 4,985,000 | ||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 9,213,000 | $ | 7,937,000 | ||||
For the Nine Months Ended September 30, | For The Three Months Ended March 31, | |||||||||||||||
| 2019 | 2018 | |||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net Loss | $ | (1,754,000 | ) | $ | (3,020,000 | ) | ||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Depreciation and amortization expense | 1,308,000 | 1,194,000 | ||||||||||||||
| Amortization of loan costs | 222,000 | 81,000 | ||||||||||||||
| Distribution from DST | (70,000 | ) | (52,000 | ) | ||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||||
| Due to/from related parties | 3,000 | (152,000 | ) | |||||||||||||
| Accounts payable | (881,000 | ) | 1,917,000 | |||||||||||||
| Loan Fees | (253,000 | ) | (197,000 | ) | ||||||||||||
| Security deposits | -- | (98,000 | ) | |||||||||||||
| Other assets | (15,000 | ) | (24,000 | ) | ||||||||||||
| Deferred revenue | (38,000 | ) | -- | |||||||||||||
| Accounts receivable | 439,000 | (142,000 | ) | |||||||||||||
| Prepaid expenses | (233,000 | ) | (522,000 | ) | ||||||||||||
| Net cash used in operating activities | (1,272,000 | ) | (1,015,000 | ) | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchase of investment in real estate | -- | (8,105,000 | ) | |||||||||||||
| Building improvements | (246,000 | ) | (1,329,000 | ) | ||||||||||||
| Fixed asset purchase | -- | (63,000 | ) | |||||||||||||
| Proceeds from Investments | 52,000 | 52,000 | ||||||||||||||
| Payment of deposit made for purchase of investment in real estate or debt | (97,000 | ) | (2,760,000 | ) | ||||||||||||
| Deposits applied to purchase of investment in real estate or debt | 97,000 | -- | ||||||||||||||
| Net cash used in investing activities | (194,000 | ) | (12,205,000 | ) | ||||||||||||
| Cash flows from financing activities | ||||||||||||||||
| Proceeds from notes payable | 5,500,000 | -- | ||||||||||||||
| Payments on notes payable | (4,262,000 | ) | (477,000 | ) | ||||||||||||
| Proceeds from line of credit | -- | 4,400,000 | ||||||||||||||
| Payments made on line of credit | -- | (3,440,000 | ) | |||||||||||||
| Distribution to non-controlling interest | (11,000 | ) | (13,000 | ) | ||||||||||||
| Proceeds from issuance of preferred stock | -- | 9,090,000 | ||||||||||||||
| Redeemed shares | (60,000 | ) | (191,000 | ) | ||||||||||||
| Dividends paid to stockholders | (750,000 | ) | (1,100,000 | ) | ||||||||||||
| Net cash provided by financing activities | 417,000 | 8,269,000 | ||||||||||||||
| Net change in cash and cash equivalents and restricted cash | (1,049,000 | ) | (4,951,000 | ) | ||||||||||||
| Cash and cash equivalents and restricted cash, beginning of period | 9,435,000 | 16,730,000 | ||||||||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 8,386,000 | $ | 11,779,000 | ||||||||||||
| 2018 | 2017 | |||||||||||||||
| Reconciliation of Cash and Cash Equivalents and Restricted Cash: | ||||||||||||||||
| Cash and cash equivalents at beginning of period | $ | 8,501,000 | $ | 4,885,000 | $ | 5,106,000 | $ | 8,501,000 | ||||||||
| Restricted cash at beginning of period | 8,229,000 | 100,000 | 4,329,000 | 8,229,000 | ||||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | $ | 16,730,000 | $ | 4,985,000 | $ | 9,435,000 | $ | 16,730,000 | ||||||||
| Cash and cash equivalents at end of period | $ | 5,284,000 | $ | 2,589,000 | $ | 5,628,000 | $ | 4,938,000 | ||||||||
| Restricted cash at end of period | 3,929,000 | 5,348,000 | 2,758,000 | 6,841,000 | ||||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | 9,213,000 | $ | 7,937,000 | $ | 8,386,000 | $ | 11,779,000 | ||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||||
| Interest Paid | $ | 5,692,000 | $ | 2,737,000 | $ | 2,134,000 | $ | 1,867,000 | ||||||||
| Non-cash investing and financing activities: | ||||||||||||||||
| Distributions - DRIP | $ | 307,000 | $ | 901,000 | $ | -- | $ | 283,000 | ||||||||
| Dividend shares | $ | 817,000 | $ | 1,402,000 | $ | -- | $ | 817,000 | ||||||||
| Dividends declared not yet paid | $ | 250,000 | $ | 235,000 | $ | 250,000 | $ | 200,000 | ||||||||
| Deposits applied to purchase of investment in real estate | $ | 2,260,000 | $ | 4,216,000 | ||||||||||||
| Conversion from debt to preferred shares | $ | -- | $ | 2,000,000 | ||||||||||||
| Payments on note payable through sale of investment in real estate | $ | (11,092,000 | ) | $ | -- | |||||||||||
| Proceeds on line of credit through sale of investment in real estate | $ | 7,103,000 | $ | -- | ||||||||||||
| Deposits applied to purchase of investment in real estate or financing | $ | 97,000 | $ | 150,000 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
THE PARKING REIT, INC.
(UNAUDITED)
Note A — Organization and Business Operations
The Parking REIT, Inc., formerly known as MVP REIT II, Inc. (the "Company""Company," "we," "us" or "our"), is a Maryland corporation formed on May 4, 2015 and has elected to be taxed, and has operated and intends to continue to operate in a manner that will allow the Company to qualify as a REIT underreal estate investment trust ("REIT") for U.S. federal income tax purposes beginning with the Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT,taxable year ended December 31, 2017; therefore, the Company is generally not subjectintends to federal corporate income taxes on amounts that are distributed to stockholders, provided that, on an annual basis, the Company distributes at least 90% of REIT taxable income (excluding net capital gains) to the stockholders and meet certain other conditions. As such, in general, as long as we qualifycontinue operating as a REIT no provision for federal income taxes will be necessary, except for taxes on undistributed REITthe taxable income.
The Company was formed to focus primarily on investments in parking facilities, including parking lots, parking garages and other parking structures throughout the United States.States and Canada. To a lesser extent, the Company may also invest in parking properties that contain other than parking facilities.sources of rental income, potentially including office, retail, storage, residential, billboard or cell towers.
The Company is the sole general partner of MVP REIT II Operating Partnership, LP, a Delaware limited partnership (the "Operating Partnership"). The Company owns substantially all of its assets and conducts substantially all of its operations through the Operating Partnership. The Company's wholly owned subsidiary, MVP REIT II Holdings, LLC, is the sole limited partner of the Operating Partnership. The operating agreement provides that the Operating Partnership is to be operated in a manner that enables the Company to (1) satisfy the requirements to qualify and maintain qualification as a REIT for federal income tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the Operating Partnership is not classified as a "publicly traded partnership" for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the "Code"), which classification could result in the Operating Partnership being taxed as a corporation.
The Company utilizes an Umbrella Partnership Real Estate Investment Trust ("UPREIT") structure to enable the Company to acquire real property in exchange for limited partnership interests in the Operating Partnership from owners who desire to defer taxable gain that would otherwise normally be recognized by them upon the disposition of their real property or transfer of their real property to the Company in exchange for shares of the Company's common stock or cash.
As part of November 9, 2018, the Company had no paid employees.Company's initial capitalization, 8,000 shares of common stock were sold for $200,000 to an affiliate of the Advisor (as defined below).
Merger of MVP REIT with Merger Sub, LLC
On May 26, 2017, the Company, MVP REIT, Inc., a Maryland corporation ("MVP I"), MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("Merger Sub"), and the Advisor entered into an agreement and plan of merger (the "Merger Agreement"), pursuant to which MVP I would merge with and into Merger Sub (the "Merger").
On December 15, 2017, the Merger was consummated. Following the Merger, the Company contributed 100% of its equity interests in Merger Sub to the Operating Partnership.
At the effective time of the Merger, each share of MVP I common stock, par value $0.001 per share, that was issued and outstanding immediately prior to the Merger (the "MVP I Common Stock"), was converted into the right to receive 0.365 shares of Company common stock. A total of approximately 3.9 million shares of Company common stock were issued to former MVP I stockholders, and former MVP I stockholders, immediately following the Merger, owned approximately 59.7% of the Company's common stock. The Company was subsequently renamed "The Parking REIT, Inc.".
Capitalization
As of September 30, 2018,March 31, 2019, the Company had 6,547,9776,540,364 shares of common stock issued and outstanding. On December 31, 2016, the Company ceased all selling efforts for the Common Stock Offeringinitial public offering of its common stock.stock (the "Common Stock Offering"). The Company accepted additional subscriptions through March 31, 2017, the last day of the Common Stock Offering. In connection with its formation, the Company sold 8,000 shares of common stock to the SponsorMVP Capital Partners II, LLC (the "Sponsor") for $200,000.
On October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock, par value $0.0001 per share (the "Series A"). The Company commenced a private placement of the shares of Series A, together with warrants to acquire the Company's common stock, to accredited investors on November 1, 2016 and closed the offering on March 24, 2017. The Company raised approximately $2.5 million, net of offering costs, in the Series A private placement and had 2,862 Series A shares issued and outstanding as of September 30, 2018.March 31, 2019.
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock par value $0.0001 per share (the "Series 1"). On April 7, 2017, the Company commenced a private placement of shares of Series 1, together with warrants to acquire the Company's common stock to accredited investors and closed the offering on January 31, 2018. The Company raised approximately $36.0 million, net of offering costs, in the Series 1 private placements and had 39,811 Series 1 shares issued and outstanding as of September 30, 2018.March 31, 2019.
Note B — Summary of Significant Accounting Policies
Basis of Accounting
The accompanying unaudited condensed consolidated financial statements of the Company are prepared by management on the accrual basis of accounting and in accordance with principles generally accepted in the United States of America ("GAAP") for interim financial information as contained in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements include accounts and related adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the interim period. Operating results for the three and nine months ended September 30, 2018March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.2019. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.2018.
The condensed consolidated balance sheet as of December 31, 20172018 contained herein has been derived from the audited financial statements as of December 31, 2017,2018 but does not include all disclosures required by GAAP.
Consolidation
The Company's condensed consolidated financial statements for the period ended March 31, 2019, include its accounts, the accounts of the Company's assets, that were sold during 2017 (as applicable), the accounts of its subsidiaries, the Operating Partnership and all of the following subsidiaries. All intercompany profits and losses, balances and transactions are eliminated in consolidation.
The following list includes the subsidiaries that are included in the Company's March 31, 2019 consolidated financial statements and does not reflect the actual number of properties owned by the Company for the periods presented in this filing.
| MVP PF Ft. Lauderdale | |
| MVP Bridgeport Fairfield Garage, LLC | |
| MVP PF Memphis | West 9th Street Properties II, LLC |
| MVP PF | MVP San Jose 88 Garage, LLC |
| MVP PF St. Louis 2013, LLC | MCI 1372 Street, LLC |
| Mabley Place Garage, LLC | |
| MVP Denver Sherman, LLC | MVP |
| MVP Fort Worth Taylor, LLC | MVP St. |
| MVP Milwaukee Old World, | |
| MVP Louisville Station Broadway, LLC | |
| MVP Houston Saks Garage, LLC | White Front Garage Partners, LLC |
| MVP | Cleveland Lincoln Garage, LLC |
| MVP | MVP Houston Preston, LLC |
| MVP | MVP Houston San Jacinto Lot, LLC |
| MVP Indianapolis | MVP Detroit Center Garage, LLC |
| St Louis Broadway, LLC | |
| MVP | St Louis Seventh & Cerre, LLC |
| MVP Preferred Parking, LLC | |
| MVP | MVP Raider Park Garage, LLC |
| MVP | MVP New Orleans Rampart, LLC |
| MVP | MVP Hawaii Marks Garage, LLC |
| MVP |
Under GAAP, the Company's condensed consolidated financial statements will also include the accounts of its consolidated subsidiaries and joint ventures in which the Company is the primary beneficiary, or in which the Company has a controlling interest. In determining whether the Company has a controlling interest in a joint venture and the requirement to consolidate the accounts of that entity, the Company's management considers factors such as an entity's purpose and design and the Company's ability to direct the activities of the entity that most significantly impacts the entity's economic performance, ownership interest, board representation, management representation, authority to make decisions and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity in which it will absorb the majority of the entity's expected losses, if they occur, or receive the majority of the expected residual returns, if they occur, or both.
Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method. The Company's share of its equity method investees' earnings or losses is included in other income in the accompanying condensed consolidated statements of operations. Investments in which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition, purchase price allocations to record investments in real estate, and derivative financial instruments and hedging activities, as applicable.
Concentration
The Company had sixteen and fifteen parking tenants as of September 30,March 31, 2019 and 2018, and nine parking tenants as of September 30, 2017.respectively. One tenant, SP Plus Corporation (Nasdaq: SP) ("SP+"), represented 57.4% and 54.9%57.7% of the Company's base parking rental revenue for the ninethree months ended September 30, 2018 and 2017, respectively.March 31, 2019.
SP+ is one of the largest providers of parking management in the United States. As of September 30, 2018,March 31, 2019, SP+ managed approximately 2,8003,400 locations in North America.
Below is a table that summarizes base parking rent by tenant:
For the Nine Months Ended September 30, | For The Three Months Ended March 31, | |||||||
| Parking Tenant | 2018 | 2017 | 2019 | 2018 | ||||
| SP + | 57.4% | 54.9% | 57.7% | 57.2% | ||||
| iPark Services | 13.4% | 10.6% | 13.1% | 13.6% | ||||
| ABM | 4.6% | 2.3% | 4.5% | 4.6% | ||||
| ISOM Mgmt. | 4.2% | -- | ||||||
| ISOM Mgmt | 4.2% | 4.3% | ||||||
| Premier Parking | 3.7% | 8.4% | 3.6% | 3.8% | ||||
| 342 N. Rampart | 2.9% | 2.0% | ||||||
| Interstate Parking | 2.8% | 6.4% | 2.8% | 2.9% | ||||
| 342 N. Rampart | 2.6% | -- | ||||||
| Lanier | 2.6% | 2.4% | ||||||
| Denison | 2.5% | -- | 2.4% | 2.6% | ||||
| Lanier | 2.4% | 4.2% | ||||||
| St. Louis Parking | 2.2% | 4.3% | 2.1% | 2.2% | ||||
| TNSH, LLC | 1.2% | 0.0% | ||||||
| BEST PARK | 1.5% | -- | 1.0% | 1.5% | ||||
| Riverside Parking | 1.0% | 2.4% | 1.0% | 1.1% | ||||
| PCAM, LLC | 0.8% | -- | ||||||
| TNSH, LLC | 0.6% | -- | ||||||
| Premium Parking | 0.6% | -- | ||||||
| Denver School | 0.2% | -- | 0.2% | 0.2% | ||||
| Secure | 0.1% | -- | 0.1% | 0.1% | ||||
| Miller Parking | -- | 6.5% | ||||||
| PCAM, LLC | -- | 1.5% | ||||||
* Revenue for MillerDuring June 2018 Premier Parking represents a settlement received by MVP Detroit Center Garage, LLC of approximately $408,000 foracquired iPark Services. Subsequent to the operations of the garage through January 2017, at which time SP+ assumed operationsacquisition Premier and iPark continue to operate under a longer-term lease agreement.their original company names.
In addition, the Company had concentrations in various cities based on base parking rental revenue for the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, as well as concentrations in various cities based on the real estate the Company owned as of September 30, 2018March 31, 2019 and December 31, 2017.2018. The below tables summarize this information by city.
| City Concentration for Parking Rental Revenue | ||||
For The Three Months Ended March 31, | ||||
| 2019 | 2018 | |||
| Detroit | 17.8% | 18.5% | ||
| Houston | 13.1% | 13.6% | ||
| Cincinnati | 9.1% | 9.3% | ||
| Fort Worth | 8.0% | 8.3% | ||
| Indianapolis | 6.3% | 6.6% | ||
| St. Louis | 5.3% | 6.6% | ||
| Cleveland | 5.3% | 5.3% | ||
| Honolulu | 4.9% | 0.0% | ||
| Lubbock | 4.2% | 4.3% | ||
| Minneapolis | 4.1% | 4.3% | ||
| Nashville | 3.6% | 3.8% | ||
| Milwaukee | 3.4% | 3.7% | ||
| New Orleans | 2.9% | 2.0% | ||
| St Paul | 2.8% | 2.9% | ||
| San Jose | 2.3% | 2.4% | ||
| Bridgeport | 2.1% | 2.2% | ||
| Memphis | 1.6% | 1.6% | ||
| Louisville | 1.0% | 1.1% | ||
| Denver | 0.8% | 0.9% | ||
| Ft. Lauderdale | 0.4% | 0.6% | ||
| Wildwood | 0.4% | 0.4% | ||
| Canton | 0.3% | 0.3% | ||
| Clarksburg | 0.3% | 0.3% | ||
| Kansas City | 0.0% | 1.0% | ||
| City Concentration for Parking Rental Revenue | ||||||||
| Real Estate Investment Concentration by City | Real Estate Investment Concentration by City | |||||||
For the Nine Months Ended September 30, | As of March 31, | |||||||
| 2018 | 2017 | 2019 | 2018 | |||||
| Detroit | 18.2% | 43.4% | 17.6% | 18.2% | ||||
| Houston | 13.4% | 10.6% | 11.9% | 12.4% | ||||
| Fort Worth | 8.7% | 9.1% | ||||||
| Cincinnati | 9.1% | 3.9% | 8.7% | 8.9% | ||||
| Fort Worth | 8.2% | -- | ||||||
| Honolulu | 6.6% | -- | ||||||
| Cleveland | 6.2% | 5.7% | ||||||
| Indianapolis | 6.5% | -- | 5.8% | 6.0% | ||||
| St. Louis | 5.7% | 6.3% | ||||||
| Cleveland | 5.4% | 12.1% | ||||||
| Minneapolis | 4.4% | 5.4% | ||||||
| St Louis | 4.4% | 6.8% | ||||||
| Milwaukee | 3.8% | 3.9% | ||||||
| Nashville | 3.7% | 3.8% | ||||||
| Lubbock | 4.3% | -- | 3.7% | 3.6% | ||||
| Minneapolis | 4.2% | -- | ||||||
| Nashville | 3.7% | 8.4% | ||||||
| Milwaukee | 3.5% | -- | ||||||
| St Paul | 2.8% | 6.4% | 2.7% | 2.8% | ||||
| Bridgeport | 2.6% | 2.7% | ||||||
| New Orleans | 2.6% | -- | 2.6% | 2.7% | ||||
| Memphis | 1.5% | 1.6% | ||||||
| San Jose | 2.4% | 5.9% | 1.2% | 1.3% | ||||
| Bridgeport | 2.1% | -- | ||||||
| Honolulu | 1.8% | -- | ||||||
| Memphis | 1.6% | -- | ||||||
| Fort Lauderdale | 1.1% | 1.1% | ||||||
| Denver | 1.0% | 1.1% | ||||||
| Louisville | 1.0% | 2.4% | 1.0% | 1.0% | ||||
| Ft. Lauderdale | 0.9% | -- | ||||||
| Denver | 0.8% | -- | ||||||
| Wildwood | 0.4% | 0.6% | ||||||
| Clarksburg | 0.2% | 0.2% | ||||||
| Canton | 0.2% | 0.2% | ||||||
| Kansas City | 0.8% | -- | -- | 0.9% | ||||
| Wildwood | 0.4% | -- | ||||||
| Canton | 0.3% | 0.6% | ||||||
| Clarksburg | 0.3% | -- | ||||||
| Real Estate Investment Concentration by City | ||||
| As of September 30, 2018 | As of December 31, 2017 | |||
| Detroit | 17.8% | 18.9% | ||
| Houston | 12.1% | 12.7% | ||
| Fort Worth | 8.9% | 9.5% | ||
| Cincinnati | 8.6% | 8.8% | ||
| Honolulu | 6.7% | -- | ||
| Indianapolis | 5.9% | 6.2% | ||
| Cleveland | 5.2% | 5.5% | ||
| Minneapolis | 4.4% | 5.6% | ||
| St Louis | 4.4% | 7.1% | ||
| Milwaukee | 3.9% | 4.1% | ||
| Nashville | 3.8% | 3.9% | ||
| Lubbock | 3.5% | 3.8% | ||
| St Paul | 2.7% | 2.8% | ||
| Bridgeport | 2.7% | 2.8% | ||
| New Orleans | 2.6% | -- | ||
| Memphis | 1.6% | 1.7% | ||
| San Jose | 1.2% | 1.2% | ||
| Fort Lauderdale | 1.1% | 1.2% | ||
| Denver | 1.0% | 1.1% | ||
| Louisville | 1.0% | 1.1% | ||
| Kansas City | -- | 1.0% | ||
| Wildwood | 0.5% | 0.6% | ||
| Clarksburg | 0.2% | 0.2% | ||
| Canton | 0.2% | 0.2% | ||
Acquisitions
The Company records the acquired tangible and intangible assets and assumed liabilities of acquisitions of all operating properties and those development and redevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date. The Company assesses and considers fair value based on estimated cash flow projections that utilize available market information and discount and/or capitalization rates that the Company deems appropriate. Estimates of future cash flows are based on a number ofseveral factors including historical operating results, known and anticipated trends, and market and economic conditions. The acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to: land, buildings and improvements, construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any. Costs directly associated with all operating property acquisitions and those development and redevelopment acquisitions that meet the accounting criteria to be accounted for as business combinations are expensed as incurred within operating expenses in the consolidated statement of operations.
Impairment of Long LivedLong-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property, the property is written down to fair value and an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.
No impairment charges were recorded during the three months ended March 31, 2019. The Company recorded impairment charges of approximately $0.6 million for the year ended December 31, 2018. The estimated fair values, as they relate to property carrying values were primarily based upon estimated sales prices from third-party offers or indicative bids.
Cash
The Company maintains a significant portion of its cash deposits at KeyBank, which are held by the Company's subsidiaries allowing the Company to maximize FDIC insurance coverage. The balances are insured by the Federal Deposit Insurance Corporation ("FDIC") under the same ownership category of $250,000. As of September 30, 2018March 31, 2019, and as of December 31, 2017,2018, the Company had approximately $0.6$1.2 million and $5.6$0.5 million, respectively, in excess of the federally-insured limits. As of September 30, 2018,March 31, 2019, the Company has not experienced any losses on cash deposits.
Restricted Cash
Restricted cash primarily consists of escrowed tenant improvement funds, real estate taxes, capital improvement funds, insurance premiums and other amounts required to be escrowed pursuant to loan agreements.
Revenue Recognition
The Company's revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since manysome of the Company's leases will provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Percentage rents will beare recorded when earned and certain thresholds have been met.
The Company will continually reviewreviews receivables related to rent and unbilled rent receivables and determinedetermines collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event thatIf the collectability of a receivable is in doubt, the Company will recordrecords an increase in the Company's allowance for uncollectible accounts or recordrecords a direct write-off of the receivable after exhaustive efforts at collection.
Advertising Costs
Advertising costs incurred in the normal course of operations and are expensed as incurred. During the three and nine months ended September 30,March 31, 2019 and 2018, and 2017, the Company had no advertising costs.
Investments in Real Estate and Fixed Assets
Investments in real estate and fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are primarily 3 to 40 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).
The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.
Assets Held for Sale
The Company classifies a property as held for sale when all of the criteria set forth in ASC Topic 360: Property, Plant and Equipment ("ASC 360") have been met. The criteria are as follows: (i) management, having the authority to approve the action, commits to a plan to sell the property; (ii) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary; (iii) an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; (iv) the sale of the property is probable and is expected to be completed within one year; (v) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. At the time the Company classifies a property as held for sale, the Company ceases recording depreciation and amortization. A property classified as held for sale is measured and reported at the lower of the carrying amount or its estimated fair value less cost to sell.
Purchase Price Allocation
The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third parties or on the Company's analysis of comparable properties in the Company's portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable. The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into accountconsidering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company will includeincludes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized.
Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease.
The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on the Company's evaluation of the specific characteristics of each tenant's lease and the Company's overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of its existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.
The value of in-place leases is amortized to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, the Company will utilize a number ofseveral sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company will also consider information obtained about each property as a result of the Company's pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Organization, Offering and Related Costs
Certain organization and offering costs will bewere previously incurred by the Advisor. Pursuant to the terms of the Amended and Restated Advisory Agreement, the Company willdid not reimburse the Advisor for these out of pocket costs and future organization and offering costs it may incur.incurred. Such costs shall includeincluded legal, accounting, printing and other offering expenses, including marketing, and direct expenses of the Advisor's employees and employees of the Advisor's affiliates and others.
All direct offering costs incurred and or paid by the Company that are directly attributable to a proposed or actual offering, including sales commissions, if any, were charged against the gross proceeds of the Common Stock Offering and recorded as an offset to additional paid-in-capital. All indirect costs will bewere expensed as incurred.
Stock-Based Compensation
The Company has a stock-based incentive award plan, which is accounted for under the guidance for share based payments. The expense for such awards will be included in general and administrative expenses and is recognized overon the vesting periodmeasurement date which is generally the grant date of the award or when the requirements for exercise of the award have been met (See(See Note G — Stock-Based Compensation)Compensation).
Share Repurchase Program
On May 29, 2018, the Company's Board of Directors suspended the Share Repurchase Program, other than for hardship repurchases in connection with a shareholder's death or disability. Repurchase requests made in connection with the death or disability of a stockholder will be repurchased at a price per share equal to 100% of the amount the stockholder paid for each share, or once the Company has established an estimated NAV per share, 100% of such amount as determined by the Company's board of directors, subject to any special distributions previously made to the Company's stockholders.
On May 29, 2018, the Company established a NAV equal to $24.61 per common share.
Income Taxes
A full valuation allowance for deferred tax assets was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets should be recorded, and further whether any such assets would more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur. Because the Company is a REIT, it will generally not be subject to corporate level federal income taxes on earnings distributed to its stockholders and therefore may not realize any benefit from deferred tax assets arising during 2019 or any prior period in which a valid REIT election was in effect. The Company intends to distribute at least 100% of its taxable income annually and intends to do so for the technical merits. Basedtax year ending December 31, 2019 and in all future periods. The Company has placed a full valuation allowance on all of its deferred tax assets, and thus no asset is recorded on the Company's evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition on the financial statements. The net income tax provision for the year ended December 31, 2017 was approximately zero.balance sheet.
Per Share Data
The Company calculates basic income (loss) per share by dividing net income (loss) for the period by weighted-average shares of its common stock outstanding for the respective period. Diluted income per share takes into accountconsiders the effect of dilutive instruments, such as stock options and convertible stock, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. The Company had no outstanding common share equivalents during the three and nine months ended September 30, 2018March 31, 2019 and 2017.2018.
There is a potential for dilution from the Company's Series A Convertible Redeemable Preferred Stock which may be converted upon a holder's election into the Company's common stock at any time beginning upon the earlier of (i) 90 days after the occurrence of a listing event or (ii) the second anniversary of the final closing of the offering (whether or not a listing event has occurred).time. As of September 30, 2018,March 31, 2019, there were 2,862 shares of the Series A Convertible Redeemable Preferred Stock issued and outstanding. As of filing date, the Company has not received any requests to convert.
There is a potential for dilution from the Company's Series 1 Convertible Redeemable Preferred Stock which may be converted upon a holder's election into the Company's common stock at any time beginning upon the earlier of (i) 45 days after the occurrence of a listing event or (ii) April 7, 2019 (whether or not a listing event has occurred).time. As of September 30, 2018,March 31, 2019, there were 39,811 shares of the Series 1 Convertible Redeemable Preferred Stock issued and outstanding. As of filing date, the Company has not received any requests to convert.
Each share of Series A preferred stock and Series 1 preferred stock will convert into the number of shares of the Company's common stock determined by dividing (i) the stated value per Series A share or Series 1 share of $1,000 (as may be adjusted pursuant to the applicable articles supplementary) plus any accrued but unpaid dividends to, but not including, the conversion date by (ii) the conversion price. The conversion price is equal to 100% or, if the conversion notice is received on or prior to December 1, 2017 (for Series 1 shares) or on or prior to the day immediately preceding the first anniversary of the issuance of such share (for Series A shares), 110% of the volume weighted average price per share of the Company's common stock for the 20 trading days prior to the delivery date of the conversion notice; provided that if the Company's common stock is not then traded on a national securities exchange, the conversion price will be equal to the net asset value per share of the Company's common stock. The Company will have the right (but not the obligation) to redeem any Series A or Series 1 shares that are subject to a conversion notice on the terms set forth in the applicable articles supplementary.
There is also potential for dilution in the event that the Company completes the contemplated redemption of all the outstanding shares of the Series A preferred stock and Series 1 preferred stock and pays the entire redemption price in the form of shares of the Company's common stock, within 30 days after the completion of the listing of the Company's common stock on a national securities exchange in order to comply with the terms of its amended credit agreement, aagreement.s further described in "Management's Discussion And Analysis Of Financial Condition And Results Of Operations – Liquidity and Capital Resources."
Reportable Segments
The Company currently operates one reportable segment.
Reclassifications
Accounting and Auditing Standards Applicable to "Emerging Growth Companies"
The Company is an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). For as long as the Company remains an "emerging growth company," which may be up to five fiscal years, the Company is not required to (1) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies, (2) provide an auditor's attestation report on management's assessment of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (3) comply with any new requirements adopted by the Public Company Accounting Oversight Board (the "PCAOB"), requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer or (4) comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. The Company intends to take advantage of such extended transition period. Since the Company will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, the Company's financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If the Company were to subsequently elect to instead comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.
Non-controlling Interests
The FASB issued authoritative guidance for non-controlling interests in December 2007, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as an unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, the guidance requires consolidated net income to be reported at amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest.
Note C — Commitments and Contingencies
Environmental Matters
The Company believes that it complies, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Furthermore, as of March 31, 2019, the Company has not been notified by any governmental authority of any noncompliance, liability or other claim in connection with any of the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. Company's properties.
During the Company's predecessor's due diligence of a property purchased on December 15, 2017 (originally purchased by predecessor on March 31, 2015) and located in Milwaukee, it was discovered that the soil and ground water at the subject property had been impacted by the site's historical use as a printing press as well as neighboring property uses. As a result, the Company retained a local environmental engineer to seek a closure letter or similar certificate of no further action from the State of Wisconsin due to the Company's use of the property as a parking lot. As of September 30, 2018,March 31, 2019, management has not received the closure letter, however does not anticipate a material adverse effect related to this environmental matter.
As of September 30, 2018,March 31, 2019, the Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations. The Company, however, cannot predict the impact of any unforeseen environmental contingencies or new or changed laws or regulations on properties in which the Company holds an interest, or on properties that may be acquired directly or indirectly in the future.
Note D – Investments in Real Estate and Fixed Assets
As of September 30, 2018,March 31, 2019, the Company had the following Investments in Real Estate that were consolidated on the Company's balance sheet:
| Property Name | Location | Date Acquired | Property Type | # Spaces | Property Size (Acres) | Retail Sq. Ft | Investment Amount | Parking Tenant |
| MVP Cleveland West 9th (1) | Cleveland, OH | 5/11/2016 | Lot | 260 | 2 | N/A | $5,845,000 | SP + |
| 33740 Crown Colony (1) | Cleveland, OH | 5/17/2016 | Lot | 82 | 0.54 | N/A | $3,049,000 | SP + |
| MCI 1372 Street | Canton, OH | 7/8/2016 | Lot | 66 | 0.44 | N/A | $700,000 | ABM |
| MVP Cincinnati Race Street Garage | Cincinnati, OH | 7/8/2016 | Garage | 350 | 0.63 | N/A | $6,325,000 | SP + |
| MVP St. Louis Washington | St Louis, MO | 7/18/2016 | Lot | 63 | 0.39 | N/A | $3,007,000 | SP + |
| MVP St. Paul Holiday Garage | St Paul, MN | 8/12/2016 | Garage | 285 | 0.85 | N/A | $8,396,000 | Interstate Parking |
| MVP Louisville Station Broadway | Louisville, KY | 8/23/2016 | Lot | 165 | 1.25 | N/A | $3,107,000 | Riverside Parking |
| White Front Garage Partners | Nashville, TN | 9/30/2016 | Garage | 155 | 0.26 | N/A | $11,673,000 | Premier Parking |
| Cleveland Lincoln Garage Owners | Cleveland, OH | 10/19/2016 | Garage | 536 | 1.14 | 45,272 | $10,622,000 | SP + |
| MVP Houston Preston Lot | Houston, TX | 11/22/2016 | Lot | 46 | 0.23 | N/A | $2,820,000 | iPark Services |
| MVP Houston San Jacinto Lot | Houston, TX | 11/22/2016 | Lot | 85 | 0.65 | 240 | $3,250,000 | iPark Services |
| MVP Detroit Center Garage | Detroit, MI | 2/1/2017 | Garage | 1,275 | 1.28 | N/A | $55,476,000 | SP + |
| St. Louis Broadway | St Louis, MO | 5/6/2017 | Lot | 161 | 0.96 | N/A | $2,400,000 | St. Louis Parking |
| St. Louis Seventh & Cerre | St Louis, MO | 5/6/2017 | Lot | 174 | 1.06 | N/A | $3,300,000 | St. Louis Parking |
| MVP Preferred Parking (4) | Houston, TX | 8/1/2017 | Garage/Lot | 530 | 0.75 | 784 | $21,115,000 | iPark Services |
| MVP Raider Park Garage | Lubbock, TX | 11/21/2017 | Garage | 1,495 | 2.15 | 20,536 | $11,608,000 | ISOM Management |
| MVP PF Ft. Lauderdale (5) | Ft. Lauderdale, FL | 12/15/2017 | Lot | 66 | 0.75 | 4,017 | $3,423,000 | Lanier |
| MVP PF Memphis Court (5) | Memphis, TN | 12/15/2017 | Lot | 37 | 0.41 | N/A | $1,008,000 | Premium Parking |
| MVP PF Memphis Poplar (5) | Memphis, TN | 12/15/2017 | Lot | 125 | 0.86 | N/A | $3,735,000 | Premium Parking |
| MVP PF St. Louis | St Louis, MO | 12/15/2017 | Lot | 179 | 1.22 | N/A | $5,145,000 | SP + |
| Mabley Place Garage (2) | Cincinnati, OH | 12/15/2017 | Garage | 775 | 0.9 | 8,400 | $21,185,000 | SP + |
| MVP Denver Sherman | Denver, CO | 12/15/2017 | Lot | 28 | 0.14 | N/A | $705,000 | Denver School |
| MVP Fort Worth Taylor | Fort Worth, TX | 12/15/2017 | Garage | 1,013 | 1.18 | 11,828 | $27,663,000 | SP + |
| MVP Milwaukee Old World | Milwaukee, WI | 12/15/2017 | Lot | 54 | 0.26 | N/A | $2,044,000 | SP + |
| MVP Houston Saks Garage | Houston, TX | 12/15/2017 | Garage | 265 | 0.36 | 5,000 | $10,391,000 | iPark Services |
| MVP Milwaukee Wells | Milwaukee, WI | 12/15/2017 | Lot | 100 | 0.95 | N/A | $5,083,000 | TNSH, LLC |
| MVP Wildwood NJ Lot 1 (3) | Wildwood, NJ | 12/15/2017 | Lot | 29 | 0.26 | N/A | $545,000 | SP + |
| MVP Wildwood NJ Lot 2 (3) | Wildwood, NJ | 12/15/2017 | Lot | 45 | 0.31 | N/A | $686,000 | SP+ |
| MVP Indianapolis City Park | Indianapolis, IN | 12/15/2017 | Garage | 370 | 0.47 | N/A | $10,934,000 | ABM |
| MVP Indianapolis WA Street | Indianapolis, IN | 12/15/2017 | Lot | 141 | 1.07 | N/A | $5,749,000 | Denison |
| MVP Minneapolis Venture | Minneapolis, MN | 12/15/2017 | Lot | 201 | 2.48 | N/A | $4,012,000 | SP + |
| Minneapolis City Parking | Minneapolis, MN | 12/15/2017 | Lot | 268 | 1.98 | N/A | $9,838,000 | SP + |
| MVP Indianapolis Meridian | Indianapolis, IN | 12/15/2017 | Lot | 36 | 0.24 | N/A | $1,601,000 | Denison |
| MVP Milwaukee Clybourn | Milwaukee, WI | 12/15/2017 | Lot | 15 | 0.06 | N/A | $262,000 | Secure |
| MVP Milwaukee Arena Lot | Milwaukee, WI | 12/15/2017 | Lot | 75 | 1.11 | N/A | $4,631,000 | SP + |
| MVP Clarksburg Lot | Clarksburg, WV | 12/15/2017 | Lot | 94 | 0.81 | N/A | $715,000 | ABM |
| MVP Denver Sherman 1935 | Denver, CO | 12/15/2017 | Lot | 72 | 0.43 | N/A | $2,533,000 | SP + |
| MVP Bridgeport Fairfield | Bridgeport, CT | 12/15/2017 | Garage | 878 | 1.01 | 4,349 | $8,256,000 | SP + |
| MVP New Orleans Rampart | New Orleans, LA | 2/1/2018 | Lot | 78 | 0.44 | N/A | $8,105,000 | 342 N. Rampart |
| MVP Hawaii Marks Garage | Honolulu, HI | 6/21/2018 | Garage | 311 | 0.77 | 16,205 | $21,000,000 | SP + |
| Construction in progress | $1,433,000 | |||||||
| Total Investment in real estate | $313,375,000 | |||||||
| Property Name | Location | Date Acquired | Property Type | # Spaces | Property Size (Acres) | Retail Sq. Ft | Investment Amount | Parking Tenant |
| MVP Cleveland West 9th (1) | Cleveland, OH | 5/11/2016 | Lot | 260 | 2 | N/A | $5,840,000 | SP + |
| 33740 Crown Colony (1) | Cleveland, OH | 5/17/2016 | Lot | 82 | 0.54 | N/A | $3,050,000 | SP + |
| MVP San Jose 88 Garage | San Jose, CA | 6/15/2016 | Garage | 328 | 1.33 | N/A | $3,844,000 | Lanier |
| MCI 1372 Street | Canton, OH | 7/8/2016 | Lot | 66 | 0.44 | N/A | $700,000 | ABM |
| MVP Cincinnati Race Street Garage | Cincinnati, OH | 7/8/2016 | Garage | 350 | 0.63 | N/A | $5,558,000 | SP + |
| MVP St. Louis Washington | St Louis, MO | 7/18/2016 | Lot | 63 | 0.39 | N/A | $3,007,000 | SP + |
| MVP St. Paul Holiday Garage | St Paul, MN | 8/12/2016 | Garage | 285 | 0.85 | N/A | $8,396,000 | Interstate Parking |
| MVP Louisville Station Broadway | Louisville, KY | 8/23/2016 | Lot | 165 | 1.25 | N/A | $3,107,000 | Riverside Parking |
| White Front Garage Partners | Nashville, TN | 9/30/2016 | Garage | 155 | 0.26 | N/A | $11,672,000 | Premier Parking |
| Cleveland Lincoln Garage Owners | Cleveland, OH | 10/19/2016 | Garage | 536 | 1.14 | 45,272 | $7,406,000 | SP + |
| MVP Houston Preston Lot | Houston, TX | 11/22/2016 | Lot | 46 | 0.23 | N/A | $2,820,000 | iPark Services |
| MVP Houston San Jacinto Lot | Houston, TX | 11/22/2016 | Lot | 85 | 0.65 | 240 | $3,250,000 | iPark Services |
| MVP Detroit Center Garage | Detroit, MI | 2/1/2017 | Garage | 1,275 | 1.28 | N/A | $55,476,000 | SP + |
| St. Louis Broadway | St Louis, MO | 5/6/2017 | Lot | 161 | 0.96 | N/A | $2,400,000 | St. Louis Parking |
| St. Louis Seventh & Cerre | St Louis, MO | 5/6/2017 | Lot | 174 | 1.06 | N/A | $3,300,000 | St. Louis Parking |
| MVP Preferred Parking (4) | Houston, TX | 8/1/2017 | Garage/Lot | 530 | 0.75 | 784 | $21,109,000 | iPark Services |
| MVP Raider Park Garage | Lubbock, TX | 11/21/2017 | Garage | 1,495 | 2.15 | 20,536 | $11,030,000 | ISOM Management |
| MVP PF Ft. Lauderdale | Ft. Lauderdale, FL | 12/15/2017 | Lot | 66 | 0.75 | 4,017 | $3,423,000 | SP + |
| MVP PF Memphis Court | Memphis, TN | 12/15/2017 | Lot | 37 | 0.41 | N/A | $1,208,000 | SP + |
| MVP PF Memphis Poplar | Memphis, TN | 12/15/2017 | Lot | 125 | 0.86 | N/A | $3,735,000 | Best Park |
| MVP PF St. Louis | St Louis, MO | 12/15/2017 | Lot | 179 | 1.22 | N/A | $5,145,000 | SP + |
| Mabley Place Garage (2) | Cincinnati, OH | 12/15/2017 | Garage | 775 | 0.9 | 8,400 | $21,185,000 | SP + |
| MVP Denver Sherman | Denver, CO | 12/15/2017 | Lot | 28 | 0.14 | N/A | $705,000 | Denver School |
| MVP Fort Worth Taylor | Fort Worth, TX | 12/15/2017 | Garage | 1,013 | 1.18 | 11,828 | $27,663,000 | SP + |
| MVP Milwaukee Old World | Milwaukee, WI | 12/15/2017 | Lot | 54 | 0.26 | N/A | $2,044,000 | SP + |
| MVP Houston Saks Garage | Houston, TX | 12/15/2017 | Garage | 265 | 0.36 | 5,000 | $10,391,000 | iPark Services |
| MVP Milwaukee Wells | Milwaukee, WI | 12/15/2017 | Lot | 100 | 0.95 | N/A | $5,083,000 | Symphony |
| MVP Wildwood NJ Lot 1 (3) | Wildwood, NJ | 12/15/2017 | Lot | 29 | 0.26 | N/A | $745,000 | SP + |
| MVP Wildwood NJ Lot 2 (3) | Wildwood, NJ | 12/15/2017 | Lot | 45 | 0.31 | N/A | $886,000 | SP+ |
| MVP Indianapolis City Park | Indianapolis, IN | 12/15/2017 | Garage | 370 | 0.47 | N/A | $10,934,000 | ABM |
| MVP Indianapolis WA Street | Indianapolis, IN | 12/15/2017 | Lot | 141 | 1.07 | N/A | $5,749,000 | Denison |
| MVP Minneapolis Venture | Minneapolis, MN | 12/15/2017 | Lot | 201 | 2.48 | N/A | $4,012,000 | |
| Minneapolis City Parking | Minneapolis, MN | 12/15/2017 | Lot | 268 | 1.98 | N/A | $9,838,000 | SP + |
| MVP Indianapolis Meridian | Indianapolis, IN | 12/15/2017 | Lot | 36 | 0.24 | N/A | $1,601,000 | Denison |
| MVP Milwaukee Clybourn | Milwaukee, WI | 12/15/2017 | Lot | 15 | 0.06 | N/A | $262,000 | Secure |
| MVP Milwaukee Arena Lot | Milwaukee, WI | 12/15/2017 | Lot | 75 | 1.11 | N/A | $4,631,000 | SP + |
| MVP Clarksburg Lot | Clarksburg, WV | 12/15/2017 | Lot | 94 | 0.81 | N/A | $715,000 | ABM |
| MVP Denver Sherman 1935 | Denver, CO | 12/15/2017 | Lot | 72 | 0.43 | N/A | $2,533,000 | SP + |
| MVP Bridgeport Fairfield | Bridgeport, CT | 12/15/2017 | Garage | 878 | 1.01 | 4,349 | $8,256,000 | SP + |
| MVP New Orleans Rampart | New Orleans, LA | 2/1/2018 | Lot | 78 | 0.44 | N/A | $8,105,000 | 342 N. Rampart |
| MVP Hawaii Marks Garage | Honolulu, HI | 6/21/2018 | Garage | 311 | 0.77 | 16,205 | 20,834,000 | SP + |
| Construction in progress | $4,121,000 | |||||||
| Software | $63,000 | |||||||
| Total Investment in real estate and fixed assets | $315,832,000 | |||||||
| (1) | These properties are held by West |
| (2) | The Company holds an 83.3% undivided interest in the Mabley Place Garage pursuant to a tenancy-in-common agreement and is the Managing Co-Owner of the property. |
| (3) | These properties are held by MVP Wildwood NJ Lot, |
| (4) | MVP Preferred Parking, LLC holds a Garage and a Parking Lot. |
| (5) | These properties entered into new operating agreements during the three months ended March 31, 2019. For additional information see Rental Revenue, Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report. |
Note E — Related Party Transactions and Arrangements
The transactions described in this Note were approved by a majority of the Company's board of directors (including a majority of the independent directors) not otherwise interested in such transactiontransactions as fair and reasonable to the Company and on terms and conditions no less favorable to the Company than those available from unaffiliated third parties.
Prior to the Internalization, the Advisor had the option to request reimbursement of certain payroll expenses for salaries and benefits paid to non-executive officers. As of March 31, 2019, the Advisor was due approximately $0.6 million in reimbursable expenses, the balance of which has been paid as of the date of this filing.
Ownership of Company Stock
Ownership of the Advisor
VRM I and VRM II own 40% and 60%, respectively, of the Advisor. Neither VRM I nor VRM II paid any up-front consideration for these ownership interests, but each agreed to be responsible for its proportionate share of future expenses of the Advisor. The operating agreement of the Advisor provides that once VRM I and VRM II have been repaid in full for any capital contributions to the Advisor or for any expenses advanced on the Advisor's behalf, or capital investment, and once they have received an annualized return on their capital investment of 7.5%, then Michael Shustek will receive 40% of the net profits of the Advisor. Michael Shustek has waived his rights to receive the 40% net profits of the Advisor
Fees Paid in Connection with the Operations of the Company
The Company was to reimburse the Advisor or its affiliates for costs of providing administrative services, subject to the limitation that it will not reimburse the Advisor for any amount by which the Company's operating expenses, at the end of the four preceding fiscal quarters (commencing after the quarter in which the Company made its first investment), exceed the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income in connection with the selection or acquisition of an investment, whether or not the Company ultimately acquires, unless the excess amount is approved by a majority of the Company's independent directors. The Company was not to reimburse the Advisor for personnel costs in connection with services for which the Advisor received a separate fee, such as an acquisition fee, disposition fee or debt financing fee, or for the salaries and benefits paid to the Company's executive officers. In addition, the Company was not to reimburse the Advisor for rent or depreciation, utilities, capital equipment or other costs of its own administrative items. During the three and nine months ended September 30, 2018,March 31, 2019, approximately $0.5 and $2.0$1.4 million respectively, in operating expenses were incurred by the Advisor, on behalf of the Company, reimbursable to the Advisor. During the Advisorthree and nine months ended September 30, 2017 no operating expenses of which approximately $0.9 million had been reimbursed to the Advisor.reimbursed.
On September 21, 2018, we entered into a Third Amended and Restated Advisory Agreement withApril 1, 2019, the Advisor. The Third Amended Advisory Agreement will become effective and replaceCompany completed the existing advisory agreement upon the listinginternalization of the shares of our common stock on The Nasdaq Global Market. For more information, please see "Management's Discussion And Analysis Of Financial Condition And Results Of Operationsits management function (See Note O – Overview" below. The Third Amended and Restated Advisory Agreement is filed as an exhibit to the Company's Current Report on Form 8-K filed with the SEC on September 26, 2018.
Note F — Economic Dependency
As a result of these relationships, prior to the Internalization, the Company iswas dependent upon the Advisor and its affiliates. In the event that these companies are unable to provide the Company with the respective services, the Company may be required to find alternative providers of these services.
Note G — Stock-Based Compensation
Long-Term Incentive Plan
The Company's board of directors has adopted a long-term incentive plan (the "2015 LTIP") which the Company may use to attract and retain qualified directors, officers, employees and consultants. The Company's long-term incentive plan2015 LTIP will offer these individuals an opportunity to participate in the Company's growth through awards in the form of, or based on, the Company's common stock. The Company currently anticipates that it will not issue awards under the Company's long-term incentive plan, although it may do so in the future, including possible equity grants to the Company's independent directors as a form of compensation.
The long-term incentive plan2015 LTIP authorizes the granting of restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, dividend equivalents, other stock-based awards and cash-based awards to directors, officers, employees and consultants of the Company and the Company's affiliates and subsidiaries selected by the board of directors for participation in the Company's long-term incentive plan.2015 LTIP. Stock options granted under the long-term incentive plan will not exceed an amount equal to 10% of the outstanding shares of the Company's common stock on the date of grant of any such stock options. Stock options may not have an exercise price that is less than the fair market value of a share of the Company's common stock on the date of grant.
The Company's board of directors or athe compensation committee appointed by its board of directorsthereof will administer the long-term incentive plan,2015 LTIP, with sole authority to determine all of the terms and conditions of the awards, including whether the grant, vesting or settlement of awards may be subject to the attainment of one or more performance goals. No awards will be granted under the long-term incentive plan2015 LTIP if the grant or vesting of the awards would jeopardize the Company's status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under its charter. Unless otherwise determined by the Company's board of directors, no award granted under the long-term incentive plan2015 LTIP will be transferable except through the laws of descent and distribution.
The Company has authorized and reserved an aggregate maximum number of 500,000 common shares for issuance under the long-term incentive plan.2015 LTIP. In the event of a transaction between the Company and its stockholders that causes the per-share value of the Company's common stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the share authorization limits under the long-term incentive plan2015 LTIP will be adjusted proportionately and the board of directors will make such adjustments to the long-term incentive plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. In the event of a stock split, a stock dividend or a combination or consolidation of the outstanding shares of common stock into a lesser number of shares, the authorization limits under the long-term incentive plan2015 LTIP will automatically be adjusted proportionately and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price.
The Company's board of directors or the compensation committee may in its sole discretion at any time determine that all or a portion of a participant's awards will become fully vested. The board or the compensation committee may discriminate among participants or among awards in exercising such discretion. The long-term incentive plan will automatically expire on the tenth anniversary of the date on which it is approved by the board of directors and stockholders, unless extended or earlier terminated by the board of directors. The Company's board of directors or the compensation committee may terminate the long-term incentive plan2015 LTIP at any time. The expiration or other termination of the long-term incentive plan2015 LTIP will not, without the participant's consent, have an adverse impact on any award that is outstanding at the time the long-term incentive plan2015 LTIP expires or is terminated. The board of directors or the compensation committee may amend the long-term incentive plan2015 LTIP at any time, but no amendment will adversely affect any award without the participant's consent and no amendment to the long-term incentive plan2015 LTIP will be effective without the approval of the Company's stockholders if such approval is required by any law, regulation or rule applicable to the long-term incentive plan.2015 LTIP. During the three and nine months ended September 30,March 31, 2019 and the year ended December 31, 2018, and 2017, no grants have beenwere made under the long-term incentive plan.
Note H – Recent Accounting Pronouncements
In May 2014, Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), an updated standard on revenue recognition. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The standard requires expanded disclosure surrounding revenue recognition. Early application is not permitted. The standard was initially to be effective for fiscal periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Deferral of Effective Date, which delays the effective date of ASU 2014-09 by one year to fiscal periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and the effective date is the same as requirements in ASU 2015-14. The Company adopted ASU 2014-09 using the modified retrospective transition method in the first quarter of 2018 and such adoption did not have a material impact on the Company's condensed consolidated financial statements. The adoption of this standard did not require any adjustments to the opening balance of retained earnings as of January 1, 2018.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with changes in fair value recognized in net income. The ASU also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet has been eliminated by this ASU. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU 2016-01 in the first quarter of 2018 and such adoption did not have a material impact on the Company's condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases – (Topic 842). This update will require lessees to recognize all leases with terms greater than 12 months on their balance sheet as lease liabilities with a corresponding right-of-use asset. This update maintains the dual model for lease accounting, requiring leases to be classified as either operating or finance, with lease classification determined in a manner similar to existing lease guidance. The basic principle is that leases of all types convey the right to direct the use and obtain substantially all the economic benefits of an identified asset, meaning they create an asset and liability for lessees. Lessees will classify leases as either finance leases (comparable to current capital leases) or operating leases (comparable to current operating leases). Costs for a finance lease will be split between amortization and interest expense, with a single lease expense reported for operating leases. This update also will require both qualitative and quantitative disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; however, early adoption is permitted. The Company has determined that the provisions of ASU 2016-02 may result in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities for leases.leases in the future however the Company was not a lessee on any lease agreements at March 31, 2019. The Company adopted ASU 2014-092016-02 in the first quarter of 2019 and such adoption did not have a material impact on the Company's condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-13 will have on the Company's condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statements of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The standard permits the use of either the retrospective or cumulative effect transition method. This update will become effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-18 in the first quarter of 2018 and such adoption had no material impact on the Company's condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This update will become effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company adopted ASU 2016-18 beginning in the first quarter of 2018. The effect of ASU 2017-01 on the Company's condensed consolidated financial statements is dependent upon the value and quantity of acquisitions during the year.
In May 2017, the FASB issued Accounting Standards Update ASU 2017-09, Compensation-Stock Compensation: Scope of Stock Compensation Modification Accounting. The ASU was issued to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted, including adoption in any interim period. The Company adopted ASU 2017-09 in the first quarter of 2018 and such adoption did not have a material impact on the Company's condensed consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of ASU 2017-12 is to expand hedge accounting for both financial (interest rate) and commodity risks and create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. ASU 2017-12 will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods in the year of adoption. Early adoption is permitted for any interim or annual period. The Company adopted ASU 2017-12 in the first quarter of 2018 and such adoption did not have a material impact on the Company's condensed consolidated financial statements.
Note I – Acquisitions
| Property | Location | Date Acquired | Property Type | # Spaces | Size / Acreage | Retail Sq. Ft. | Property Purchase Price |
| MVP New Orleans Rampart, LLC | New Orleans, LA | 2/1/2018 | Lot | 78 | 0.44 | N/A | $8,105,000 |
| MVP Hawaii Marks Garage, LLC | Honolulu, HI | 6/21/2018 | Garage | 311 | 0.77 | 16,205 | $20,832,000 |
| Assets | ||||||||||||
| Land and Improvements | Building and improvements | Total assets acquired | ||||||||||
| MVP New Orleans | $ | 8,105,000 | $ | -- | $ | 8,105,000 | * | |||||
| MVP Hawaii Marks Garage | $ | 9,117,000 | $ | 11,715,000 | $ | 20,832,000 | * | |||||
For the Three Months Ended September 30, 2018 | For the Nine Months Ended September 30, 2018 | |||||||||||||||
| Total Revenues | Net Income | Total Revenues | Net Income | |||||||||||||
| 2018 acquisitions | $ | 479,000 | $ | 302,000 | $ | 747,000 | $ | 558,000 | ||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues from continuing operations | $ | 6,002,000 | $ | 2,599,000 | $ | 16,780,000 | $ | 7,911,000 | ||||||||
| Net income (loss) from continuing operations | $ | 1,012,000 | $ | (36,000 | ) | $ | (2,613,000 | ) | $ | (3,815,000 | ) | |||||
| Net income (loss) from continuing operations per share – basic | $ | 0.15 | $ | (0.01 | ) | $ | (0.40 | ) | $ | (1.52 | ) | |||||
| Net income (loss) from continuing operations per share – diluted | $ | 0.15 | $ | (0.01 | ) | $ | (0.40 | ) | $ | (1.52 | ) | |||||
The following is summary of net assets held for sale portion is approximately $2.5 million. The remaining portionas of the property will be reported as held for use.March 31, 2019:
| March 31, 2019 | ||||
| Assets: | ||||
| Current assets | $ | 22,000 | ||
| Property and equipment, net of accumulated depreciation | 3,632,000 | |||
| Total assets | $ | 3,654,000 | ||
| Liabilities: | ||||
| Accounts payable and accrued liabilities | $ | 226,000 | ||
| Notes payable, net of unamortized loan fees of $1,000 | 2,499,000 | |||
| Total liabilities | 2,725,000 | |||
| Net assets held for sale | $ | 929,000 | ||
The following is a summary of the results of operations related to the assets held for sale for the three and nine months ended September 30,March 31, 2019 and 2018:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenue | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||
| Expenses | 63,000 | 68,000 | 213,000 | 211,000 | ||||||||||||
| Loss from assets held for sale, net of income taxes | $ | (63,000 | ) | $ | (68,000 | ) | $ | (213,000 | ) | $ | (211,000 | ) | ||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Three Months Ended March 31, | ||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2019 | 2018 | |||||||||||||||||||
| Revenue | $ | 5,000 | $ | 99,000 | $ | 309,000 | $ | 368,000 | $ | 113,000 | $ | 136,000 | ||||||||||||
| Expenses | (2,000 | ) | (30,000 | ) | (52,000 | ) | (106,000 | ) | (134,000 | ) | (103,000 | ) | ||||||||||||
| Income from disposed assets, net of income taxes | $ | 3,000 | $ | 69,000 | $ | 257,000 | $ | 262,000 | ||||||||||||||||
| Income/(Loss) from assets held for sale, net of income taxes | $ | (21,000 | ) | $ | 33,000 | |||||||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenue | $ | 13,000 | $ | 46,000 | $ | 107,000 | $ | 138,000 | ||||||||
| Expenses | (5,000 | ) | (6,000 | ) | (24,000 | ) | (18,000 | ) | ||||||||
| Income from disposed assets, net of income taxes | $ | 8,000 | $ | 40,000 | $ | 83,000 | $ | 120,000 | ||||||||
Note L — Line of Credit
As of September 30, 2018,March 31, 2019, the principal balances on notes payable are as follows:
| Property | Original Debt Amount | Monthly Payment | Balance as of 9/30/2018 | Lender | Term | Interest Rate | Loan Maturity |
West 9th Properties II, LLC | $5,300,000 | $30,000 | $5,070,000 | American National Insurance Co. | 10 year | 4.50% | 11/1/2026 |
| MVP Detroit Center Garage, LLC | $31,500,000 | $194,000 | $30,512,000 | Bank of America | 10 year | 5.52% | 2/1/2027 |
| MVP San Jose 88 Garage | $1,645,000 | Interest Only | $1,645,000 | Multiple | 1 Year | 7.50% | 6/3/2019 |
| MVP Cincinnati Race St. | $2,550,000 | Interest Only | $2,550,000 | Multiple | 1 Year | 7.50% | 3/25/2019 |
| MVP St Louis Washington, LLC (1) | $1,380,000 | Interest Only | $1,380,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| St Paul Holiday Garage, LLC (1) | $4,132,000 | Interest Only | $4,132,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| Cleveland Lincoln Garage, LLC (1) | $3,998,000 | Interest Only | $3,998,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| MVP Louisville Broadway Station, LLC (2) | $1,682,000 | Interest Only | $1,682,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Whitefront Garage, LLC (2) | $6,454,000 | Interest Only | $6,454,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Houston Preston Lot, LLC (2) | $1,627,000 | Interest Only | $1,627,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Houston San Jacinto Lot, LLC (2) | $1,820,000 | Interest Only | $1,820,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| St. Louis Broadway, LLC (2) | $1,671,000 | Interest Only | $1,671,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| St. Louis Seventh & Cerre, LLC (2) | $2,057,000 | Interest Only | $2,057,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Preferred Parking, LLC | $11,330,000 | Interest Only | $11,330,000 | Key Bank | 10 year ** | 5.02% | 8/1/2027 |
| Ft. Lauderdale loan pool (3) | $4,300,000 | $25,000 | $3,857,000 | KeyBank | 5 Year | 4.94% | 2/1/2019 |
| Mabley Place | $9,000,000 | $44,000 | $8,404,000 | Barclays | 10 year | 4.25% | 12/6/2024 |
| Denver Sherman (1) | $286,000 | Interest Only | $286,000 | KeyBank | 10 year ** | 4.90% | 5/1/2027 |
| Ft. Worth | $13,150,000 | $73,000 | $12,606,000 | American National Insurance, of NY | 10 year | 4.50% | 12/1/2026 |
| Houston Saks Garage | $3,650,000 | $20,000 | $3,380,000 | Barclays Bank PLC | 10 year | 4.25% | 8/6/2025 |
| MVP Wildwood | $1,000,000 | Interest Only | $1,000,000 | Tigges Construction Co. | 1 Year | 7.50% | 4/1/2019 |
| Indianapolis Meridian (2) | $938,000 | Interest Only | $938,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Milwaukee Arena Lot, LLC (1) | $2,142,000 | Interest Only | $2,142,000 | KeyBank | 10 year ** | 4.90% | 5/1/2027 |
| MVP Denver Sherman 1935, LLC (1) | $762,000 | Interest Only | $762,000 | KeyBank | 10 year ** | 4.90% | 5/1/2027 |
| Minneapolis City Parking | $5,250,000 | $29,000 | $4,960,000 | American National Insurance, of NY | 10 year | 4.50% | 5/1/2026 |
| Bridgeport Fairfield | $4,400,000 | $23,000 | $4,168,000 | FBL Financial Group, Inc. | 10 year | 4.00% | 8/1/2026 |
| The Parking REIT D&O Insurance | $390,000 | $28,000 | $118,000 | First Insurance Funding | 1 Year | 3.70% | 4/3/2019 |
| Less unamortized loan issuance costs | $(1,467,000) | ||||||
| $117,082,000 |
| Property | Original Debt Amount | Monthly Payment | Balance as of 3/31/2019 | Lender | Term | Interest Rate | Loan Maturity |
| MVP Memphis Poplar (3) | $1,800,000 | Interest Only | $1,800,000 | LoanCore | 5 Year | 5.38% | 3/6/2024 |
| MVP St Louis (3) | $3,700,000 | Interest Only | $3,700,000 | LoanCore | 5 Year | 5.38% | 3/6/2024 |
| MVP Cincinnati Race Street, LLC | $2,550,000 | Interest Only | $2,550,000 | Multiple | 1 Year | 7.50% | 10/29/2019 |
| MVP Wildwood NJ Lot, LLC | $1,000,000 | Interest Only | $1,000,000 | Tigges Construction Co. | 1 Year | 7.50% | 10/29/2019 |
| MVP San Jose 88 Garage, LLC | $1,645,000 | Interest Only | $2,500,000 | Multiple | 1 Year | 7.50% | 6/3/2019 |
| MVP Raider Park Garage, LLC (4) | $7,400,000 | Interest Only | $7,400,000 | LoanCore | 2 Year | Variable | 12/9/2020 |
| MVP New Orleans Rampart, LLC (4) | $5,300,000 | Interest Only | $5,300,000 | LoanCore | 2 Year | Variable | 12/9/2020 |
| MVP Hawaii Marks Garage, LLC (4) | $13,500,000 | Interest Only | $13,500,000 | LoanCore | 2 Year | Variable | 12/9/2020 |
| MVP Milwaukee Wells, LLC (4) | $2,700,000 | Interest Only | $2,700,000 | LoanCore | 2 Year | Variable | 12/9/2020 |
| MVP Indianapolis City Park, LLC (4) | $7,200,000 | Interest Only | $7,200,000 | LoanCore | 2 Year | Variable | 12/9/2020 |
| MVP Indianapolis WA Street, LLC (4) | $3,400,000 | Interest Only | $3,400,000 | LoanCore | 2 Year | Variable | 12/9/2020 |
| Mabley Place Garage, LLC | $9,000,000 | $44,000 | $8,318,000 | Barclays | 10 year | 4.25% | 12/6/2024 |
| MVP Houston Saks Garage, LLC | $3,650,000 | $20,000 | $3,333,000 | Barclays Bank PLC | 10 year | 4.25% | 8/6/2025 |
| Minneapolis City Parking, LLC | $5,250,000 | $29,000 | $4,896,000 | American National Insurance, of NY | 10 year | 4.50% | 5/1/2026 |
| MVP Bridgeport Fairfield Garage, LLC | $4,400,000 | $23,000 | $4,112,000 | FBL Financial Group, Inc. | 10 year | 4.00% | 8/1/2026 |
West 9th Properties II, LLC | $5,300,000 | $30,000 | $5,007,000 | American National Insurance Co. | 10 year | 4.50% | 11/1/2026 |
| MVP Fort Worth Taylor, LLC | $13,150,000 | $73,000 | $12,449,000 | American National Insurance, of NY | 10 year | 4.50% | 12/1/2026 |
| MVP Detroit Center Garage, LLC | $31,500,000 | $194,000 | $30,197,000 | Bank of America | 10 year | 5.52% | 2/1/2027 |
| MVP St Louis Washington, LLC (1) | $1,380,000 | Interest Only | $1,380,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| St Paul Holiday Garage, LLC (1) | $4,132,000 | Interest Only | $4,132,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| Cleveland Lincoln Garage, LLC (1) | $3,999,000 | Interest Only | $3,999,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| MVP Denver Sherman, LLC (1) | $286,000 | Interest Only | $286,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| MVP Milwaukee Arena Lot, LLC (1) | $2,142,000 | Interest Only | $2,142,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| MVP Denver Sherman 1935, LLC (1) | $762,000 | Interest Only | $762,000 | KeyBank | 10 year * | 4.90% | 5/1/2027 |
| MVP Louisville Broadway Station, LLC (2) | $1,682,000 | Interest Only | $1,682,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Whitefront Garage, LLC (2) | $6,454,000 | Interest Only | $6,454,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Houston Preston Lot, LLC (2) | $1,627,000 | Interest Only | $1,627,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Houston San Jacinto Lot, LLC (2) | $1,820,000 | Interest Only | $1,820,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| St. Louis Broadway, LLC (2) | $1,671,000 | Interest Only | $1,671,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| St. Louis Seventh & Cerre, LLC (2) | $2,057,000 | Interest Only | $2,057,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Indianapolis Meridian Lot, LLC (2) | $938,000 | Interest Only | $938,000 | Cantor Commercial Real Estate | 10 year ** | 5.03% | 5/6/2027 |
| MVP Preferred Parking, LLC | $11,330,000 | Interest Only | $11,330,000 | Key Bank | 10 year ** | 5.02% | 8/1/2027 |
| Less unamortized loan issuance costs | ($2,474,000) | ||||||
| $157,168,000 |
| (1) | The Company issued a promissory note to KeyBank for $12.7 million secured by a pool of properties, including (i) MVP Denver Sherman, LLC, (ii) MVP Denver Sherman 1935, LLC, (iii) MVP Milwaukee Arena, LLC, (iv) MVP St. Louis Washington, LLC, (v) St Paul Holiday Garage, LLC and (vi) Cleveland Lincoln Garage Owners, LLC. |
| (2) | The Company issued a promissory note to Cantor Commercial Real Estate Lending, L.P. ("CCRE") for $16.25 million secured by a pool of properties, including (i) MVP Indianapolis Meridian Lot, LLC, (ii) MVP Louisville Station Broadway, LLC, (iii) MVP White Front Garage Partners, LLC, (iv) MVP Houston Preston Lot, LLC, (v) MVP Houston San Jacinto Lot, LLC, (vi) St. Louis Broadway Group, LLC, and (vii) St. Louis Seventh & Cerre, LLC. |
| (3) | On February 8, 2019, subsidiaries of the Company, consisting of MVP PF St. Louis 2013, LLC ("MVP St. Louis"), and MVP PF Memphis Poplar 2013 ("MVP Memphis Poplar"), LLC entered into a loan agreement, dated as of February 8, 2019, with LoanCore Capital Credit REIT LLC ("LoanCore"). Under the terms of the Loan Agreement, LoanCore agreed to loan MVP St. Louis and MVP Memphis Poplar $5.5 million to repay and discharge the outstanding KeyBank loan agreement. The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by MVP St. Louis and MVP Memphis Poplar. |
| (4) | On November 30, 2018, subsidiaries of the Company, consisting of MVP Hawaii Marks Garage, LLC, MVP Indianapolis City Park Garage, LLC, MVP Indianapolis Washington Street Lot, LLC, MVP New Orleans Rampart, LLC, MVP Raider Park Garage, LLC, and MVP Milwaukee Wells LLC (the "Borrowers") entered into a loan agreement, dated as of November 30, 2018 (the "Loan Agreement"), with LoanCore Capital Credit REIT LLC (the "LoanCore"). Under the terms of the Loan Agreement, LoanCore agreed to loan the Borrowers $39.5 million to repay and discharge the outstanding KeyBank Revolving Credit Facility. The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by the Borrowers (the "Properties"). The loan bears interest at a floating rate equal to the sum of one-month LIBOR plus 3.65%, subject to a LIBOR minimum of 1.95%. Additionally, the Borrowers were required to purchase an Interest Rate Protection Agreement which caps its maximum LIBOR at 3.50% for the duration of the loan. Payments are interest-only for the duration of the loan, with the $39.5 million principal repayment due in a balloon payment due on December 9, 2020, with an option to extend the term until December 9, 2021 subject to certain conditions and payment obligations. The Borrowers have the right to prepay all or any part of the loan, subject to payment of any applicable Spread Maintenance Premium and Exit Fee (as defined in the Loan Agreement). The loan is also subject to mandatory prepayment upon certain events of Insured Casualty or Condemnation (as defined in the Loan Agreement). The Borrowers made customary representations and warranties to LoanCore and agreed to maintain certain covenants under the Loan Agreement, including but not limited to, covenants involving their existence; property taxes and other charges; access to properties, repairs, maintenance and alterations; performance of other agreements; environmental matters; title to properties; leases; estoppel statements; management of the Properties; special purpose bankruptcy remote entity status; change in business or operation of the Properties; debt cancellation; affiliate transactions; indebtedness of the Borrowers limited to Permitted Indebtedness (as defined in the Loan Agreement); ground lease reserve relating to MVP New Orleans' Property; property cash flow allocation; liens on the Properties; ERISA matters; approval of major contracts; payments upon a sale of a Property; and insurance, notice and reporting obligations as set forth in the loan agreement. The Loan Agreement contains customary events of default and indemnification obligations. The loan proceeds were used to repay and discharge the KeyBank Credit Agreement, dated as of December 29, 2017, as amended, per the terms outlined in the third amendment to the Credit Agreement dated September 28, 2018, as previously filed on Form 8-K on October 2, 2018 and incorporated herein by reference. |
* 2 Year Interest Only
** 10 Year Interest Only
The following table shows notes payable that had been paid in full during the three months ended March 31, 2019.
Property | Original Debt Amount | Monthly Payment | Balance as of 3/31/2019 | Lender | Term | Interest Rate | Loan Maturity | |
| MVP PF Ft. Lauderdale 2013, LLC (1) | $4,300,000 | $25,000 | -- | Key Bank | 5 Year | 4.94% | 2/1/2019 | |
| The Parking REIT D&O Insurance | $390,000 | $28,000 | -- | First Insurance Funding | 1 Year | 3.70% | 4/3/2019 |
| (1) | Secured by four properties, including (i) MVP PF Ft. Lauderdale 2013, LLC, (ii) MVP PF Memphis Court 2013, LLC, (iii) MVP PF Memphis Poplar 2013, LLC and (iv) MVP PF St. Louis 2013, |
| Property | Original Debt Amount | Monthly Payment | Balance as of 6/30/18 | Lender | Term | Interest Rate | Loan Maturity |
| St. Louis Lucas (1)(3) | $3,490,000 | $20,000 | -- | Key Bank | 10 year | 4.59% | 2/1/2026 |
| Indianapolis Garage (2)(3) | $8,200,000 | $46,000 | -- | Key Bank | 10 year | 4.59% | 2/1/2026 |
Total interest expense incurred for the ninethree months ended September 30,March 31, 2019 and 2018, was approximately $5.7 million.$2.1 million and $1.8 million, respectively. Total loan amortization cost for the ninethree months ended September 30,March 31, 2019 and 2018, was approximately $0.6 million.$0.2 million and $0.1 million, respectively.
| 2018 | $ | 539,000 | ||
| 2019 | 10,804,000 | |||
| 2020 | 1,954,000 | |||
| 2021 | 2,058,000 | |||
| 2022 | 2,252,000 | |||
| Thereafter | 100,942,000 | |||
| Less unamortized loan issuance costs | (1,467,000 | ) | ||
| Total | $ | 117,082,000 |
As of March 31, 2019, future principal payments on the note's payable are as follows:
| 2019 | $ | 7,429,000 |
| 2020 | 41,454,000 | |
| 2021 | 2,781,000 | |
| 2022 | 3,266,000 | |
| 2023 | 3,571,000 | |
| Thereafter | 101,141,000 | |
| Less unamortized loan issuance costs | (2,474,000) | |
| Total | $ | 157,168,000 |
Note NK — Fair Value
A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:
| 1. | Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| 2. | Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable. |
| 3. | Level 3 – Model-derived valuations with unobservable inputs. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value.
Assets and liabilities measured at fair value levelLevel 3 on a non-recurring basis may include Assets Held for Sale.
Note OL – Investment In DST
On May 31, 2017, the Company, through a wholly-owned subsidiary of its Operating Partnership, purchased a 51.0% beneficial interest in MVP St. Louis Cardinal Lot, DST, a Delaware statutory trustStatutory Trust ("MVP St. Louis"), for approximately $2.8 million. MVP St. Louis is the owner of a 2.56-acre, 376-vehicle commercial parking lot located at 500 South Broadway, St. Louis, Missouri 63103, known as the Cardinal Lot (the "Property"), which is adjacent to Busch Stadium, the home of the St. Louis Cardinals major league baseball team. The Property was purchased by MVP St. Louis from an unaffiliated seller for a purchase price of $11,350,000, plus payment of closing costs, financing costs, and related transactional costs.
Concurrently with the acquisition of the Property, MVP St. Louis obtained a first mortgage loan from Cantor Commercial Real Estate Lending, L.P ("St. Louis Lender"), in the principal amount of $6,000,000, with a 10-year, interest-only term at a fixed interest rate of 5.25%, per annum, resulting in an annual debt service payment of $315,000 (the "St. Louis Loan"). MVP St. Louis used the Company's investment to fund a portion of the purchase price for the Property. The remaining equity portion was funded through short-term investments by VRM II, an affiliate of the Advisor, pending the private placements of additional beneficial interest in MVP St. Louis exempt from registration under the Securities Act. VRM II and Michael V. Shustek, the Company's Chairman and Chief Executive Officer, provided non-recourse carveout guaranties of the loan and environmental indemnities of St. Louis Lender.
Also, concurrently with the acquisition of the Property, MVP St. Louis, as landlord, entered into a 10-year master lease (the "St. Louis Master Lease"), with MVP St. Louis Cardinal Lot Master Tenant, LLC, an affiliate of MVP Realty, as tenant, (the "St. Louis Master Tenant"). St. Louis Master Tenant, in turn, concurrently entered into a 10-year sublease with Premier Parking of Missouri, LLC. The St. Louis Master Lease provides for annual rent payable monthly to MVP St. Louis, consisting of base rent in an amount to pay debt service on the St. Louis Loan, stated rent of $414,000 and potential bonus rent equal to a share of the revenues payable under the sublease in excess of a threshold. The Company will be entitled to its proportionate share of the rent payments based on its ownership interest. Under the St. Louis Master Lease, MVP St. Louis is responsible for capital expenditures and the St. Louis Master Tenant is responsible for taxes, insurance and operating expenses. DistributionsInvestment income earned was distributed to the Company for the three and nine months ended September 30,March 31, 2019 and 2018 and totaled approximately $70,000 and $52,000, and $154,000, respectively.respectively for each period.
The Company conducted an analysis to concludeand concluded that the 51% investment in the DST should not be consolidated. As a DST, the entity is subject to the Variable Interest Entity ("VIE") Model under ASC 810-10.
As stated in ASC 810: "A controlling financial interest in the VIE model requires both of the following:
a. The power to direct the activities that most significantly impact the VIE's economic performance
b. The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE."
As a VIE, the DST is governed in a manner similar to a limited partnership (i.e., there are trustees and there is no board) and the Company, as a beneficial owner, lacks the power thoughthrough voting rights or otherwise to direct the activities of the DST that most significantly impact the entity's economic performance. Specifically, the beneficial interest owners do not have the rights set forth in ASC 810-10-15-14(b)(1)(ii) – the beneficial owners can only remove the trustees if the trustees have engaged in fraud or gross negligence with respect to the trust and the beneficial owners have no substantive participating rights over the trustees.
The Advisor is the advisor to the Company pursuant to the Amended and Restated Advisory Agreement. The Company is controlled by its independent board of directors and its shareholders. As noted in the Amended and Restated Advisory Agreement, the agreement is effective for one year to be renewed for an unlimited number of successive one-year terms, as approved by the board of directors. The Amended and Restated Advisory Agreement may be terminated by the board of directors at any time upon a written 60-day notice.
Summarized Balance Sheets—Unconsolidated Real Estate Affiliates—Equity Method Investments
| September 30, 2018 | March 31, 2019 | December 31, 2018 | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| ASSETS | ASSETS | ASSETS | ||||||||||
| Investments in real estate and fixed assets | $ | 11,512,000 | $ | 11,512,000 | $ | 11,512,000 | ||||||
| Cash | 30,000 | 30,000 | 32,000 | |||||||||
| Cash – restricted | 13,000 | 17,000 | 15,000 | |||||||||
| Accounts receivable | -- | 141,000 | ||||||||||
| Prepaid expenses | 2,000 | 6,000 | 8,000 | |||||||||
| Total assets | $ | 11,557,000 | $ | 11,565,000 | $ | 11,708,000 | ||||||
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | ||||||||||
| Liabilities | ||||||||||||
| Notes payable, net of unamortized loan issuance cost of $57,196 | $ | 5,943,000 | ||||||||||
| Notes payable, net of unamortized loan issuance costs of approximately $53,000 as of the three months ended March 31, 2019 and $62,000 as of the year ended December 31, 2018. | $ | 5,948,000 | $ | 5,945,000 | ||||||||
| Accounts payable and accrued liabilities | 61,000 | 62,000 | 63,000 | |||||||||
| Due to related party | 25,000 | 45,000 | 181,000 | |||||||||
| Total liabilities | 6,029,000 | 6,055,000 | 6,189,000 | |||||||||
| Equity | ||||||||||||
| Member's equity | 6,129,000 | 6,129,000 | 6,129,000 | |||||||||
| Offering costs | (574,000 | ) | (574,000 | ) | (574,000 | ) | ||||||
| Accumulated earnings | 514,000 | 700,000 | 606,000 | |||||||||
| Distributions to members | (541,000 | ) | (745,000 | ) | (642,000 | ) | ||||||
| Total equity | 5,528,000 | 5,510,000 | 5,519,000 | |||||||||
| Total liabilities and equity | $ | 11,557,000 | $ | 11,565,000 | $ | 11,708,000 | ||||||
Summarized Statements of Operations—Unconsolidated Real Estate Affiliates—Equity Method Investments
For The Three Months Ended September 30, 2018 | For The Nine Months Ended September 30, 2018 | For the Three Months Ended March 31, 2019 | For the Three Months Ended March 31, 2018 | |||||||||||||
| Revenue | $ | 182,000 | $ | 547,000 | $ | 182,000 | $ | 182,000 | ||||||||
| Expenses | (84,000 | ) | (258,000 | ) | (89,000 | ) | (84,000 | ) | ||||||||
| Net income | 98,000 | 289,000 | $ | 93,000 | $ | 98,000 | ||||||||||
Note PM —Preferred Stock and Warrants
The Company reviewed the relevant ASC's, specifically ASC 480 – Distinguishing Liabilities Fromfrom Equity and ASC 815 – Derivatives and Hedging, in connection with the presentation of the Series A and Series 1 preferred stock. Below is a summary of the Company's preferred stock offerings.
Series A Preferred Stock
On November 1, 2016, the Company commenced an offering of up to $50 million in shares of the Company's Series A Convertible Redeemable Preferred Stock ("Series A"), par value $0.0001 per share, together with warrants to acquire the Company's common stock, in a Regulation D 506(c) private placement to accredited investors. In connection with the private placement, on October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock. The Company closed the offering on March 24, 2017 and raised approximately $2.5 million, net of offering costs, in the Series A private placements.
The holders of the Series A Preferred Stock are entitled to receive, when and as authorized by the board of directors and declared by the Company out of funds legally available for the payment of dividends, cash dividends at the rate of 5.75% per annum of the initial stated value of $1,000 per share. Since a Listing Event, as defined in the charter, did not occur by March 31, 2018, the cash dividend rate has been increased to 7.50%, until a Listing Event at which time, the annual dividend rate will be reduced to 5.75% of the Stated Value. Based on the number of Series A shares outstanding at September 30, 2018,March 31, 2019, the increased dividend rate wouldwill cost the Company approximately $13,000 more per quarter in Series A dividends.
Subject to the Company's redemption rights as described below, each Series A share will be convertible into shares of the Company's common stock, at the election of the holder thereof by written notice to the Company (each, a "Series A Conversion Notice") containing the information required by the charter, at any time beginning upon the earlier of (i) 90 days after the occurrence of a Listing Event or (ii) the second anniversary of the final closing of the Series A offering (whether or not a Listing Event has occurred).time. Each Series A share will convert into a number of shares of the Company's common stock determined by dividing (i) the sum of (A) 100% of the Stated Value, initially $1,000, plus (B) any accrued but unpaid dividends to, but not including, the date of conversion, by (ii) the conversion price for each share of the Company's common stock (the "Series A Conversion Price") determined as follows:
| · | Provided there has been a Listing Event, if a Series A Conversion Notice with respect to any Series A share is received on or prior to the day immediately preceding the first anniversary of the issuance of such share, the Series A Conversion Price will be equal to 110% of the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series A Conversion Notice. |
| · | Provided there has been a Listing Event, if a Series A Conversion Notice with respect to any Series A share is received after the first anniversary of the issuance of such share, the Series A Conversion Price will be equal to the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series A Conversion Notice. |
| · | If a Series A Conversion Notice with respect to any Series A share is received |
As of filing date, the Company has not received any requests to convert.
If and when the Amended Charter (as hereinafter defined) becomes effective, the date by which holders of Series A must provide notice of conversion will be changed from the day immediately preceding the first anniversary of the issuance of such share to December 31, 2017. This change will conform the terms of the Series A with the terms of the Series 1 with respect to conversions.
At any time, from time to time, after the 20th trading day after the date of a Listing Event, the Company (or its successor) will have the right (but not the obligation) to redeem, in whole or in part, the Series A at the redemption price equal to 100% of the Stated Value, initially $1,000 per share, plus any accrued but unpaid dividends if any, to and including the date fixed for redemption. If the Company (or its successor) chooses to redeem any Shares, the Company (or its successor) has the right, in its sole discretion, to pay the redemption price in cash or in equal value of common stock of the Company (or its successor), based on the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the redemption, in exchange for the Series A. The Company (or its successor) also will have the right (but not the obligation) to redeem all or any portion of the Series A subject to a Series A Conversion Notice for a cash payment to the holder thereof equal to the applicable redemption price, by delivering a redemption notice to the holder of such Shares on or prior to the 10th trading day prior to the close of trading on the applicable Conversion Date.
Each investor in the Series A received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 30 shares of the Company's common stock if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of September 30, 2018,March 31, 2019, there were detachable warrants that may be exercised for 84,510 shares of the Company's common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at September 30, 2018March 31, 2019 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, gross proceeds to the Company would be approximately $2.1 million and the Company would as a result issue an additional 84,510 shares of common stock. As of the date of this filing the Company had an estimated fair market value of potential warrants that was immaterial.
Series 1 Preferred Stock
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock ("Series 1"), par value $0.0001 per share. On April 7, 2017, the Company commenced the Regulation D 506(b) private placement of shares of Series 1, together with warrants to acquire the Company's common stock, to accredited investors. On January 31, 2018 the Company closed this offering.
The holders of the Series 1 Preferred Stock are entitled to receive, when and as authorized by the Company's board of directors and declared by us out of legally available funds, cumulative, cash dividends on each Share at an annual rate of 5.50% of the Stated Value pari passu with the dividend preference of the Series A Preferred Stock and in preference to any payment of any dividend on the Company's common stock; provided, however, that Qualified Purchasers (who purchased $1.0 million or more in a single closing) are entitled to receive, when and as authorized by the Company's board of directors and declared by us out of legally available funds, cumulative, cash dividends on each Series 1 share held by such Qualified Purchaser at an annual rate of 5.75% of the Stated Value (instead of the annual rate of 5.50% for all other holders of the Series 1 shares) until April 7, 2018, at which time, the annual dividend rate will be reduced to 5.50% of Stated Value; provided further, however, that since a Listing Event has not occurred by April 7, 2018, the annual dividend rate on all Series 1 shares (without regard to Qualified Purchaser status) has been increased to 7.00% of the Stated Value until the occurrence of a Listing Event, at which time, the annual dividend rate will be reduced to 5.50% of the Stated Value. Based on the number of Series 1 shares outstanding at September 30, 2018,March 31, 2019, the increased dividend rate would cost the Company approximately $150,000 more per quarter in Series 1 dividends.
Subject to the Company's redemption rights as described below, each Series 1 share will be convertible into shares of the Company's common stock, at the election of the holder thereof by written notice to the Company (each, a "Series 1 Conversion Notice") containing the information required by the charter, at any time beginning upon the earlier of (i) 45 days after the occurrence of a Listing Event or (ii) April 7, 2019 (whether or not a Listing Event has occurred).time. Each Series 1 share will convert into a number of shares of the Company's common stock determined by dividing (i) the sum of (A) 100% of the Stated Value, initially $1,000, plus (B) any accrued but unpaid dividends to, but not including, the date of conversion, by (ii) the conversion price for each share of the Company's common stock (the "Series 1 Conversion Price") determined as follows:
| · | Provided there has been a Listing Event, if a Series 1 Conversion Notice is received prior to December 1, 2017, the Series 1 Conversion Price will be equal to 110% of the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series 1 Conversion Notice. |
| · | Provided there has been a Listing Event, if a Series 1 Conversion Notice is received on or after December 1, 2017, the Series 1 Conversion Price will be equal to the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series 1 Conversion Notice. |
| · | If a Series 1 Conversion Notice is received |
As of filing date, the Company has not received any requests to convert.
At any time, from time to time, on and after the later of (i) the 20th trading day after the date of a Listing Event, if any, or (ii) April 7, 2018, the Company (or its successor) will have the right (but not the obligation) to redeem, in whole or in part, the Series 1 Preferred Stock at the redemption price equal to 100% of the Stated Value, initially $1,000 per share, plus any accrued but unpaid dividends if any, to and including the date fixed for redemption. In case of any redemption of less than all of the shares by the Company, the shares to be redeemed will be selected either pro rata or in such other manner as the board of directors may determine. If the Company (or its successor) chooses to redeem any shares, the Company (or its successor) has the right, in its sole discretion, to pay the redemption price in cash or in equal value of common stock of the Company (or its successor), based on the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the redemption, in exchange for the shares. The Company (or its successor) also will have the right (but not the obligation) to redeem all or any portion of the Series 1 Preferred Stock subject to a Series 1 Conversion Notice for a cash payment to the holder thereof equal to the applicable redemption price, by delivering a Redemption Notice to the holder of such Shares on or prior to the 10th trading day prior to the close of trading on the Conversion Date for such Shares.
Each investor in the Series 1 received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 35 shares of the Company's common stock if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of September 30, 2018,March 31, 2019, there were detachable warrants that may be exercised for 1,382,675 shares of the Company's common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at September 30, 2018March 31, 2019 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, gross proceeds to the Company would be approximately $34.6 million and as a result the Company would issue an additional 1,382,675 shares of common stock. As of the date of this filing the Company had an estimated fair market value of potential warrants that was immaterial.
Note N — Legal
On March 12, 2019, a stockholder filed a purported class action complaint in the United States District Court for the District of Nevada, against the Company and certain of its current and former officers and directors. The complaint purports to assert class action claims on behalf of all public shareholders of the Company and MVP I between August 11, 2017 and December 15, 2017 in connection with the proxy statements filed with the SEC to obtain shareholder approval for the merger of the Company and MVP I (the "proxy statements"). The complaint alleges, among other things, that the proxy statements failed to disclose that two major reasons for the merger and certain charter amendments implemented in connection therewith were (i) to facilitate the execution of an amended advisory agreement that allegedly is designed to benefit Mr. Shustek financially in the event of an internalization and (ii) to give Mr. Shustek the ability to cause the Company to internalize based on terms set forth in the amended advisory agreement.
The complaint alleges, among other things, (i) that all defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, by disseminating proxy statements that allegedly contain false and misleading statements or omit to state material facts; (ii) that the director defendants violated Section 20(a) of the Exchange Act; (iii) that the director defendants breached their fiduciary duties to the members of the class and to the Company; and (iv) that the internalization transaction will unjustly enrich certain directors and officers of the Company.
The complaint seeks, among other things, unspecified damages; an order enjoining the Company's listing on Nasdaq; declaratory relief; and the payment of reasonable attorneys' fees, accountants' and experts' fees, costs and expenses.
The litigation is at a preliminary stage. The Company and the Board of Directors have reviewed the allegations in the complaint and believe the claims asserted against them in the complaint are without merit and intend to vigorously defend this action.
Note QO — Subsequent Events
On October 5,March 29, 2019, the Company and the Advisor entered into definitive agreements to internalize the Company's management function effective April 1, 2019 (the "Internalization"). Since their formation, under the supervision of the board of directors (the "Board of Directors"), the Advisor has been responsible for managing the operations of the Company and MVP I, which merged with a wholly-owned indirect subsidiary of the Company in December 2017. As part of the Internalization, among other things, the Company agreed with the Advisor to (i) acquire and assume substantially all of the Advisor's assets and liabilities; (ii) terminate the Second Amended and Restated Advisory Agreement, dated as of May 26, 2017 and, for the avoidance of doubt, the Third Amended and Restated Advisory Agreement, dated as of September 21, 2018, The Parkingwhich by its terms would have become effective only upon a listing of the Company's common stock on a national securities exchange (collectively, the "Management Agreements"), each entered into among the Company, the Advisor and MVP REIT Inc., through an entity wholly ownedII Operating Partnership, LP (the "Operating Partnership"); (iii) extend employment to the executives and other employees of the Advisor; (iv) arrange for the Advisor to continue to provide certain services with respect to outstanding indebtedness of the Company and its subsidiaries; and (v) lease the employees of the Advisor for a limited period of time prior to the time that such employees become employed by the Company. As part of those same agreements, the Company completedagreed to issue to the Advisor over a partial saleperiod of 36,155 square feetmore than two and a half years, 1,600,000 shares of land adjoining a surface parking lotthe Company's common stock as consideration under the terms of the Contribution Agreement. The Consideration is issuable in Minneapolis for cash considerationfour equal installments. The first installment of $3.0 million to Camber Lodging, LLC and Amber Lodging, LLC, for a proposed hotel development. The Company originally purchased the approximately 108,000 square foot parcel in January 2016 for $6.1 million.
The following is a financial review and analysis of ourthe Company's financial condition and results of operations for the three and nine months ended September 30, 2018March 31, 2019 and 2017.2018. This discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Conditions and Results of Operations in ourthe Company's annual report on Form 10-K for the year ended December 31, 2017.2018. As used herein, the terms "we," "our" and "us" refer to The Parking REIT, Inc., and, as required by context, MVP REIT II Operating Partnership, LP, which we referthe Company refers to as ourthe "operating limited partnership," and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this quarterly report on Form 10-Q (this "Quarterly Report") that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. Forward-looking statements are typically identified by the use of terms such as "may," "should," "expect," "could," "intend," "plan," "anticipate," "estimate," "believe," "continue," "predict," "potential" or the negative of such terms and other comparable terminology.
The forward-looking statements included herein are based upon ourthe Company's current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond ourthe Company's control. Although we believethe Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, ourthe actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
| · | the fact that |
| · | the fact that |
| · | the performance of properties the Company has acquired or may acquire or loans the Company has made or may make that are secured by real property; |
| · | changes in economic conditions generally and the real estate and debt markets specifically; |
| · | legislative or regulatory changes, |
| · | potential damage and costs arising from natural disasters, terrorism and other extraordinary events, including extraordinary events affecting parking facilities included in |
| · | risks inherent in the real estate business, including ability to secure leases or parking management contracts at favorable terms, tenant defaults, |
| · | competitive factors that may limit |
| · |
| · |
| · | the Company's ability to successfully integrate pending transactions and implement an operating strategy; |
| · | the Company's ability to list |
| · | the availability of capital and debt financing generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions, covenants |
| · | changes in interest |
| · | changes to generally accepted accounting principles, or GAAP; and |
| · | potential adverse impacts from |
Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed upon on any forward-looking statements included herein. All forward-looking statements are made as of the date of this Quarterly Report, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertakethe Company undertakes no obligation to publicly update or revise any forward – looking statements made after the date of this Quarterly Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward – looking statements included in this Quarterly Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report will be achieved.
This report may include market data and forecasts with respect to the REIT industry. Although we arethe Company is responsible for all of the disclosure contained in this report, in some cases we relythe Company relies on and referrefers to market data and certain industry forecasts that were obtained from third party surveys, market research, consultant surveys, publicly available information and industry publications and surveys that we believeare believed to be reliable.
Overview
REIT. The Company was formed to focus primarily on investments in parking facilities, including parking lots, parking garages and other parking structures throughout the United States.States and Canada. To a lesser extent, the Company may also invest in parking properties that contain other thansources of rental income, potentially including office, retail, storage, residential, billboard or cell towers. As of March 31, 2019, the Company held 42 properties in various cities, all of which are parking facilities. See note C – Commitments and Contingencies in Part I, Item 1 Notes to the Condensed Consolidated Financial Statements of this Quarterly Report for additional information.
The Company was incorporated in Maryland on May 4, 2015 and is the sole general partnermember of the Operating Partnership. The Company owns substantially all of its assets and conduct its operations through the Operating Partnership. The Company's wholly ownedOn May 26, 2017, the Company, MVP I, MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary MVP REIT II Holdings, LLC, is the sole limited partner of the Operating Partnership. The operatingCompany ("Merger Sub"), and the Advisor entered into an agreement provides thatand plan of merger (the "Merger Agreement"), pursuant to which MVP I would merge with and into Merger Sub (the "Merger"). On December 15, 2017, the Merger was consummated. Following the Merger, the Company contributed 100% of its equity interests in Merger Sub to the Operating Partnership is to be operated in a manner that enables the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the Operating Partnership is not classified as a "publicly traded partnership" for purposes of Section 7704 of the Code, which classification could result in the Operating Partnership being taxed as a corporation.Partnership.
The Company utilizes an UPREIT structure to enable the Company to acquire real property in exchange forwas externally managed by MVP Realty Advisors, LLC, dba The Parking REIT Advisors (the "Advisor"), a Nevada limited partnership interests in the Company's Operating Partnership from owners who desire to defer taxable gain that would otherwise normally be recognized by them upon the disposition of their real property or transfer of their real propertyliability company prior to the Company in exchange for shares of the Company's common stock or cash.
The following table isCompany elected to be taxed as a summaryreal estate investment trust ("REIT") under Sections 856 through 860 of the acquisitions forCode commencing with the nine monthstaxable year ended September 30, 2018:December 31, 2017.
| Property | Location | Date Acquired | Property Type | # Spaces | Size / Acreage | Retail Sq. Ft. | Property Purchase Price | % Owned |
| MVP New Orleans Rampart | New Orleans, LA | 2/01/2018 | Lot | 78 | 0.44 | N/A | $8,105,000 | 100% |
| MVP Hawaii Marks Garage | Honolulu, HI | 6/21/2018 | Garage | 311 | 0.77 | 16,205 | 20,832,000 | 100% |
Investment Objectives
The Company's primary investment objectives are to:
| · | preserve capital; |
| · | realize growth in the value of the Company's investments; and |
| · | generate current income. |
Investment Strategy
The Company's investment strategy focuses, and will continue to focus, primarily on acquiring, owning and managing parking facilities, including parking lots, parking garages and other parking structures throughout the United States and Canada. To a lesser extent, the Company may also invest in parking properties that contain other sources of rental income, potentially including office, retail, storage, residential, billboard or cell towers. No more than 10% of the proceeds of the Common Stock Offering are authorized to be used for investment in Canadian properties. The Company intends to focus primarily on investing in income-producing parking lots and garages with air rights in central business districts. The Company generally seeks geographically-targeted investments that present key demand drivers, which are expected to generate steady cash flows and provide greater predictability during periods of economic uncertainty. Such targeted investments include, but are not limited to, parking facilities near one or more of the following demand drivers:
| · | Downtown core |
| · | Government buildings and courthouses |
| · | Sporting venues |
| · | Hospitals |
| · | Hotels |
Investment Criteria
The Company will focus on acquiring properties that meet the following criteria:
| · | properties that generate current cash flow; |
| · | properties that are located in populated metropolitan areas; and |
| · | while the Company may acquire properties that require renovation, the Company will only do so if the Company anticipates the properties will produce income within 12 months of the Company's acquisition. |
The size of the location marks is scaled based on dollar amounts the Company paid for each property at the time of purchase in relation to total purchases held as of the filing date of this report.
On May 26, 2017,March 29, 2019, the Company MVI I, Merger Sub and the Advisor entered into definitive agreements to internalize the Merger Agreement. On December 15, 2017,Company's management function effective April 1, 2019 (the "Internalization"). Since their formation, under the supervision of the board of directors (the "Board of Directors"), the Advisor has been responsible for managing the operations of the Company and MVP I, which merged with and into Merger Sub. Following the Merger,a wholly-owned indirect subsidiary of the Company contributed 100% of its equity interests in Merger Sub to the Operating Partnership. At the effective timeDecember 2017. As part of the Merger, each share of MVP I Common Stock that was issued and outstanding immediately prior to the Merger was converted into the right to receive 0.365 shares of Company common stock. A total of approximately 3.9 million shares of Company common stock were issued to former MVP I stockholders, and former MVP I stockholders, immediately following the Merger, owned approximately 59.7% of the Company's common stock. The Company was subsequently renamed "The Parking REIT, Inc.".
The initial termfollowing table reflects the impact of the Third Amended Advisory Agreement will be five years and, unless a noticefirst installment of non-renewal has been timely given by either the Company orInternalization Consideration issued on April 1, 2019:
| Internalization | Post Internalization | |||||||||||
| Shares outstanding | Consideration in | shares outstanding | ||||||||||
| March 31, 2019 | shares | April 1, 2019 | ||||||||||
| Common Stock | 6,540,364 | 400,000 | 6,940,364 | |||||||||
Results of Operations for the Advisor,three months ended March 31, 2019 compared to the term will be automatically renewed for a one year term on each anniversary date thereafter for a maximum of three one-year renewal terms. months ended March 31, 2018.
| For the Three Months Ended March 31, | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| Revenues | ||||||||||||||||
| Base rent income | $ | 5,054,000 | $ | 4,716,000 | $ | 338,000 | 7% | |||||||||
| Percentage rent income | 301,000 | 375,000 | (74,000 | ) | (20% | ) | ||||||||||
| Total revenues | $ | 5,355,000 | $ | 5,091,000 | $ | 264,000 | 5% | |||||||||
Rental revenue
On December 5, 2018 the Advisor, as determined in the sole discretionoperating lease of two-thirds of our independent directors,MVP PF St. Louis 2013, LLC ("MVP St. Louis") by providing 180 days' notice prior to such termination. We may also elect to terminate the Third Amended Advisory Agreement by providing the Advisor with notice of non-renewal no later than 180 days prior toSP+ expired. Upon the expiration of the initialoperating lease, MVP St. Louis entered into a new modified triple net ("Mod NNN") operating lease with SP+. The term or a renewal term, as applicable. Such non-renewal must be approved by two thirds of our independent directors. The Advisor may elect to terminate this Agreement at any time for an "Advisor Termination Cause," as defined in the Third Amended Advisory Agreement, by providing 30 days' notice prior to such termination. Upon a termination of the Third Amended Advisory Agreement under anylease is 5 years with the option of the circumstances described in this paragraph, weone five-year extension. SP+ will pay annual rent of $450,000. In addition, the Advisor a termination fee in recognitionlease provides percentage rent with MVP St. Louis receiving 70% of the upfront effort required by the Advisorgross receipts over $650,000 per lease year. The tenant is responsible for paying property taxes up to structure and acquire our assets and the Advisor's commitment of monies and resources to our business and operations for which the Advisor would be entitled to but, has not received, reimbursement from us, and as consideration for the Advisor's release and performance of its other obligations upon termination of the Amended Advisory Agreement The termination fee is also payable to the Advisor upon a change of control of the Company. The termination fee is equal to the greater of: (i) the product of (A) the average of the annual asset management fees (including any subordinated compensation) earned by the Advisor over the two (2) years ending on the last day of the calendar quarter ending immediately prior to the applicable date of termination of the agreement, multiplied by (B) three and one-half (3.5); and (ii) $16 million; provided, however, that in no event will the termination fee exceed $21 million and, to the extent the price determined pursuant to the formula immediately above results in a price greater than $21 million, the termination fee will equal $21 million.$60,000.
On February 28, 2019 the operating lease of MVP PF Memphis Court 2013, LLC ("MVP Memphis Court") by SP+ was cancelled. Upon the cancellation of the operating lease, MVP Memphis Court entered into a renewaltriple net ("NNN") lease agreement with Premium Parking of Memphis, LLC ("Premium Parking"). The term as applicable. No termination feeof the lease will be for 5 years. Premium Parking will pay annual rent of $3,000. In addition, the lease provides percentage rent with MVP Memphis Court receiving 60% of gross receipts over $3,000 per lease year. Should monthly gross receipts exceed $4,500 for six consecutive months during the term, monthly rent shall adjust for the remainder of the term to $2,500 ("Adjusted Minimum Monthly Rent"), plus percentage rent of 65% of gross receipts in excess of the Adjusted Minimum Monthly Rent.
On February 28, 2019 the operating lease of MVP PF Memphis Poplar 2013, LLC ("MVP Memphis Poplar") by Best Park, Inc. expired. Upon the expiration of the operating lease MVP Memphis Poplar entered into a Mod NNN lease agreement with Premium Parking of Memphis, LLC ("Premium Parking"). The term of the lease is due or payable5 years. Premium Parking will pay annual rent of $320,000. In addition, the lease provides percentage rent with MVP Memphis Poplar receiving 65% of gross receipts over $390,000 per lease year. The tenant is responsible for paying property taxes up to $40,000.
For additional information see Note D – Investments in Real Estate, Part I, Item 1 - Notes to the Advisor upon a termination Condensed Consolidated Financial Statements of the Third Amended Advisory Agreement for a Company Termination Cause or non-renewal of the Third Amended Advisory Agreement by the Advisor.
| For the Three Months Ended March 31 | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| Percentage rent income | ||||||||||||||||
| MVP Ft Worth Taylor (a) | 8,000 | 22,000 | (14,000 | ) | (64% | ) | ||||||||||
| MVP St Louis Convention (b) | -- | 47,000 | (47,000 | ) | (100% | ) | ||||||||||
| MVP St Louis Lucas (b) | -- | 9,000 | (9,000 | ) | (100% | ) | ||||||||||
| MVP Milwaukee Arena (c) | 30,000 | 25,000 | 5,000 | 20% | ||||||||||||
| MVP Denver 1935 Sherman (d) | 9,000 | 6,000 | 3,000 | 50% | ||||||||||||
| MVP San Jose 88 Garage (e) | -- | 24,000 | (24,000 | ) | (100% | ) | ||||||||||
| MVP Detroit Center Garage (f) | 216,000 | 242,000 | (26,000 | ) | (11% | ) | ||||||||||
| MVP New Orleans Rampart (g) | 38,000 | -- | 38,000 | 100% | ||||||||||||
| Total revenues | $ | 301,000 | $ | 375,000 | $ | (74,000 | ) | (20% | ) | |||||||
| a) | Timing of tenant's collections. |
| b) | Property sold during June 2018. |
| c) | The new Fiserv Forum Arena became fully operational in late August 2018, which had a positive impact on operations, a trend expected to continue. |
| d) | Increased volume in area due to additional multi-tenant apartment complex and decrease in competing surface lots. |
| e) | Due to construction on the property the new revenue control system experienced some technical difficulties which have been repaired and are not anticipated to impede percentage rent in the future. |
| f) | Heavy snow in the first quarter had impact on transient parking. |
| g) | Initial lease year reporting percentage rent. |
| For the Three Months Ended March 31, | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| Operating expenses | ||||||||||||||||
| Property taxes | $ | 793,000 | $ | 636,000 | $ | 157,000 | 25% | |||||||||
| Property operating expense | 379,000 | 308,000 | 71,000 | 23% | ||||||||||||
| Asset management expense – related party | 854,000 | 832,000 | 22,000 | 3% | ||||||||||||
| General and administrative | 850,000 | 1,107,000 | (257,000 | ) | (23% | ) | ||||||||||
| Professional fees | 666,000 | 1,921,000 | (1,255,000 | ) | (65% | ) | ||||||||||
| Acquisition expenses | 4,000 | 217,000 | (213,000 | ) | (98% | ) | ||||||||||
| Depreciation and amortization expenses | 1,308,000 | 1,194,000 | 114,000 | 10% | ||||||||||||
| Total operating expenses | 4,854,000 | 6,215,000 | (1,361,000 | ) | (22% | ) | ||||||||||
| Income (loss) from operations | $ | 501,000 | $ | (1,124,000 | ) | $ | 1,625,000 | 145% | ||||||||
To the Merger, at the Company's annual stockholders' meeting held on September 27, 2017, the Company's stockholders approved, among other matters, the amendment and restatement of its charter (the "Amended Charter"). As described in more detail in the final proxy statement distributed to our stockholders for the annual meeting, the Amended Charter is primarily intended to accomplish two objectives in connection with the possible listing of the Company's common stock after the closing of the Merger: (1) to remove provisions of our charterextent that the Company believes may unnecessarily restrict our abilitycontinues to take advantage of further opportunities for liquidity events or are redundant with or otherwise addressed or permitted to be addressed under Maryland law and (2) to amend certain provisions in a manner thatacquire new properties, the Company believes would be more suitable for becoming expects to see operations and maintenance and depreciation expenses increase.
Property taxes
The increase in property taxes in 2019 compared to 2018 is attributable primarily to the increase of assessed property values or increased tax rates which resulted in an increase in property tax expense in certain municipalities and the acquisition of a publicly-traded REIT.property in June 2018.
Property operating expense
The Amended Charter will become effective upon its filing withincrease in property operating expense in 2019 compared to 2018 is attributable primarily to additional properties in the State Department of Assessments and Taxation of Maryland. The Company expectsthree months ended March 31, 2019 compared to file the proposed Amended Charter immediately before the Company's common stock becomes listed for trading on a national securities exchange. This means that the changes to the charter will not be effective unless and until we complete an exchange listing.same period in 2018.
| For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues | ||||||||||||||||
| Base rent income | $ | 4,992,000 | $ | 2,206,000 | $ | 14,511,000 | $ | 5,740,000 | ||||||||
| Management agreement (a) | -- | -- | -- | 518,000 | ||||||||||||
| Percentage rent income | 1,010,000 | 16,000 | 1,776,000 | 523,000 | ||||||||||||
| Total revenues | $ | 6,002,000 | $ | 2,222,000 | $ | 16,287,000 | $ | 6,781,000 | ||||||||
| Operating expenses | ||||||||||||||||
| Property taxes | $ | 668,000 | 90,000 | 1,963,000 | 279,000 | |||||||||||
| Property operating expense | 305,000 | 273,000 | 1,041,000 | 608,000 | ||||||||||||
| Asset management expense – related party | 313,000 | 345,000 | 2,000,000 | 839,000 | ||||||||||||
| General and administrative | 1,246,000 | 400,000 | 6,092,000 | 1,051,000 | ||||||||||||
| Merger costs | -- | 824,000 | -- | 1,596,000 | ||||||||||||
| Acquisition expenses | 7,000 | 113,000 | 411,000 | 2,156,000 | ||||||||||||
| Acquisition expenses – related party | -- | -- | -- | 1,710,000 | ||||||||||||
| Depreciation | 1,262,000 | 508,000 | 3,653,000 | 1,404,000 | ||||||||||||
| Total operating expenses | 3,801,000 | 2,553,000 | 15,160,000 | 9,643,000 | ||||||||||||
| Income (loss) from operations | $ | 2,201,000 | $ | (331,000 | ) | $ | 1,127,000 | $ | (2,862,000 | ) | ||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | $ | (2,170,000 | ) | $ | (1,297,000 | ) | $ | (6,337,000 | ) | $ | (3,146,000 | ) | ||||
| Distribution income – related party | -- | 75,000 | -- | 174,000 | ||||||||||||
| Gain from sale of investment in real estate | 962,000 | 1,200,000 | 1,971,000 | 1,200,000 | ||||||||||||
| Other income | 7,000 | -- | 62,000 | -- | ||||||||||||
| Income from DST | 52,000 | -- | 154,000 | -- | ||||||||||||
| Income from investment in equity method investee | -- | 2,000 | -- | 19,000 | ||||||||||||
| Total other expense | $ | (1,149,000 | ) | $ | (20,000 | ) | $ | (4,150,000 | ) | $ | (1,753,000 | ) | ||||
| For the Three Months Ended September 30 | For the Nine months ended September 30 | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Percentage rent income | ||||||||||||||||
| MVP St Louis 2013 | $ | 63,000 | $ | -- | $ | 80,000 | $ | -- | ||||||||
| Mabley Place Garage | 309,000 | -- | 309,000 | -- | ||||||||||||
| MVP Ft Worth Taylor | -- | -- | 22,000 | -- | ||||||||||||
| MVP St Louis Convention | -- | -- | 60,000 | -- | ||||||||||||
| MVP St Louis Lucas | 5,000 | -- | 65,000 | -- | ||||||||||||
| MVP Indianapolis Washington | 31,000 | -- | 31,000 | -- | ||||||||||||
| MVP Milwaukee Arena | -- | -- | 25,000 | -- | ||||||||||||
| MVP Denver 1935 Sherman | -- | -- | 6,000 | -- | ||||||||||||
| MVP San Jose 88 Garage | -- | -- | 24,000 | -- | ||||||||||||
| MCI 1372 Street | -- | -- | -- | 9,000 | ||||||||||||
| MVP St Paul Holiday | 40,000 | -- | 76,000 | -- | ||||||||||||
| MVP Louisville Station Broadway | 6,000 | -- | 6,000 | -- | ||||||||||||
| White Front Garage | 6,000 | 16,000 | 6,000 | 16,000 | ||||||||||||
| MVP Detroit Center Garage | 516,000 | -- | 1,032,000 | 498,000 | ||||||||||||
| MVP Raider Park Garage | 34,000 | -- | 34,000 | -- | ||||||||||||
| Total revenues | $ | 1,010,000 | $ | 16,000 | $ | 1,776,000 | $ | 523,000 | ||||||||
Acquisition expenses
Acquisition expenses related to purchased properties are subsequently included incapitalized with the investment in real estate. Acquisition expenses incurred during the three months ended March 31, 2019 and 2018 relate solely to dead deals. The amounts reported as acquisition costsdecrease in 2018 are for costs incurred for proposed acquisitions that were not consummated. Additionallycost from the changethree months ended March 31, 2018 to the advisory agreement eliminatedsame period in 2019 of approximately $0.2 million is a result of reduced acquisition activity.
Depreciation and amortization expenses
The increase is due to the 2.25% acquisition fee.properties acquired during the remaining portion of 2018 and assets placed in service due to construction projects or general improvements on properties already held.
| For the Three Months Ended March 31 | ||||||||||||||||
| 2019 | 2018 | $ Change | % Change | |||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | $ | (2,356,000 | ) | $ | (1,948,000 | ) | $ | (408,000 | ) | (21% | ) | |||||
| Other income | 31,000 | -- | 31,000 | 100% | ||||||||||||
| Income from DST | 70,000 | 52,000 | 18,000 | 35% | ||||||||||||
| Total other expense | $ | (2,255,000 | ) | $ | (1,896,000 | ) | $ | (359,000 | ) | (19% | ) | |||||
Interest expense
The Company's total debt (long-term debt) was approximately $160 million as of March 31, 2019 compared to approximately $149 million (letter of credit and expense:long-term debt) as of March 31, 2018. The increase in interest expense of approximately $0.4 million for the three and nine months ended September 30, 2018,March 31, 2019, as compared to the same periodsperiod in 2017,2018, is primarily attributable to the Company's increased use of debt to acquire properties as well as loans assumed through the Merger. on properties.
To maximize the use of cash, the Company will continue to look for opportunities to utilize debt financing onin future acquisitions, including with the use of permanent debt at the time of acquisitions.long-term debt. The interest expense will vary based on the amount of ourthe Company's borrowings and current interest rates at the time of financing. The Company will seek to secure appropriate leverage with the lowest interest rate available. The terms of the loans will vary depending on the quality of the applicable property, the credit worthiness of the tenant and the amount of income the property is able to generate through parking leases. There is no assurance, however, that the Company will be able to secure additional financing on favorable terms or at all.
Interest expense recorded for the three months ended September 30, 2018March 31, 2019 includes amortization of loan amortizationissuance costs. Total amortization of loan amortizationissuance cost for the three months ended September 30,March 31, 2019 and 2018 and 2017 was approximately $151,000$0.2 million and $170,000,$0.1 million, respectively. Total loan amortization cost for
For additional information see Note J – Notes Payable in Part I, Item 1 – Notes to the nineCondensed Consolidated Financial Statements of this Quarterly Report.
Other income
Upon completion of a project to replace and improve the lighting of the property located in Hawaii, the Company received a rebate of approximately $31,000 from Hawaii Energy.
Income from DST
During the three months ended September 30, 2018 and 2017 was approximately $647,000 and $409,000, respectively.March 31, 2019, the Company recorded a one-time accrual of $18,000 for income from DST.
Since a majority of the Company's property leases call for additional percentage rent, the Company monitors the gross revenue generated by each property on a monthly basis. The higher the property's gross revenue the higher the Company's potential percentage rent. The graph below shows the comparison of the Company's monthlyquarterly rental income to the gross revenue generated by the properties.
Non-GAAP Financial Measures
Funds from Operations and Modified Funds from Operations
In order to provide a more complete understanding of the operating performance of a REIT, NAREIT promulgated a measure known as FFO. FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, adding back asset impairment write-downs, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, the Company believes that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of the Company's performance relative to the Company's competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than the Company does, making comparisons less meaningful.
The Investment Program Association ("IPA") issued Practice Guideline 2010-01 (the "IPA MFFO Guideline") on November 2, 2010, which extended financial measures to include modified funds from operations ("MFFO"). In computing MFFO, FFO is adjusted for certain non-operating cash items such as acquisition fees and expenses and certain non-cash items such as straight-line rent, amortization of in-place lease valuations, amortization of discounts and premiums on debt investments, nonrecurring impairments of real estate-related investments, mark-to-market adjustments included in net income (loss), and nonrecurring gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Management is responsible for managing interest rate, hedge and foreign exchange risk. To achieve the Company's objectives, the Company may borrow at fixed rates or variable rates. In order to mitigate the Company's interest rate risk on certain financial instruments, if any, the Company may enter into interest rate cap agreements and in order to mitigate the Company's risk to foreign currency exposure, if any, the Company may enter into foreign currency hedges. The Company views fair value adjustments of derivatives, impairment charges and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Additionally, the Company believes it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations, assessments regarding general market conditions, and the specific performance of properties owned, which can change over time.
No less frequently than annually, the Company evaluates events and changes in circumstances that could indicate that the carrying amounts of real estate and related intangible assets may not be recoverable. When indicators of potential impairment are present, the Company assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) expected from the use of the assets and the eventual disposition. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of MFFO as described above, investors are cautioned that due to the fact thatbecause impairments are based on estimated future undiscounted cash flows and the relatively limited term of the Company's operations, it could be difficult to recover any impairment charges through operational net revenues or cash flows prior to any liquidity event. The Company adopted the IPA MFFO Guideline as management believes that MFFO is a helpful indicator of the Company's on-going portfolio performance. More specifically, MFFO isolates the financial results of the REIT's operations. MFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings.earnings in accordance with GAAP. Further, since the measure is based on historical financial information, MFFO for the period presented may not be indicative of future results or the Company's future ability to pay the Company's dividends. By providing FFO and MFFO, the Company presents information that assists investors in aligning their analysis with management's analysis of long-term operating activities. MFFO also allows for a comparison of the performance of the Company's portfolio with other REITs that are not currently engaging in acquisitions, as well as a comparison of the Company's performance with that of other non-traded REITs, as MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and the Company believebelieves it is often used by analysts and investors for comparison purposes. As explained below, management's evaluation of the Company's operating performance excludes items considered in the calculation of MFFO based on the following economic considerations:
| · | Straight-line rent. Most of the Company's leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these periodic minimum rent payment increases during the term of a lease are recorded to rental revenue on a straight-line basis in order to reconcile the difference between accrual and cash basis accounting. As straight-line rent is a GAAP non-cash adjustment and is included in historical earnings, it is added back to FFO to arrive at MFFO as a means of determining operating results of the Company's portfolio. |
| · | Amortization of in-place lease valuation. As this item is a cash flow adjustment made to net income in calculating the cash flows provided by (used in) operating activities, it is added back to FFO to arrive at MFFO as a means of determining operating results of the Company's portfolio. |
| · | Acquisition-related costs. The Company was organized primarily with the purpose of acquiring or investing in income-producing real property in order to generate operational income and cash flow that will allow us to provide regular cash distributions to the Company's stockholders. In the process, with respect to periods prior to the Internalization, the Company |
For all of these reasons, the Company believes the non-GAAP measures of FFO and MFFO, in addition to income (loss) from operations, net income (loss) and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of the Company's real estate portfolio. However, a material limitation associated with FFO and MFFO is that they are not indicative of the Company's cash available to fund distributions since other uses of cash, such as capital expenditures at the Company's properties and principal payments of debt, are not deducted when calculating FFO and MFFO. Additionally, MFFO has limitations as a performance measure in an offering such as the Company's prior Common Stock Offering where the price of a share of common stock is a stated value. The use of MFFO as a measure of long-term operating performance on value is also limited if the Company does not continue to operate under the Company's current business plan as noted above. MFFO is useful in assisting management and investors in assessing the Company's ongoing ability to generate cash flow from operations and continue as a going concern in future operating periods, and, in particular, afternow that the Common Stock Offering and acquisition stages are complete and NAV is disclosed. However, MFFO is not a useful measure in evaluating NAV because impairments are taken into accountconsidered in determining NAV but not in determining MFFO. Therefore, FFO and MFFO should not be viewed as a more prominent a measure of performance than income (loss) from operations, net income (loss) or to cash flows from operating activities and each should be reviewed in connection with GAAP measurements.
None of the SEC, NAREIT or any other organization has opined on the acceptability of the adjustments contemplated to adjust FFO in order to calculate MFFO and its use as a non-GAAP performance measure. In the future, the SEC or NAREIT may decide to standardize the allowable exclusions across the REIT industry, and the Company may have to adjust the calculation and characterization of this non-GAAP measure.
The Company's calculation of FFO and MFFO attributable to common shareholders is presented in the following table for the three and nine months ended September 30March 31, 20182019 and 2017:2018:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net Income (loss) attributable to The Parking REIT, Inc. common shareholders | $ | 261,000 | $ | (604,000 | ) | $ | (5,127,000 | ) | $ | (5,157,000 | ) | |||||
| Add (Subtract): | ||||||||||||||||
| Gain on Sale of real estate | (962,000 | ) | (1,200,000 | ) | (1,971,000 | ) | (1,200,000 | ) | ||||||||
| Depreciation and Amortization of real estate assets | 1,262,000 | 508,000 | 3,653,000 | 1,404,000 | ||||||||||||
| FFO | $ | 561,000 | $ | (1,296,000 | ) | $ | (3,445,000 | ) | $ | (4,953,000 | ) | |||||
| Add: | ||||||||||||||||
| Acquisition fees and expenses to non-affiliates | 7,000 | 113,000 | 411,000 | 2,156,000 | ||||||||||||
| Acquisition fees and expenses to affiliates | -- | -- | -- | 1,710,000 | ||||||||||||
| Acquisition / Merger costs | -- | 824,000 | -- | 1,596,000 | ||||||||||||
| Subtract: | ||||||||||||||||
| Deferred Rental Assets | (11,000 | ) | (1,000 | ) | (53,000 | ) | (1,000 | ) | ||||||||
| MFFO attributable to The Parking REIT, Inc. shareholders | $ | 557,000 | $ | (360,000 | ) | $ | (3,087,000 | ) | $ | 508,000 | ||||||
| Distributions paid to Common Shareholders | $ | -- | $ | 484,000 | $ | 807,000 | $ | 1,421,000 | ||||||||
| For the Three Months Ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net loss attributable to The Parking REIT, Inc. common shareholders | $ | (2,503,000 | ) | $ | (3,588,000 | ) | ||
| Add (Subtract): | ||||||||
| Depreciation and amortization expenses of real estate assets | 1,308,000 | 1,194,000 | ||||||
| FFO | $ | (1,195,000 | ) | $ | (2,394,000 | ) | ||
| Add: | ||||||||
| Acquisition fees and expenses to non-affiliates | 4,000 | 217,000 | ||||||
| Change in Deferred Rental Assets | 38,000 | 57,000 | ||||||
| MFFO attributable to The Parking REIT, Inc. shareholders | $ | (1,153,000 | ) | $ | (2,120,000 | ) | ||
| Distributions paid to Common Shareholders | $ | -- | $ | 817,000 | ||||
Liquidity and Capital Resources
The Company commenced operations on December 30, 2015.
The Company's principal demand for funds is for the acquisition of real estate assets, the payment of operating expenses, capital expenditures, principal and interest on the Company's outstanding indebtedness and the payment of distributions to the Company's stockholders. Over time, the Company intends to generally fund its operating expenses from its cash flow from operations. The cash required for acquisitions and investments in real estate is funded primarily from the sale of shares of the Company's preferredcommon stock and commonpreferred stock, including those shares offered for sale through the Company's distribution reinvestment plan, dispositions of properties in the Company's portfolio and through third party financing and the assumption of debt on acquired properties.
On December 31, 2016, the Company ceased all selling efforts for its initial public offering of shares of its common stock at $25.00 per share, pursuant to a registration statement on Form S-11 (No. 333-205893). The Company accepted additional subscriptions through March 31, 2017, the last day of the initial public offering, and raised approximately $61.3 million in the initial public offering before payment of deferred offering costs of approximately $1.1 million, contribution from an affiliate of the Advisor of approximately $1.1 million and cash distributions of approximately $1.8 million.
The Company raised approximately $2.5 million, net of offering costs, in funds from the private placements of Series A Convertible Redeemable Preferred Stock and approximately $36.0 million, net of offering costs, in funds from the private placements of Series 1 Convertible Redeemable Preferred Stock.
As of September 30, 2018,March 31, 2019, the Company's debt consisted of approximately $117.1$120.1 million in fixed rate debt and $38.5$39.5 million in variable rate debt, net of loan issuance costs.costs.
The Company may seek to raise additional funds through equity financings, as well as through additional debt financing.
The following table summarizes the Company's cash flows for the three months ended March 31, 2019 and 2018:
| For the Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Net cash used in operating activities | $ | (1,272,000 | ) | $ | (1,015,000 | ) | ||
| Net cash used in investing activities | (194,000 | ) | (12,205,000 | ) | ||||
| Net cash provided by financing activities | 417,000 | 8,269,000 | ||||||
Comparison of the three months ended March 31, 2019, to the three months ended March 31, 2018
The Company's cash and cash equivalents and restricted cash were approximately $9.2$8.4 million as of September 30, 2018,March 31, 2019, which was an approximatea decrease of $7.5approximately $3.4 million from the balance at DecemberMarch 31, 2017.2018.
Cash flows from operating activities
Net cash used in operating activities for the ninethree months ended September 30, 2018 totaledMarch 31, 2019 was approximately $0.9 million. Operating$1.3 million, compared to approximately $1.0 million for the same period in 2018. The increase in cash flows wereused was primarily due to an increase in cash used of approximately $2.6 million to pay down accounts payable and accrued liabilities partially offset by a decrease in net loss and adjustments to reconcile net loss to cash of approximately $1.5 million and a decrease in cash used for the paymentother assets and prepaid expenses of normal operating expenses such as management fees, insurance, accounting fees and legal bills. approximately $0.8 million.
Cash flows from investing activities
Net cash used in investing activities totaledfor the three months ended March 31, 2019 was approximately $25.7$0.2 million, and mainly consistedcompared to approximately $12.0 million of the purchase of investments in real estate totaling $28.9 million and building improvements of approximately $4.6 million. Netnet cash used, to acquire investments, for the same period in investing activities also had an approximate $7.5 million offset from proceeds from the sale of an investment. Net cash provided by financing activities totaled approximately $19.0 million and consisted of proceeds from issuance of preferred stock of approximately $9.1 million and proceeds from the Company's KeyBank line of credit of approximately $23.1 million, netted with payments on the KeyBank line of credit of approximately $13.8 million, proceeds from notes payable of approximately $5.5 million, netted with payments on notes payable of approximately $1.5 million, share redemptions of approximately $0.7 million and distributions to stockholders of approximately $2.6 million.
Cash flows from financing activities
Net cash provided by financing activities for the three months ended March 31, 2019 was approximately $0.4 million compared to approximately $8.3 million during the same period in 2018. The reduction in cash provided by financing activities was primarily due to the fact that no preferred stock or other equity was issued during the three months ended March 31, 2019 compared to approximately $9.1 million of preferred stock issued during the same period in 2018. This was partially offset by an increase in net proceeds from long term debt of approximately $0.8 million and a decrease of approximately $0.5 million in stock redemptions and distributions paid to shareholders during the three months ended March 31, 2019 compared to the same period in 2018.
Company Indebtedness
On June 26, 2017,February 8, 2019, subsidiaries of the REITs, each through a wholly owned subsidiary, the Operating PartnershipCompany, consisting of MVP PF St. Louis 2013, LLC ("MVP St. Louis"), and MVP Real Estate Holdings,PF Memphis Poplar 2013 ("MVP Memphis Poplar"), LLC (together, the "Borrowers"), entered into a creditloan agreement, (the "Workingdated as of February 8, 2019, with LoanCore Capital Credit Agreement"REIT LLC ("LoanCore") with KeyBank as. Under the administrative agent and KeyBanc Capital Markets as the lead arranger. Pursuant to the Working Capital Credit Agreement, the Borrowers were provided with a $6.0 million credit facility (the "Total Commitment"), which could be increased up to $10 million, in minimum increments of $1 million. The Total Commitment had an initial term of six months, maturing on December 26, 2017. In October 2017, the term was extended to March 31, 2018. The Working Capital Credit Agreement had an interest rate calculated based on LIBOR Rate plus 4.5% or Base Rate plus 3.5%, both as provided in the Working Capital Credit Agreement. The Base Rate was calculated as the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%. Payments under the Working Capital Credit Facility require 100%terms of the net proceedsLoan Agreement, LoanCore agreed to loan MVP St. Louis and MVP Memphis Poplar $5.5 million to repay and discharge the outstanding KeyBank loan agreement. The loan is secured by a Mortgage, Assignment of all capital eventsLeases and equity issuances by the REITs within five business days of receipt. The obligationsRents, Security Agreement and Fixture Filing on each of the Borrowers of the Unsecured Credit Agreement were jointproperties owned by MVP St. Louis and several. The REITs entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement.MVP Memphis Poplar.
The Company will experience a relative decrease in liquidity as proceeds from its debt or equity financings are used to acquire and operate assets and may experience a temporary, relative increase in liquidity if and when investments are sold, to the extent such sales generate proceeds that are available for additional investments. The AdvisorManagement may, but is not required to, establish working capital reserves from proceeds from the Common Stock Offering ofany common or preferred stock offering or cash flow generated by the Company's investments or out of proceeds from the sale of investments. The Company does not anticipateanticipates establishing a general working capital reserve;reserve in the future but is not required to as previously mentioned; however, the Company may establish capital reserves with respect to particular investments. The Company also may, but is not required to, establish reserves out of cash flow generated by investments or out of net sale proceeds in non-liquidating sale transactions. Working capital reserves are typically utilized to fund tenant improvements, leasing commissions and major capital expenditures. The Company's lenders also may require working capital reserves.
To the extent that the working capital reserve is insufficient to satisfy the Company's cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowing. In addition, subject to certain exceptions and limitations, the Company may incur indebtedness in connection with the acquisition of any real estate asset, refinance the debt thereon, arrange for the leveraging of any previously unfinancedunencumbered property or reinvest the proceeds of financing or refinancing in additional properties.
Management Compensation Summary
The following table summarizes all compensation and fees incurred by us and paid or payable to the Advisor and its affiliates in connection with the Company's organization operations for the three and nine months ended September 30, 2018March 31, 2019 and 2017.2018.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | For the Three Months Ended March 31, | ||||||||||||||||||||||
| 2018 | 2017 | 2018 | 2017 | 2019 | 2018 | |||||||||||||||||||
| Acquisition Fees | $ | -- | $ | -- | $ | -- | $ | 1,710,000 | ||||||||||||||||
| Asset Management Fees | 313,000 | 345,000 | 2,000,000 | 839,000 | 854,000 | 832,000 | ||||||||||||||||||
| Total | $ | 313,000 | $ | 345,000 | $ | 2,000,000 | $ | 2,549,000 | $ | 854,000 | $ | 832,000 | ||||||||||||
Distributions and Stock Dividends
The Company may not generate sufficient cash flow from operations to fully fund distributions. All or a portion of the distributions may be paid from other sources, such as cash flows from equity offerings, financing activities, borrowings, or by way of waiver or deferral of fees. The Company has not established any limit on the extent to which distributions could be funded from these other sources. Accordingly, the amount of distributions paid may not reflect current cash flow from operations and distributions may include a return of capital, (rather than a return on capital). If the Company pays distributions from sources other than cash flow from operations, the funds available to the Company for investments would be reduced and the share value may be diluted. The level of distributions will be determined by the board of directors and depend on several factors including current and projected liquidity requirements, anticipated operating cash flows and tax considerations, and other relevant items deemed applicable by the board of directors.
Common Stock
From inception through September 30, 2018,March 31, 2019, the Company had paid approximately $1.8 million in cash, issued 83,437 shares of its common stock as DRIP and issued 153,827153,826 shares of its common stock as dividend in distributions to the Company's stockholders. All of the cash distributions were paid from offering proceeds and constituted a return of capital. On March 22, 2018 the Company suspended payment of distributions and as such there are currently no distributions to invest in the DRIP.
The Company's total distributions paid for the period presented, the sources of such distributions, the cash flows provided by (used in) operations and the number of shares of common stock issued pursuant to the Company's DRIP are detailed below.
To date, all distributions were paid from offering proceeds and therefore may represent a return of capital.
| Distributions Paid in Cash | Distributions Paid through DRIP | Total Distributions Paid | Cash Flows Generated from (used in) Operations (GAAP basis) | |||||||||||||
| 1st Quarter, 2018 | $ | 806,000 | $ | 418,000 | $ | 1,224,000 | $ | (1,015,000 | ) | |||||||
2nd Quarter, 2018 | -- | -- | -- | (506,000 | ) | |||||||||||
3rd Quarter, 2018 | -- | -- | -- | 663,000 | ||||||||||||
| Total 2018 | $ | 806,000 | $ | 418,000 | $ | 1,224,000 | $ | (858,000 | ) | |||||||
| Distributions Paid in Cash | Distributions Paid through DRIP | Total Distributions Paid | Cash Flows Provided by (used in) Operations (GAAP basis) | |||||||||||||
| 1st Quarter, 2019 | $ | -- | $ | -- | $ | -- | $ | (1,272,000 | ) | |||||||
| Total 2019 | $ | -- | $ | -- | $ | -- | $ | (1,272,000 | ) | |||||||
| Distributions Paid in Cash | Distributions Paid through DRIP | Total Distributions Paid | Cash Flows Used in Operations (GAAP basis) | |||||||||||||
| 1st Quarter, 2017 | $ | 161,000 | $ | 285,000 | $ | 446,000 | $ | (2,647,000 | ) | |||||||
2nd Quarter, 2017 | 168,000 | 306,000 | 474,000 | (296,000 | ) | |||||||||||
3rd Quarter, 2017 | 172,000 | 309,000 | 481,000 | (1,753,000 | ) | |||||||||||
4th Quarter, 2017 | 178,000 | 310,000 | 488,000 | (6,518,000 | ) | |||||||||||
| Total 2017 | $ | 679,000 | $ | 1,210,000 | $ | 1,889,000 | $ | (11,214,000 | ) | |||||||
| Distributions Paid in Cash | Distributions Paid through DRIP | Total Distributions Paid | Cash Flows Provided by (used in) Operations (GAAP basis) | |||||||||||||
| 1st Quarter, 2018 | $ | 806,000 | $ | 418,000 | $ | 1,224,000 | $ | (1,015,000 | ) | |||||||
2nd Quarter, 2018 | -- | -- | -- | (506,000 | ) | |||||||||||
3rd Quarter, 2018 | -- | -- | -- | 663,000 | ||||||||||||
4th Quarter, 2018 | -- | -- | -- | (813,000 | ) | |||||||||||
| Total 2018 | $ | 806,000 | $ | 418,000 | $ | 1,224,000 | $ | (1,671,000 | ) | |||||||
Preferred Series A Stock
The Company offered up to $50 million in shares of the Company's Series A Convertible Redeemable Preferred Stock ("Series A"), par value $0.0001 per share, together with warrants to acquire the Company's common stock, in a Regulation D 506(c) private placement to accredited investors. In connection with the private placement, on October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock. The Company commenced the private placement of the Shares to accredited investors on November 1, 2016 and closed the offering on March 24, 2017. The Company raised approximately $2.5 million, net of offering costs, in the Series A private placements.
The offering price was $1,000 per share. In addition, each investor in the Series A received, for every $1,000 in shares subscribed by such investor, 30 detachable warrants to purchase shares of the Company's common stock if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of November 9, 2018,May 14, 2019, there were 84,510 detachable warrants that may be exercised after the 90th day following the occurrence of a listing event. These warrants will expire five years from the 90th day after the occurrence of a listing event.
For additional information see Note PM — Preferred Stock and Warrants in Part I, Item 1 Notes to the Unaudited Condensed Consolidated Financial Statementsof this Quarterly Report for a discussion of the various related party transactions, agreements and fees.
From initial issuance through September 30, 2018,March 31, 2019, the Company had declared distributions of approximately $293,000$400,000 of which approximately $274,000$382,000 had been paid to Series A stockholders.
Total Series A Distributions Paid | Cash Flows Generated from (used in) Operations (GAAP basis) | |||||||
| 1st Quarter, 2018 | $ | 41,000 | $ | (1,015,000 | ) | |||
2nd Quarter, 2018 | 51,000 | (506,000 | ) | |||||
3rd Quarter, 2018 | 54,000 | 663,000 | ||||||
| Total 2018 | $ | 146,000 | $ | (858,000 | ) | |||
Total Series A Distributions Paid | Cash Flows Provided by (used in) Operations (GAAP basis) | |||||||
| 1st Quarter, 2019 | $ | 54,000 | $ | (1,272,000 | ) | |||
| Total 2019 | $ | 54,000 | $ | (1,272,000 | ) | |||
Total Series A Distributions Paid | Cash Flows Used in Operations (GAAP basis) | |||||||
| 1st Quarter, 2017 | $ | 5,000 | $ | (2,647,000 | ) | |||
2nd Quarter, 2017 | 41,000 | (296,000 | ) | |||||
3rd Quarter, 2017 | 41,000 | (1,753,000 | ) | |||||
4th Quarter, 2017 | 41,000 | (6,518,000 | ) | |||||
| Total 2017 | $ | 128,000 | $ | (11,214,000 | ) | |||
Total Series A Distributions Paid | Cash Flows Provided by (used in) Operations (GAAP basis) | |||||||
| 1st Quarter, 2018 | $ | 41,000 | $ | (1,015,000 | ) | |||
2nd Quarter, 2018 | 51,000 | (506,000 | ) | |||||
3rd Quarter, 2018 | 54,000 | 663,000 | ||||||
4th Quarter, 2018 | 54,000 | (813,000 | ) | |||||
| Total 2018 | $ | 200,000 | $ | (1,671,000 | ) | |||
Preferred Series 1 Stock
On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock ("Series 1"), par value $0.0001 per share. On April 7, 2017, the Company commenced the Regulation D 506(b) private placement of shares of Series 1, together with warrants to acquire the Company's common stock, to accredited investors. On January 31, 2018, the Company closed this offering. As of November 9, 2018,May 14, 2019, the Company had raised approximately $36.0$36.5 million, net of offering costs, in the Series 1 private placements and had 39,811 shares of Series 1 issued and outstanding.
The offering price is $1,000 per share. In addition, each investor in the Series 1 will receive, for every $1,000 in shares subscribed by such investor, 35 detachable warrants to purchase shares of the Company's common stock if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of November 9, 2018,May 14, 2019, there were 1,382,675 detachable warrants that may be exercised after the 90th day following the occurrence of a listing event. These warrants will expire five years from the 90th day after the occurrence of a listing event.
For additional information see Note PM — Preferred Stock and Warrants in Part I, Item 1 Notes to the Unaudited Condensed Consolidated Financial Statementsof this Quarterly Report for a discussion of the various related party transactions, agreements and fees.
From issuance date through September 30, 2018,March 31, 2019, the Company had declared distributions of approximately $2.4$3.8 million of which approximately $2.2$3.6 million had been paid to Series 1 stockholders.
Total Series 1 Distributions Paid | Cash Flows Generated from (used in) Operations (GAAP basis) | |||||||
1st Quarter, 2018 | $ | 477,000 | $ | (1,015,000 | ) | |||
2nd Quarter, 2018 | 639,000 | (506,000 | ) | |||||
3rd Quarter, 2018 | 697,000 | 663,000 | ||||||
| Total 2018 | $ | 1,813,000 | $ | (858,000 | ) | |||
Total Series 1 Distributions Paid | Cash Flows Provided by (used in) Operations (GAAP basis) | |||||||
1st Quarter, 2019 | $ | 697,000 | $ | (1,272,000 | ) | |||
| Total 2019 | $ | 697,000 | $ | (1,272,000 | ) | |||
Total Series 1 Distributions Paid | Cash Flows Used in Operations (GAAP basis) | |||||||
1st Quarter, 2017 | $ | -- | $ | (2,647,000 | ) | |||
2nd Quarter, 2017 | 14,000 | (296,000 | ) | |||||
3rd Quarter, 2017 | 98,000 | (1,753,000 | ) | |||||
4th Quarter, 2017 | 268,000 | (6,518,000 | ) | |||||
| Total 2017 | $ | 380,000 | $ | (11,214,000 | ) | |||
Total Series 1 Distributions Paid | Cash Flows Provided by (used in) Operations (GAAP basis) | |||||||
1st Quarter, 2018 | $ | 477,000 | $ | (1,015,000 | ) | |||
2nd Quarter, 2018 | 639,000 | (506,000 | ) | |||||
3rd Quarter, 2018 | 697,000 | 663,000 | ||||||
4th Quarter, 2018 | 697,000 | (813,000 | ) | |||||
| Total 2018 | $ | 2,510,000 | $ | (1,671,000 | ) | |||
Related-Party Transactions and Arrangements
On November 5, 2016, the Company purchased 338,409 shares of MVP I's common stock from an unrelated third party for $3.0 million or $8.865 per share. During the nine monthsyear ended September 30,December 31, 2017, the Company received approximately $99,000,$189,000, in stock distributions, related to the Company's ownership of MVP I common stock.
At the effective time of the Merger, 174,026 shares of MVP I Common Stock held by the Company was retired.
On March 29, 2019, the Company and the Advisor entered into definitive agreements to internalize the Company's management function effective April 1, 2019. As a result of the Internalization, the Management Agreements were retired.terminated.
Inflation
The Company expects to include provisions in its tenant leases designed to protect the Company from the impact of inflation. These provisions will include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases annual reimbursement of operating expenses above a certain allowance. Due to the generally long-term nature of these leases, annual rent increases may not be sufficient to cover inflation and rent may be below market.
Income Taxes
The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. The Company believes that its income tax filing positions and deductions would be sustained upon examination; thus, the Company has not recorded any uncertain tax positions as of DecemberMarch 31, 2017.2019.
A full valuation allowance for deferred tax assets as of December 31, 2016 was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets willshould be recorded, and further whether any such assets would more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur.
REIT Compliance
ended December 31, 2017. To qualify as a REIT for tax purposes, the Company is required to distribute at least 90% of its REIT taxable income to the Company's stockholders.stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). In addition, the Company will be subject to corporate income tax to the extent that the Company distributes less than 100% of the net taxable income including any net capital gain. The Company must also meet certain asset and income tests, as well as other requirements. The Company will monitor the business and transactions that may potentially impact the Company's REIT status. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on the taxable income at regular corporate rates.
Off-Balance Sheet Arrangements
Series A Preferred Stock
Each investor in the Series A received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 30 shares of the Company's common stock if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of September 30, 2018,March 31, 2019, there were detachable warrants that may be exercised for 84,510 shares of the Company's common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at September 30, 2018March 31, 2019 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, gross proceeds to usthe Company would be approximately $2.1 million and we would as a result issue an additional 84,510 shares of common stock.stock and would receive gross proceeds of approximately $2.1 million.
For additional information see "— Liquidity and Capital Resources" and "—Preferred Series A Stock" above and Note PM — Preferred Stock and Warrants in in Part I, Item 1 - Notes to the Unaudited Condensed Consolidated Financial Statementsof this Quarterly Report for a discussion of the various related party transactions, agreements and fees.further discussion.
Series 1 Preferred Stock
Each investor in the Series 1 received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 35 shares of the Company's common stock if the Company's common stock is listed on a national securities exchange. The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of September 30, 2018,March 31, 2019, there were detachable warrants that may be exercised for approximately 1,382,675 shares of the Company's common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at September 30, 2018March 31, 2019 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, wethe Company would issue an additional 1,382,675 shares of common stock and would receive gross proceeds of approximately $34.6 million.
For additional information see "— Liquidity and Capital Resources" and "—Preferred Series A Stock" above and Note PM — Preferred Stock and Warrants in in Part I, Item 1 - Notes to the Unaudited Condensed Consolidated Financial Statementsof this Quarterly Report for a discussion of the various related party transactions, agreements and fees.further discussion.
Critical Accounting Policies
The Company's accounting policies have been established in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management's judgment or interpretation of the facts and circumstances relating to various transactions is different, it is possible that different accounting policies will be applied, or different amounts of assets, liabilities, revenues and expenses will be recorded, resulting in a different presentation of the financial statements or different amounts reported in the financial statements.
Additionally, other companies may utilize different estimates that may impact comparability of the Company's results of operations to those of companies in similar businesses. Below is a discussion of the accounting policies that management considers to be most critical once the Company commences significant operations. These policies require complex judgment in their application or estimates about matters that are inherently uncertain.
Real Estate Investments
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
The Company is required to make subjective assessments as to the useful lives of the Company's properties for purposes of determining the amount of depreciation to record on an annual basis with respect to the Company's investments in real estate. These assessments have a direct impact on the Company's net income because if the Company were to shorten the expected useful lives of the Company's investments in real estate, the Company would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
Purchase Price Allocation
The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third parties or on the Company's analysis of comparable properties in the Company's portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable.
The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into accountconsidering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company will include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized. Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on the Company's evaluation of the specific characteristics of each tenant's lease and the Company's overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of the Company's existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.
The value of in-place leases is amortized to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event, does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, the Company will utilize a number ofseveral sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company will also consider information obtained about each property as a result of the pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Deferred Costs
Deferred costs may consist of deferred financing costs, deferred offering costs and deferred leasing costs. Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. These costs are amortized over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined that the financing will not close.
Contractual Obligations
As of September 30, 2018March 31, 2019, ourthe Company's contractual obligations consisted of the mortgage notes secured by ourthe acquired properties and the Revolving Credit Facilities:properties:
| Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||||||||||||||||
| Long-term debt obligations | $ | 118,549,000 | $ | 539,000 | $ | 12,758,000 | $ | 4,310,000 | $ | 100,942,000 | $ | 159,642,000 | $ | 7,429,000 | $ | 44,235,000 | $ | 6,837,000 | $ | 101,141,000 | ||||||||||||||||||||
| Lines of credit: | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
| Interest | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
| Principal | 39,120,000 | 39,120,000 | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||
| Total | $ | 157,669,000 | $ | 39,659,000 | $ | 12,758,000 | $ | 4,310,000 | $ | 100,942,000 | $ | 159,642,000 | $ | 7,429,000 | $ | 44,235,000 | $ | 6,837,000 | $ | 101,141,000 | ||||||||||||||||||||
Contractual obligations table amount does not reflect the unamortized loan issuance costs of approximately $1.5$2.5 million for notes payable and approximately $0.6 million for the line of credit as of September 30, 2018.March 31, 2019.
Subsequent Events
See Note O —Note Q — Subsequent Eventsin Part I, Item 1 - Notes to the Unaudited Condensed Consolidated Financial Statementsof this Quarterly Report for a discussion of the various subsequent events.
As of March 31, 2019, the Company's debt consisted of approximately $120.1 million in fixed rate debt and $39.5 million in variable rate debt, net of loan issuance costs. The Company's variable interest rate debt is related to the LoanCore loan, where the floating rate loan is set at one-month LIBOR plus 3.65%, LIBOR can't go below 1.95% and the Company has purchased a rate cap that caps LIBOR at 3.50%. Changes in interest rates have different impacts on the fixed rate and variable rate debt. A change in interest rates on fixed rate debt impacts its fair value but has no impact on interest incurred or cash flows. A change in interest rates on variable rate debt could impact the interest incurred and cash flows and its fair value. Assuming no increase in the level of the Company's variable debt, if interest rates increased by 1.0%, or 100 basis points, cash flow would decrease by approximately $0.4 million per year. At March 31, 2019 LIBOR was approximately 2.49%. Assuming no increase in the level of variable rate debt, if LIBOR were reduced to 1.95%, cash flow would increase by approximately $0.2 million per year.
The following tables summarizes gross annual debt maturities, average interest rates and estimated fair values on the Company's outstanding debt as of March 31, 2019:
Debt Maturity Schedule as of March 31, 2019 | ||||||||||||||||||||||||||||||||
| 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
| Fixed rate debt | $ | 7,429,000 | $ | 41,454,000 | $ | 2,781,000 | $ | 3,266,000 | $ | 3,571,000 | $ | 101,141,000 | $ | 159,642,000 | $ | 145,979,000 | ||||||||||||||||
| Average interest rate | 7.01 | % | 6.09 | % | 5.01 | % | 5.04 | % | 5.04 | % | 4.96 | % | ||||||||||||||||||||
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Interim Chief Financial Officer have evaluated the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the period covered by this report, and they have concluded that these controls and procedures are effective.
(b) Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the thirdfirst quarter of 2018,2019, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting.
PART II OTHER INFORMATION
None.
The nature of the Company's business exposes its properties, the Company, its Operating Partnership and its other subsidiaries to the risk of claims and litigation in the normal course of business. Other than as noted above or routine litigation arising out of the ordinary course of business, the Company or its subsidiaries may becomeis not presently subject to legal proceedings, claims or disputes. As of November 9, 2018, neither the Company nor any of its subsidiaries was a party to any material pending legal proceedings.litigation nor, to its knowledge, is any material litigation threatened against the Company.
There have been no material changes from the risk factors set forth in ourThe Company's Annual Report on Form 10-K for the year ended December 31, 2017.2018. The Company notes that the Internalization was completed on April 1, 2019.
Recent Sales of Unregistered Securities
The Company did not sell any of its equity securities during the quarter ended September 30, 2018March 31, 2019 that were not registered under the Securities Act.
Use of Offering Proceeds
The following is a table of summary of offering proceeds from inception through September 30, 2018:March 31, 2019:
| Type | Number of Shares Preferred | Number of Shares Common | Value | Number of Shares Preferred | Number of Shares Common | Value | ||||||||||||||||||
| Issuance of common stock | -- | 2,451,237 | $ | 61,281,000 | -- | 2,451,238 | $ | 61,281,000 | ||||||||||||||||
| Redeemed Shares | -- | (28,037 | ) | (685,000 | ) | -- | (35,650 | ) | (872,000 | ) | ||||||||||||||
| DRIP shares | -- | 83,437 | 2,086,000 | -- | 83,437 | 2,086,000 | ||||||||||||||||||
| Issuance of Series A preferred stock | 2,862 | -- | 2,544,000 | 2,862 | -- | 2,544,000 | ||||||||||||||||||
| Issuance of Series 1 preferred stock | 39,811 | -- | 35,981,000 | 39,811 | -- | 35,981,000 | ||||||||||||||||||
| Dividend shares | -- | 153,827 | 3,845,000 | -- | 153,826 | 3,845,000 | ||||||||||||||||||
| Distributions | -- | -- | (6,554,000 | ) | -- | -- | (8,055,000 | ) | ||||||||||||||||
| Deferred offering costs | -- | -- | (1,086,000 | ) | -- | -- | (1,086,000 | ) | ||||||||||||||||
| Contribution from Advisor | -- | -- | 1,147,000 | -- | -- | 1,147,000 | ||||||||||||||||||
| Shares added for Merger | -- | 3,887,513 | 85,701,000 | -- | 3,887,513 | 85,701,000 | ||||||||||||||||||
| Total | 42,673 | 6,547,977 | $ | 184,260,000 | 42,673 | 6,540,364 | $ | 182,572,000 | ||||||||||||||||
From October 22, 2015 through September 30, 2018,March 31, 2019, the Company incurred organization and offering costs in connection with the issuance and distribution of the registered securities of approximately $1.1 million, which were paid to unrelated parties by the Sponsor. From October 22, 2015 through September 30, 2018,March 31, 2019, the net proceeds to the Company from its offerings, after deducting the total expenses and deferred offering costs incurred and paid by the Company as described above, were $185.0approximately $182.6 million. A majority of these proceeds were used, along with other sources of debt financing, to make investments in parking facilities, andof which the Company's portion of the total purchase price for these parking facilities was approximately $299.0$320.0 million, which includes its $2.8 million investment in the DST. In addition, a portion of these proceeds were used to make cash distributions of approximately $1.8 million to the Company's stockholders. The ratio of the costs of raising capital to the capital raised is approximately 0.59%0.6%.
Not applicable
Not applicable
| Exhibit No. | Description |
| 101(*) | The following materials from the Company's Quarterly Report on Form 10-Q for the three |
| * | Filed concurrently herewith. |
| (1) | Filed previously with Pre-Effective Amendment No. 2 to the Registration Statement on Form S-11 on September 24, 2015, and incorporated herein by reference. |
| (2) | Filed previously on Form 8-K on December 18, |
| (3) | Filed previously with the Registration Statement on Form S-11 on July 28, 2015, and incorporated herein by reference. |
| Filed previously on Form 8-K on October | |
| (5) | Filed previously on Form 8-K on March 30, 2017 and incorporated herein by reference. |
| (6) | Filed previously |
| (7) | Filed previously |
| (8) | Filed previously with Pre-Effective Amendment No. 3 to the Registration Statement on Form S-11 on October 6, 2015, and incorporated herein by reference. |
| (9) | Filed previously on Form 8-K on |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| The Parking REIT, Inc. | ||
| By: | /s/ Michael V. Shustek | |
| Michael V. Shustek | ||
| Chief Executive Officer and | ||
| Date: | ||
| By: | /s/ | |
| Date: | ||