| 6. | Dispositions Disposition of limited service hotels
On January 19, 2015, the Board of Directors of the Company provided approval for the Company to form a joint venture (the “Joint Venture”) with Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a real estate investment trust also sponsored by the Company’s Sponsor and for the Joint Venture to acquire the Company’s membership interest in up to 11 limited service hotels (the “Hotel Portfolio”) for an aggregate of approximately $122.4 million, plus closing and other third party transaction costs, with the acquisition of certain of the properties contingent upon obtaining existing lender approvals. As of December 31, 2014, the 11 limited service hotels were encumbered by an aggregate of approximately $67.2 million in debt. The 11 limited service hotels consist of the following: | · | a 151-room limited service hotel which operates as a Courtyard by Marriott (the “Courtyard – Parsippany”) located in Parsippany, New Jersey (wholly owned by the Lightstone REIT since July 30, 2012); |
| · | a 90-room limited service hotel which operates as a Courtyard by Marriott (the “Courtyard - Willoughby”) located in Willoughby, Ohio (wholly owned by the Lightstone REIT since December 3, 2012); |
| · | a 102-room limited service hotel which operates as a Fairfield Inn & Suites by Marriott (the “Fairfield Inn – Des Moines”) located in West Des Moines, Iowa (wholly owned by the Lightstone REIT since December 3, 2012); |
During the year ended December 31, 2013
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited) |
| · | a 97-suite limited service hotel which operates as a SpringHill Suites by Marriott (the “SpringHill Suites - Des Moines”) located in West Des Moines, Iowa (wholly owned by the Lightstone REIT since December 3, 2012); |
| · | a 82-room, Holiday Inn Express Hotel & Suites (the “Holiday Inn Express - Auburn”) located in Auburn, Alabama (wholly owned by the Lightstone REIT since January 18, 2013); |
| · | a 121-room limited service hotel which operates as a Courtyard by Marriott (the “Courtyard - Baton Rouge”) located in Baton Rouge, Louisiana (90% owned by the Lightstone REIT since May 16, 2013); |
| · | a 108-room limited service hotel which operates as a Residence Inn by Marriott (the “Residence Inn - Baton Rouge”) located in Baton Rouge, Louisiana (90% owned by the Lightstone REIT since May 16, 2013); |
| · | a 130-room select service hotel which operates as a Starwood Hotel Group Aloft Hotel (the “Aloft – Rogers”) located in Rogers, Arkansas (wholly owned by the Lightstone REIT since June 18, 2013); |
| · | a 83-room limited service hotel which operates as a Fairfield Inn & Suites by Marriott (the “Fairfield Inn – Jonesboro”) located in Jonesboro, Arkansas (95% owned by the Lightstone REIT since June 18, 2013); |
| · | a 127-room limited service hotel which operates as a Hampton Inn (the “Hampton Inn - Miami”) located in Miami, Florida (wholly owned by the Lightstone REIT since August 30, 2013); and |
| · | a 104-room limited service hotel which operates as a Hampton Inn & Suites (the “Hampton Inn & Suites - Fort Lauderdale”) located in Fort Lauderdale, Florida (wholly owned by the Lightstone REIT since August 30, 2013). |
On January 29, 2015 the Company, through the Operating Partnership, entered into an agreement to form the Joint Venture with Lightstone II whereby the Company and Lightstone II have 2.5% and 97.5% membership interests in the Joint Venture, respectively. Lightstone II is the managing member. Each member may receive distributions and make future capital contributions based upon its respective ownership percentage, as required. As of March 31, 2015, the Company’s 2.5% membership interest in the Joint Venture was approximately $1.5 million, recorded at cost, and is included in investment in affiliates on the consolidated balance sheet. On January 29, 2015, the Company, through a wholly owned subsidiary of the Operating Partnership, completed the disposition of its memberships interests in a portfolio of 5 of the 11 limited service hotels to be acquired by the Joint Venture previously approved by the Board of Directors for approximately $64.6 million, excluding transaction costs, or approximately $30.5 million, net of $34.1 million of debt which was repaid as part of the transaction, pursuant to five separate contribution agreements entered into with Lightstone II through the Joint Venture. The 5 limited service hotels are as follows: | · | Fairfield Inn - Des Moines |
| · | SpringHill Suites - Des Moines |
| · | Hampton Inn & Suites - Fort Lauderdale |
The Revolving Credit Facility was paid off upon completion of the disposition of the Hotel Portfolio. On February 11, 2015, the Company, through a wholly owned subsidiary of its operating partnership, completed the disposition of its membership interest in the Courtyard – Parsippany and its 90% membership interest in the Residence Inn - Baton Rouge for approximately $23.4 million, excluding transaction costs, or approximately $12.2 million, net of $11.2 million of debt which was assumed by the subsidiaries of the Joint Venture as part of the transaction, pursuant to two separate contribution agreements, each dated as of February 11, 2015, entered into with Lightstone II through the Joint Venture. The Courtyard – Parsippany Loan and the Residence Inn - Baton Rouge Loan were assumed by the subsidiaries of the Joint Venture as part of the transaction. LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited) |
The two transactions completed on January 29, 2015 and February 11, 2015 described above represent 7 of the 11 limited service hotels to be disposed of by the Houston Extended Stay HotelsCompany previously approved by the Board of Directors. The Company is awaiting approval from the holders of the Promissory Note and Everson Pointethe Courtyard Baton Rouge Loan for approximately $27.0 million. the Joint Venture to assume the Promissory Note and the Courtyard Baton Rouge Loan to complete the disposal of the final 4 of the 11 limited service hotels (Holiday Inn Express – Auburn, the Arkansas Hotel Portfolio and the Courtyard - Baton Rouge) previously approved by the Board of Directors. In connection with the disposition,disposal of its interests in 7 of the 11 limited service hotels, the Company repaid in full the then outstanding mortgage indebtednessrecognized a gain on disposition of approximately $11.1 million. The operating results of the Houston Extended Stay Hotels and Everson Pointe, through their respective dates of disposition, have been classified as$14.4 million, which is included in discontinued operations inon the consolidated statements of operations, for all periods presented. These transactions resulted in a fourth quarter aggregate gain on dispositionduring the three months ended March 31, 2015. Disposition of $2.0 million.Crowe’s Crossing During the fourth quarter of 2013, Crowe’s Crossing met the criteria to be classified as held for sale.sale and was subsequently disposed of for approximately $9.3 million on January 22, 2014. The operating results of Crowe’s Crossing through its date of disposition have been classified as discontinued operations in the consolidated statements of operations for all periods presented. Additionally, the associated assets and liabilities of Crowe’s Crossing are classified as held for sale in the consolidated balance sheet as of December 31, 2013. On January 22, 2014 the Company disposed of Crowe’s Crossing for approximately $9.3 million. In connection with the disposition, the Company repaid in full the then outstanding mortgage indebtedness of approximately $5.8 million, which was scheduled to mature in September 2015. TheAdditionally, the Company recognized a gain on disposition of approximately $1.6 million, which is included in discontinued operations during the three months ended September 30,March 31, 2014.
On July 31, 2014, the Company disposed of an industrial property located in Sarasota, Florida (“Sarasota”) for approximately $5.3 million. During the second quarter of 2014, the Company recorded a loss on the disposition of real estate of approximately $2.4 million related to this disposition.
On September 30, 2014, the Company disposed of 2 multi-family apartment buildings located in Greensboro/Charlotte, North Carolina (the “Camden Multi-Family Properties”) for approximately $32.4 million. During the third quarter of 2014, the Company recorded a gain on the disposition of real estate of approximately $11.5 million related to this disposition.
As disclosed in Note 1, during the second quarter of 2014 the Company adopted an accounting standards update that provided new guidance on the requirements for reporting a discontinued operation. As a result, the dispositions of Sarasota and the Camden Multi-Family Properties did not qualify to be reported as discontinued operations.
The following summary presents the operating results of the Houston Extended Stay Hotels, Everson PointeHotel Portfolio and Crowe’s Crossing included in discontinued operations in the Consolidated Statements of Operations for the periods indicated. | | For the Three Months Ended | | | | March 31, 2015 | | | March 31, 2014 | | Revenues | | $ | 5,168 | | | $ | 8,432 | | | | | | | | | | | Operating expenses | | | 4,370 | | | | 6,874 | | | | | | | | | | | Operating income | | | 798 | | | | 1,558 | | | | | | | | | | | Interest expense and other | | | (597 | ) | | | (1,011 | ) | Gain on disposition | | | 14,404 | | | | 1,610 | | | | | | | | | | | Net income from discontinued operations | | $ | 14,605 | | | $ | 2,157 | |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
| | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | | | | | | | | | | | | | Revenues | | $ | - | | | $ | 1,687 | | | $ | 58 | | | $ | 4,834 | | Operating expenses | | | - | | | | 1,148 | | | | 29 | | | | 3,290 | | Operating income | | | - | | | | 539 | | | | 29 | | | | 1,544 | | | | | | | | | | | | | | | | | | | Interest expense and other, net | | | - | | | | (254 | ) | | | (19 | ) | | | (756 | ) | Gain on disposition | | | - | | | | - | | | | 1,610 | | | | - | | Net income from discontinued operations | | $ | - | | | $ | 285 | | | $ | 1,620 | | | $ | 788 | |
Cash flows generated from discontinued operations are presented separately on the Company’s consolidated statements of cash flows. The following summary presents the major components of assets and liabilities held for sale, of as the date indicated. | | As of | | | | December 31, 2013 | | | | | | Net investment property | | $ | 6,622 | | Intangible assets, net | | | 525 | | Other assets | | | 562 | | Total assets held for sale | | $ | 7,709 | | | | | | | Mortgages payable | | $ | 5,834 | | Accounts payable and accrued expenses | | | 41 | | Other liabilities | | | 238 | | Total liabilities held for sale | | $ | 6,113 | |
| | As of | | | As of | | | | March 31, 2015 | | | December 31, 2014 | | Net investment property | | $ | 31,231 | | | $ | 105,610 | | Intangible assets, net | | | 102 | | | | 167 | | Other assets | | | 1,935 | | | | 5,728 | | | | | | | | | | | Total assets held for sale | | $ | 33,268 | | | $ | 111,505 | | | | | | | | | | | Mortgages payable | | $ | 21,379 | | | $ | 67,155 | | Accounts payable and accrued expenses | | | 859 | | | | 2,905 | | Other liabilities | | | 63 | | | | 70 | | | | | | | | | | | Total liabilities held for sale | | $ | 22,301 | | | $ | 70,130 | |
| 7. | Net Earnings Per Share17 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited) |
7.Net Earnings Per Share Basic net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted net income per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented, the effect of these exercises, if any, was insignificantanti-dilutive and, therefore, diluted net income per share is equivalent to basic net income per share. | 8. | Related Party Transactions |
8.Related Party Transactions The Company has agreements with the Advisor and Lightstone Value Plus REIT Management LLC (the “Property Manager”) to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements. The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated: | | Three Months Ended March 31, | | | | 2015 | | | 2014 | | Acquisition fees (general and administrative costs) | | $ | 8 | | | $ | 32 | | Asset management fees (general and administrative costs) | | | 711 | | | | 713 | | Property management fees (property operating expenses) | | | 290 | | | | 348 | | Development fees and leasing commissions* | | | 411 | | | | 164 | | Total | | $ | 1,420 | | | $ | 1,257 | |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
| | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | Acquisition fees (general and administrative costs) | | $ | 23 | | | $ | 897 | | | $ | 82 | | | $ | 2,153 | | Asset management fees (general and administrative costs) | | | 712 | | | | 642 | | | | 2,136 | | | | 1,901 | | Property management fees (property operating expenses) | | | 356 | | | | 235 | | | | 1,045 | | | | 1,090 | | Development fees and leasing commissions* | | | 39 | | | | 754 | | | | 444 | | | | 1,543 | | Total | | $ | 1,130 | | | $ | 2,528 | | | $ | 3,707 | | | $ | 6,687 | |
* Generally, capitalized and amortized over the estimated useful life of the associated asset. Lightstone SLP, LLC, an affiliate of the Company’s Sponsor, has purchased subordinated profits interests in the Operating Partnership (“SLP units”) which are included in noncontrolling interests in the consolidated balance sheets. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. During the three and nine months ended September 30, 2014,March 31, 2015, distributions of $0.5 million and $1.5 million were declared and paid on the SLP units and are part of noncontrolling interests. Since inception through September 30, 2014,March 31, 2015, cumulative distributions declared were $14.5$15.5 million, of which $13.9$15.0 million were paid. See Note 3 for other related party transactions. Preferred Investment On March 7, 2014, the Company entered into an agreement with various related party entities pursuant to which it committed to make contributions of up to $35.0 million, with an additional contribution of up to $10.0 million subject to the satisfaction of certain conditions, which were subsequently met during October 2014, in an affiliate of its Sponsor which owns a parcel of land located at 365 Bond Street in Brooklyn, New York on which it is constructing a residential apartment project. These contributions are made pursuant to an instrument, the “Preferred Investment,” that is entitled to monthly preferred distributions at a rate of 12% per annum, is redeemable by the Company upon the occurrence of certain events, is classified as a held-to-maturity security and is recorded at cost. The Company commenced making contributions during the second quarter of 2014 and as of September 30,March 31, 2015 and December 31, 2014, the Preferred Investment had a balance of approximately $21.8$42.2 million and $36.6 million, respectively and is classified as investment in affiliate on the consolidated balance sheet. During the three and nine months ended September 30, 2014,March 31, 2015, the Company recorded approximately $0.7 million and $1.1$1.2 million of dividend income related to the Preferred Investment, which is included in interest and dividend income on the consolidated statements of operations. 9.Financial Instruments The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ accounts receivable, accounts payable and accrued expenses and the notes payable approximated their fair values because of the short maturity of these instruments. The carrying amount reported in the consolidated balance sheets for the mortgage receivable approximated its fair value based upon current market information that would have been used by a market participant to estimate the fair value of such loan. LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited) |
The estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows: | | As of September 30, 2014 | | | As of December 31, 2013 | | | | Carrying Amount | | | Estimated Fair Value | | | Carrying Amount | | | Estimated Fair Value | | Mortgages payable | | $ | 265.0 | | | $ | 264.2 | | | $ | 295.3 | | | $ | 292.8 | |
| | As of March 31, 2015 | | | As of December 31, 2014 | | | | Carrying Amount | | | Estimated Fair Value | | | Carrying Amount | | | Estimated Fair Value | | Mortgages payable | | $ | 226,645 | | | $ | 229,209 | | | $ | 227,189 | | | $ | 228,261 | |
The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates. LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)10.(UnauditedSegment Information)
The Company currently operates in four business segments as of September 30, 2014:March 31, 2015: (i) retail real estate (the “Retail Segment”), (ii) multi-family residential real estate (the “Multi-family Residential Segment”), (iii) industrial real estate (the “Industrial Segment”) and (iv) hospitality (the “Hospitality Segment”). The Company’s Advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Company’s revenues for the three and nine months ended September 30,March 31, 2015 and 2014 and 2013 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of September 30, 2014March 31, 2015 and December 31, 2013.2014. The accounting policies of the segments are the same as those described in Note 2: Summary of Significant Accounting Policies of the Company’s December 31, 20132014 Annual Report on Form 10-K. Unallocated assets, revenues and expenses relate to corporate related accounts. The Company evaluates performance based upon net operating income/(loss) from the combined properties in each real estate segment. As discussed in Note 6, the results of operations presented below exclude the Houston Extended Stay Hotels, Everson Pointe and Crowe’s Crossing and the Hotel Portfolio due to their classification as discontinued operations for all periods presented. The Houston Extended Stay Hotels wereHotel Portfolio was previously included in the Company’s Hospitality Segment and Everson Pointe and Crowe’s Crossing werewas previously included in the Company’s Retail Segment. Selected results of operations for the three and nine months ended September 30,March 31, 2015 and 2014, and 2013, and total assets as of September 30, 2014March 31, 2015 and December 31, 20132014 regarding the Company’s operating segments are as follows: | | For the Three Months Ended September 30, 2014 | | | | Retail | | | Multi-Family | | | Industrial | | | Hospitality | | | Unallocated | | | Total | | | | | | | | | | | | | | | | | | | | | Total revenues | | $ | 2,945 | | | $ | 5,282 | | | $ | 1,897 | | | $ | 14,550 | | | $ | - | | | $ | 24,674 | | | | | | | | | | | | | | | | | | | | | | | | | | | Property operating expenses | | | 814 | | | | 1,733 | | | | 565 | | | | 9,916 | | | | 1 | | | | 13,029 | | Real estate taxes | | | 389 | | | | 510 | | | | 204 | | | | 460 | | | | - | | | | 1,563 | | General and administrative costs | | | 8 | | | | 57 | | | | 36 | | | | 124 | | | | 1,363 | | | | 1,588 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net operating income/(loss) | | | 1,734 | | | | 2,982 | | | | 1,092 | | | | 4,050 | | | | (1,364 | ) | | | 8,494 | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 945 | | | | 867 | | | | 417 | | | | 1,777 | | | | - | | | | 4,006 | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income/(loss) | | $ | 789 | | | $ | 2,115 | | | $ | 675 | | | $ | 2,273 | | | $ | (1,364 | ) | | $ | 4,488 | | | | | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 2014: | | | | | | | | | | | | | | | | | | | | | | | | | Total Assets | | $ | 105,265 | | | $ | 124,233 | | | $ | 51,380 | | | $ | 156,628 | | | $ | 218,264 | | | $ | 655,770 | |
| | For the Three Months Ended September 30, 2013 | | | | Retail | | | Multi-Family | | | Industrial | | | Hospitality | | | Unallocated | | | Total | | | | | | | | | | | | | | | | | | | | | Total revenues | | $ | 2,930 | | | | 3,505 | | | | 1,782 | | | | 11,682 | | | | - | | | $ | 19,899 | | | | | | | | | | | | | | | | | | | | | | | | | | | Property operating expenses | | | 811 | | | | 1,644 | | | | 543 | | | | 8,962 | | | | 1 | | | | 11,961 | | Real estate taxes | | | 337 | | | | 315 | | | | 189 | | | | 397 | | | | - | | | | 1,238 | | General and administrative costs | | | (6 | ) | | | 74 | | | | 9 | | | | 26 | | | | 3,204 | | | | 3,307 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net operating income/(loss) | | | 1,788 | | | | 1,472 | | | | 1,041 | | | | 2,297 | | | | (3,205 | ) | | | 3,393 | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 980 | | | | 614 | | | | 647 | | | | 846 | | | | 1 | | | | 3,088 | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income/(loss) | | $ | 808 | | | $ | 858 | | | $ | 394 | | | $ | 1,451 | | | $ | (3,206 | ) | | $ | 305 | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2013: | | | | | | | | | | | | | | | | | | | | | | | | | Total Assets | | $ | 114,817 | | | $ | 145,582 | | | $ | 59,937 | | | $ | 150,923 | | | $ | 206,502 | | | $ | 677,761 | |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited) |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
| | For the Nine Months Ended September 30, 2014 | | | | | Retail | | Multi Family | | Industrial | | Hospitality | | Unallocated | | Total | | | For the Three Months Ended March 31, 2015 | | | | | | | | | | | | | | | | | Retail | | | Multi-Family | | | Industrial | | | Hospitality | | | Unallocated | | | Total | | Total revenues | | $ | 8,498 | | | $ | 15,496 | | | $ | 5,673 | | | $ | 41,634 | | | $ | - | | | $ | 71,301 | | | $ | 2,788 | | | $ | 4,288 | | | $ | 1,598 | | | $ | 4,157 | | | $ | - | | | $ | 12,831 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Property operating expenses | | | 2,441 | | | | 5,463 | | | | 1,597 | | | | 29,270 | | | | 2 | | | | 38,773 | | | | 914 | | | | 1,374 | | | | 445 | | | | 3,787 | | | | 1 | | | | 6,521 | | Real estate taxes | | | 776 | | | | 1,190 | | | | 622 | | | | 1,380 | | | | - | | | | 3,968 | | | | 358 | | | | 265 | | | | 173 | | | | 79 | | | | - | | | | 875 | | General and administrative costs | | | 7 | | | | 210 | | | | (19 | ) | | | 435 | | | | 4,254 | | | | 4,887 | | | | (3 | ) | | | 58 | | | | (46 | ) | | | 103 | | | | 1,302 | | | | 1,414 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net operating income/(loss) | | | 5,274 | | | | 8,633 | | | | 3,473 | | | | 10,549 | | | | (4,256 | ) | | | 23,673 | | | | 1,519 | | | | 2,591 | | | | 1,026 | | | | 188 | | | | (1,303 | ) | | | 4,021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 2,970 | | | | 2,936 | | | | 1,329 | | | | 4,960 | | | | - | | | | 12,195 | | | | 1,000 | | | | 740 | | | | 404 | | | | 655 | | | | - | | | | 2,799 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income/(loss) | | $ | 2,304 | | | $ | 5,697 | | | $ | 2,144 | | | $ | 5,589 | | | $ | (4,256 | ) | | $ | 11,478 | | | $ | 519 | | | $ | 1,851 | | | $ | 622 | | | $ | (467 | ) | | $ | (1,303 | ) | | $ | 1,222 | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of March 31, 2015: | | | | | | | | | | | | | | | | | | | | | | | | | | Total Assets | | | $ | 109,639 | | | $ | 123,343 | | | $ | 50,272 | | | $ | 63,300 | | | $ | 282,025 | | | $ | 628,579 | |
| | For the Nine Months Ended September 30, 2013 | | | | | Retail | | Multi Family | | Industrial | | Hospitality | | Unallocated | | Total | | | For the Three Months Ended March 31, 2014 | | | | | | | | | | | | | | | | | Retail | | | Multi-Family | | | Industrial | | | Hospitality | | | Unallocated | | | Total | | Total revenues | | $ | 8,826 | | | $ | 10,014 | | | $ | 5,359 | | | $ | 28,164 | | | $ | - | | | $ | 52,363 | | | $ | 2,852 | | | $ | 4,980 | | | $ | 1,878 | | | $ | 4,176 | | | $ | - | | | $ | 13,886 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Property operating expenses | | | 2,350 | | | | 4,510 | | | | 1,448 | | | | 22,069 | | | | 7 | | | | 30,384 | | | | 767 | | | | 1,952 | | | | 512 | | | | 3,855 | | | | 1 | | | | 7,087 | | Real estate taxes | | | 1,009 | | | | 812 | | | | 586 | | | | 1,064 | | | | - | | | | 3,471 | | | | 339 | | | | 345 | | | | 209 | | | | 63 | | | | - | | | | 956 | | General and administrative costs | | | 14 | | | | 193 | | | | 21 | | | | 152 | | | | 8,154 | | | | 8,534 | | | | 20 | | | | 94 | | | | (56 | ) | | | 61 | | | | 1,543 | | | | 1,662 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net operating income/(loss) | | | 5,453 | | | | 4,499 | | | | 3,304 | | | | 4,879 | | | | (8,161 | ) | | | 9,974 | | | | 1,726 | | | | 2,589 | | | | 1,213 | | | | 197 | | | | (1,544 | ) | | | 4,181 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 2,962 | | | | 1,487 | | | | 1,563 | | | | 1,891 | | | | - | | | | 7,903 | | | | 962 | | | | 1,023 | | | | 459 | | | | 624 | | | | - | | | | 3,068 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income/(loss) | | $ | 2,491 | | | $ | 3,012 | | | $ | 1,741 | | | $ | 2,988 | | | $ | (8,161 | ) | | $ | 2,071 | | | $ | 764 | | | $ | 1,566 | | | $ | 754 | | | $ | (427 | ) | | $ | (1,544 | ) | | $ | 1,113 | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2014: | | | | | | | | | | | | | | | | | | | | | | | | | | Total Assets | | | $ | 105,343 | | | $ | 127,116 | | | $ | 50,635 | | | $ | 147,572 | | | $ | 243,173 | | | $ | 673,839 | |
| 11. | Commitments and Contingencies |
11.Commitments and Contingencies Legal Proceedings From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes. On January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect, wholly owned subsidiaryIn connection with the sale of 1407 Broadway Mezz II LLC ("1407 Broadway "), consummated the acquisition of aour indirectly-owned sub-leasehold interest (the "Sublease Interest") in anthe office building located at 1407 Broadway, New York, New York, (the "Office Property"). 1407 Broadway is a joint venture between LVP 1407 Broadway LLC ("LVP LLC"), a wholly owned subsidiary ofwe resolved our operating partnership, and Lightstone 1407 Manager LLC ("Manager"), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief Executive Officer, and Shifra Lichtenstein, his wife.
The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreementpreviously disclosed litigation with Gettinger Associates, L.P. ("Gettinger"). In July 2006, Abraham Kamber Company as Sublessorsublessor under the sublease, ("Sublessor"),who had served the two notices of default on Gettinger (the "Default Notices"). The first allegedour predecessor in interest that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettinger's purported failure to maintain the Office Property in compliance with its contractual obligations.
In responsegave rise to the Default Notices, Gettinger commenced legal action and obtained an injunction that extendslitigation. Effective March 30, 2015, the litigation was dismissed in its time to cure any default, prohibits interferenceentirety with its leasehold interest and prohibits Sublessor from terminating its sublease pending resolution of the litigation. A motion by Sublessor for partial summary judgment, alleging that certain work on the Office Property required its prior approval, was denied by the Supreme Court, New York County. Subsequently, by agreement of the parties, a stay was entered precluding the termination of the Sublease Interest pending a final decision on Sublessor's claim of defaults under the Sublease Interest. In addition, the parties stipulated to the intervention of Office Owner as a party to the proceedings.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
On April 12, 2012, the Supreme Court, New York County decided in favor of the Company with respect to all matters before the Court. Sublessor filed a Notice of Appeal on June 7, 2012 and, afterprejudice. This matter has now been fully briefing the issues, the parties argued the appeal on January 30, 2013. On February 21, 2013, the Appellate Division, First Department rendered its decision largely affirming the lower court’s determination. The Appellate Division did determine that there were two 2007 defaults that had not been cured and that the assignment of the sublease had occurred at a time when defaults existed. The Appellate Division determined that the remedy for such defaults was not a forfeiture of the sublease. Instead, the Appellate Division remanded to the lower court with direction that the lower court fashion a remedy short of forfeiture. Recently, the Sublessor has sent a letter claiming that the Appellate Division order “lifted” the Yellowstone Injunction, a procedure in New York law whereby a tenant in a commercial premises has a right to stay the time to cure, and demanding a cure within thirty (30) days. We have rejected that claim because the Appellate Division decision expressly remanded the case with a direction that the Supreme Court fashion a remedy other than forfeiture of the alleged defaults, and requested a conference from the lower court. On December 10, 2013, the parties appeared before Justice James and engaged in oral argument. The court determined that Kamber failed to provide evidence of its losses relating to the prior defaults or prohibited assignment, and therefore, only nominal damages should be awarded. However, the court provided that Kamber receive one month’s ground rent plus interest accrued from 2007, an amount totaling over $1 million and a clear disconnect from the court’s intent to award “nominal” damages. The Company filed a motion requesting that the court reconsider its award based on the court’s own premise of nominal damages.disposed of.
On July 13, 2011, JF Capital Advisors, filed a lawsuit against The Lightstone Group, LLC, the Company, and Lightstone Value Plus Real Estate Investment Trust II, Inc. in the Supreme Court of the State of New York seeking payment for services alleged to have been rendered, and to be rendered prospectively, under theories of unjust enrichment and breach of contract. The plaintiff had a limited business arrangement with The Lightstone Group, LLC; that arrangement has been terminated. We filed a motion to dismiss the action and, on January 31, 2012, the Supreme Court dismissed the complaint in its entirety, but granted the plaintiff leave to replead two limited causes of action. The plaintiff filed an amended complaint on May 18, 2012, bringing limited claims under theories of unjust enrichment and quantum meruit. On November 21, 2012, the court dismissed this second complaint in part, leaving only $164 (plus interest) in potential damages. The plaintiff appealed this decision and Lightstone cross-appealed arguing that the case should have been dismissed in full. The appeals court denied plaintiff’s motion and granted defendants’ motion, as a result of which all claims were dismissed on March 25, 2014. The plaintiff filed a motion requesting the right to re-appeal to the Court of Appeals, which was granted on August 1, 2014. LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited) |
Plaintiff has appealed to the Court of Appeals. The Court of Appeals is scheduled to hear the case on June 3, 2015. Lightstone continues to believe that these claims to be without merit and will defend the case vigorously. While any proceeding or litigation has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned legal proceedings is remote. No provision for loss has been recorded in connection therewith. As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.
Outlet Centers Transactions
The Company previously held ownership interests in Grand Prairie Holdings LLC (“GPH”) and Livermore Valley Holdings LLC (“LVH”). On December 4, 2012, GPH, LVH and certain of their subsidiaries (collectively, the “Holding Entities”) completed the disposition of their ownership interests in an outlet center located in Grand Prairie, Texas (the “Grand Prairie Outlet Center”), an outlet center located in Livermore, California (the “Livermore Valley Outlet Center”) and a parcel of land adjacent to the Livermore Outlet Center (the “Livermore Land Parcel” and collectively, the “Outlet Centers Transactions”) to Simon and certain of its affiliates (collectively, the “Simon Parties”).
During the first quarter of 2013, the Holding Entities received an additional $3.0 million, of which the Company’s share was $1.2 million, related to the disposition of its ownership interest in the Grand Prairie Outlet Center resulting from the satisfaction of certain conditions. As a result, the Company recorded a gain on disposition of unconsolidated affiliated real estate entities of $1.2 million during the first quarter of 2013.
During the third quarter of 2014, the Holding Entities received a final distribution of $11.0 million, of which the Company’s share was $4.4 million, related to the final true-ups and adjustments pursuant to the terms of the Outlet Centers Transactions, as well as additional consideration for the Livermore Land Parcel. As a result, the Company recorded a gain on disposition of unconsolidated affiliated real estate entities of $4.4 million during the third quarter of 2014.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
Loan Collection Guaranties The Operating Partnership and PRO (collectively, the “LVP Parties”) have provided and will continue to have the opportunity to provide guaranties of collection (the “Loan Collection Guaranties”) with respect to draws made under revolving credit facilities (or indebtedness incurred to refinance the revolving credit facilities) by Simon in connection with the closing of certain contribution transactions related to the LVP Parties’ ownership interests in (i) Mill Run LLC (“Mill Run”) and Prime Outlets Acquisition Company (“POAC” and collectively, the “POAC/Mill Run Transaction”) and (ii) GPH and LVH, . The Loan Collection Guaranties are required for at least four years following the closings of POAC/Mill Run Transaction and the Outlet Centers Transaction, which closed on August 30, 2010 and December 4, 2012, respectively. Under the terms of the Loan Collection Guaranties, the LVP Parties are obligated to make payments in respect of principal and interest due under the revolving credit facilities after Simon OP has failed to make payments, the amounts outstanding under the revolving credit facilities have been accelerated, and the lender have failed to collect the full amounts outstanding under the revolving credit facilities after exhausting other remedies. The maximum amounts of the Loan Collection Guaranties will be reduced by the extent of any payments of principal made by Simon OP or other cash proceeds recovered by the lenders. 12.Subsequent Events
Distribution Payment On OctoberApril 15, 2014,2015, the distribution for the three-month period ending September 30, 2014March 31, 2015 of approximately $4.6$4.5 million was paid in full using a combination of cash and approximately 0.1 million shares of the Company’s common stock issued pursuant to the Company’s Distribution Reinvestment Program (“DRIP”), at a discounted price of $11.21 per share.cash. The distribution was paid from cash flows provided from operations (approximately $3.1 million or 68%) and excess cash proceeds from the issuance of common stock through the Company’s DRIP (approximately $1.5 million or 32%). operations. Distribution Declaration On November 14, 2014,May 13, 2015, the Board authorized and the Company declared a distribution for the three-month period ending December 31, 2014.June 30, 2015. The distribution will be calculated based on shareholders of record each day during this three-month period at a rate of $0.0019178 per day, and will equal a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The distribution will be paid in cash on JanuaryJuly 15, 2015 to shareholders of record as of December 31, 2014. The shareholders have an option to elect the receipt of shares under the Company’s DRIP.June 30, 2015.
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT, L.P. and its wholly owned subsidiaries, which we collectively refer to as “the Operating Partnership.” Dollar amounts are presented in thousands, except per share data and where indicated in millions. As discussed in NoteNotes 1 and 6 of the Notes to the Consolidated Financial Statements, the results of operations presented below exclude two Extended Stay Hotels located in Houston, Texas (the “Houston Extended Stay Hotels”), a retail shopping center (“Everson Pointe”) located in Snellville, Georgia and a retail shopping center (“Crowe’s Crossing”) located in Stone Mountain, Georgiacertain properties due to their classification as discontinued operations. The Houston Extended Stay Hotels were previously included in the Company’s hospitality segment and Everson Pointe and Crowe’s Crossing were previously included in the Company’s retail segment. Forward-Looking Statements Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the Securities and Exchange Commission, or the SEC, contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements. Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements. Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company (defined herein) to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance (“CAM”), insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor, Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q, our Form 10-K and in the Company’s other reports filed with the SEC. We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law. Overview Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT”) and Lightstone Value Plus REIT, LP, (the “Operating Partnership”) and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used. Lightstone REIT has and may continue to acquire and operate in the future commercial, residential and hospitality properties, principally in the United States. Principally through the Operating Partnership, our acquisitions have included both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily select service hotels), industrial properties and residential properties comprised of multi-family complexes. As discussed in Notes 1 and 6 of the Notes to Consolidated Financial Statements, the results of operations presented below exclude certain properties due to their classification as discontinued operations. We do not have employees. We have an advisory agreement with Lightstone Value Plus REIT LLC, a Delaware limited liability company, which we refer to as the “Advisor,” pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors. We pay the Advisor fees for services related to the investment and management of our assets, and we reimburse the Advisor for certain expenses incurred on our behalf. Current Environment Our operating results as well as our investment opportunities are impacted by the health of the North American economies. Our business and financial performance may be adversely affected by current and future economic conditions, such as an availability of credit, financial markets volatility and recession. Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the value and performance of our properties, and may affect our ability to pay distributions, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due. We are not aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the acquisition and operation of real estate and real estate related investments, other than those referred to in this Form 10-Q. Portfolio Summary – | | Location | | Year Built (Range of years built) | | Leasable Square Feet | | | Percentage Occupied as of September 30, 2014 | | | Annualized Revenues based on rents at September 30, 2014 | | Annualized Revenues per square foot at September 30, 2014 | | Wholly Owned and Consolidiated Real Estate Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail | | | | | | | | | | | | | | | | | | | St. Augustine Outlet Center | | St. Augustine, FL | | 1998 | | | 330,246 | | | | 79.0 | % | | $3.8 million | | $ | 14.59 | | Oakview Plaza | | Omaha, NE | | 1999 - 2005 | | | 176,774 | | | | 87.0 | % | | $2.3 million | | $ | 15.05 | | DePaul Plaza | | Bridgeton, MO | | 1985 | | | 187,090 | | | | 80.7 | % | | $1.7 million | | $ | 11.46 | | | | | | Retail Total | | | 694,110 | | | | 81.5 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Industrial | | | | | | | | | | | | | | | | | | | 7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio | | New Orleans, LA | | 1980-2000 | | | 339,700 | | | | 75.6 | % | | $2.9 million | | $ | 11.30 | | 4 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio | | San Antonio, TX | | 1982-1986 | | | 484,369 | | | | 86.1 | % | | $1.9 million | | $ | 4.46 | | 3 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio | | Baton Rouge, LA | | 1985-1987 | | | 182,792 | | | | 85.8 | % | | $1.0 million | | $ | 6.68 | | | | | | | | | | | | | | | | | | | | | | | | | Industrial Total | | | 1,006,861 | | | | 82.5 | % | | | | | | |
| | Location | | Year Built (Range of years built) | | Leasable Square Feet | | | Percentage Occupied as of March 31, 2015 | | | Annualized Revenues based on rents at March 31, 2015 | | Annualized Revenues per square foot at March 31, 2015 | | Wholly Owned and Consolidated Real Estate Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Retail | | | | | | | | | | | | | | | | | | | St. Augustine Outlet Center | | St. Augustine, FL | | 1998 | | | 330,596 | | | | 77.9 | % | | $3.7 million | | $ | 14.22 | | Oakview Plaza | | Omaha, NE | | 1999 - 2005 | | | 176,774 | | | | 87.0 | % | | $2.3 million | | $ | 14.70 | | DePaul Plaza | | Bridgeton, MO | | 1985 | | | 187,090 | | | | 87.5 | % | | $1.9 million | | $ | 11.73 | | | | | | Retail Total | | | 694,460 | | | | 82.8 | % | | | | | | | | | | | | | | | | | | | | | | | | | | Industrial | | | | | | | | | | | | | | | | | | | 7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio | | New Orleans, LA | | 1980-2000 | | | 339,700 | | | | 68.2 | % | | $2.6 million | | $ | 11.39 | | 4 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio | | San Antonio, TX | | 1982-1986 | | | 484,369 | | | | 83.5 | % | | $1.9 million | | $ | 4.72 | | 3 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio | | Baton Rouge, LA | | 1985-1987 | | | 182,792 | | | | 72.9 | % | | $0.9 million | | $ | 6.45 | | | | | | | | | | | | | | | | | | | | | | | | | Industrial Total | | | 1,006,861 | | | | 76.4 | % | | | | | | |
Multi - Family Residential | | Location | | Year Built (Range of years built) | | Leasable Units | | | Percentage Occupied as of September 30, 2014 | | | Annualized Revenues based on rents at September 30, 2014 | | Annualized Revenues per unit at September 30, 2014 | | Southeastern Michigan Multi-Family Properties (Four Apartment Buildings) | | Southeast MI | | 1965-1972 | | | 1,017 | | | | 95.4 | % | | $8.1 million | | $ | 8,400 | | Gantry Park (Multi-Family Apartment Building) | | Queens, NY | | 2013 | | | 199 | | | | 94.0 | % | | $7.2 million | | $ | 38,709 | | | | | | Residential Total | | | 1,216 | | | | 95.1 | % | | | | | | |
| | Location | | Year Built | | Year to date Available Rooms | | | Percentage Occupied as of September 30, 2014 | | | Revenue per Available Room for the Nine Months Ended September 30, 2014 | | | Average Daily Rate For the Nine Months Ended September 30, 2014 | | Wholly-Owned and Consolidated Hospitality Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | DoubleTree - Danvers | | Danvers, Massachusetts | | 1978 | | | 99,099 | | | | 58.9 | % | | $ | 67.97 | | | $ | 115.37 | | | | | | | | | | | | | | | | | | | | | | | Courtyard - Parsippany | | Parsippany, New Jersey | | 2001 | | | 41,223 | | | | 58.3 | % | | $ | 78.91 | | | $ | 135.45 | | | | | | | | | | | | | | | | | | | | | | | Courtyard - Willoughby | | Willoughby, Ohio | | 1999 | | | 24,570 | | | | 77.7 | % | | $ | 96.72 | | | $ | 124.45 | | | | | | | | | | | | | | | | | | | | | | | Fairfield Inn - DesMoines | | West Des Moines, Iowa | | 1997 | | | 27,846 | | | | 72.5 | % | | $ | 73.69 | | | $ | 101.60 | | | | | | | | | | | | | | | | | | | | | | | SpringHill Suites - DesMoines | | West Des Moines, Iowa | | 1999 | | | 26,481 | | | | 72.2 | % | | $ | 76.17 | | | $ | 105.54 | | | | | | | | | | | | | | | | | | | | | | | Holiday Inn Express - Auburn | | Auburn, Alabama | | 2002 | | | 22,386 | | | | 61.3 | % | | $ | 69.42 | | | $ | 113.27 | | | | | | | | | | | | | | | | | | | | | | | Courtyard - Baton Rouge | | Baton Rouge, Lousiana | | 1997 | | | 33,033 | | | | 70.3 | % | | $ | 72.59 | | | $ | 103.25 | | | | | | | | | | | | | | | | | | | | | | | Residence Inn - Baton Rouge | | Baton Rouge, Lousiana | | 2000 | | | 29,484 | | | | 59.3 | % | | $ | 63.22 | | | $ | 106.64 | | | | | | | | | | | | | | | | | | | | | | | Aloft - Rogers | | Rogers, Arkansas | | 2008 | | | 35,490 | | | | 63.0 | % | | $ | 73.51 | | | $ | 116.60 | | | | | | | | | | | | | | | | | | | | | | | Fairfield Inn - Jonesboro | | Jonesboro, Arkansas | | 2009 | | | 22,659 | | | | 77.4 | % | | $ | 73.54 | | | $ | 95.02 | | | | | | | | | | | | | | | | | | | | | | | Hampton Inn - Miami | | Miami, Florida | | 1996 | | | 34,398 | | | | 82.1 | % | | $ | 95.12 | | | $ | 115.89 | | | | | | | | | | | | | | | | | | | | | | | Hampton Inn & Suites - Fort Lauderdale | | Fort Lauderdale, Florida | | 1996 | | | 28,392 | | | | 84.7 | % | | $ | 108.26 | | | $ | 127.76 | | | | | | | | | | | | | | | | | | | | | | | | | | | Hospitality Total | | | 425,061 | | | | 67.6 | % | | $ | 77.33 | | | $ | 114.36 | |
| | Location | | Year Built | | | Leasable Square Feet | | | Percentage Occupied as of September 30, 2014 | | | Annualized Revenues based on rents at September 30, 2014 | | | Annualized Revenues per square foot at September 30, 2014 | | Unconsolidated Affiliated Real Estate Entities-Office: | | | | | | | | | | | | | | | | | | | | | | | 1407 Broadway(1) | | New York, NY | | | 1952 | | | | 1,114,695 | | | | 83.3 | % | | $ | 40.50 | | | $ | 43.59 | |
Multi - Family Residential | | Location | | Year Built (Range of years built) | | Leasable Units | | | Percentage Occupied as of March 31, 2015 | | | Annualized Revenues based on rents at March 31, 2015 | | Annualized Revenues per unit at March 31, 2015 | | Southeastern Michigan Multi-Family Properties (Four Apartment Buildings) | | Southeast MI | | 1965-1972 | | | 1,017 | | | | 94.2 | % | | $8.2 million | | $ | 8,520 | | Gantry Park (Multi-Family Apartment Building) | | Queens, NY | | 2013 | | | 199 | | | | 99.5 | % | | $7.8 million | | $ | 39,350 | | | | | | Residential Total | | | 1,216 | | | | 95.1 | % | | | | |
(1) - Sub-lease interest indirectly owned by 1407 Broadway Mezz II, LLC, in which we have an 49.0% ownership interest.
| | Location | | Year Built | | | Year to date Available Rooms | | | Percentage Occupied as of March 31, 2015 | | | Revenue per Available Room for the Three Months Ended March 31, 2015 | | | Average Daily Rate For the Three Months Ended March 31, 2015 | | Wholly-Owned and Consolidated Hospitality Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | DoubleTree - Danvers | | Danvers, Massachusetts | | | 1978 | | | | 32,670 | | | | 38.2 | % | | $ | 45.23 | | | $ | 118.39 | | | | | | | | | | | | | | | | | | | | | | | | | Holiday Inn Express - Auburn (2) | | Auburn, Alabama | | | 2002 | | | | 7,380 | | | | 74.5 | % | | $ | 79.82 | | | $ | 107.21 | | | | | | | | | | | | | | | | | | | | | | | | | Courtyard - Baton Rouge (2) | | Baton Rouge, Louisiana | | | 1997 | | | | 10,890 | | | | 71.0 | % | | $ | 76.18 | | | $ | 107.30 | | | | | | | | | | | | | | | | | | | | | | | | | Aloft - Rogers (2) | | Rogers, Arkansas | | | 2008 | | | | 11,700 | | | | 55.3 | % | | $ | 69.88 | | | $ | 126.43 | | | | | | | | | | | | | | | | | | | | | | | | | Fairfield Inn - Jonesboro (2) | | Jonesboro, Arkansas | | | 2009 | | | | 7,470 | | | | 70.6 | % | | $ | 70.87 | | | $ | 100.37 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Hospitality Total | | | | 70,110 | | | | 53.4 | % | | $ | 60.52 | | | $ | 118.39 | |
| | Location | | Year Built | | | Leasable Square Feet | | | Percentage Occupied as of March 31, 2015 | | | Annualized Revenues based on rents at March 31, 2015 | | | Annualized Revenues per square foot at March 31, 2015 | | Unconsolidated Affiliated Real Estate Entities-Office: | | | | | | | | | | | | | | | | | | 1407 Broadway(1) | | New York, NY | | | 1952 | | | | 1,114,695 | | | | 82.5 | % | | $ | 40.70 | | | $ | 44.27 | |
25 | (1) | - Sub-lease interest was indirectly owned by 1407 Broadway Mezz II, LLC, in which we had a 49.0% ownership interest. 1407 Broadway disposed of its sub-lease interest on April 30, 2015. |
| (2) | Included in discontinued operations. |
Annualized revenue is defined as the minimum monthly payments due as of September 30, 2014March 31, 2015 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants. Critical Accounting Policies and Estimates There were no material changes during the three months ended September 30, 2014March 31, 2015 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2013.2014. Results of Operations Our primary financial measure for evaluating each of our properties is net operating income (“NOI”). NOI represents revenues less property operating expenses, real estate taxes and general and administrative expenses. We believe that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of our properties. Our operating results for the
Property Dispositions In July 2014 and 2013 periods were significantly impacted by (i) the timingwe disposed of various hotel acquisitions (included in our Hospitality Segment), as set forth below, and (ii) the completion of construction of Gantry Park (included in our Multi-Family Residential Segment) and commencement of its operations during the third quarter of 2013. On January 18, 2013, we acquired a Holiday Inn Express Hotel & Suites (the “Holiday Inn Express - Auburn”)an industrial property located in Auburn, Alabama. On May 16, 2013,Sarasota, Florida (“Sarasota”) and in September 2014 we acquired a portfolio compriseddisposed of two hotels2 multi-family apartment buildings located in Baton Rouge, LouisianaGreensboro/Charlotte, North Carolina (the “Courtyard - Baton Rouge” and the “Residence Inn - Baton Rouge”, or collectively, the “Baton Rouge Hotel Portfolio”“Camden Multi-Family Properties”). On June 18, 2013, we acquired a portfolio comprised of two hotels, one located in Rogers, Arkansas (the “Aloft - Rogers”) and the other in Jonesboro, Arkansas (the “Fairfield Inn - Jonesboro”, or collectively, the “Arkansas Hotel Portfolio”). On August 30, 2013, we acquired a portfolio comprised of two hotels located in South Florida (the “Hampton Inn - Miami” and the “Hampton Inn & Suites - Fort Lauderdale”, or collectively, the “Florida Hotel Portfolio”).These dispositions did not qualify to be reported as discontinued operations. For the Three Months Ended September 30,March 31, 2015 vs. March 31, 2014 vs. September 30, 2013 Consolidated Revenues Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues increaseddecreased by approximately $4.8$1.1 million to $24.7$12.8 million for the three months ended September 30, 2014March 31, 2015 compared to $19.9$13.9 million for the same period in 2013.2014. The increasedecrease primarily reflects higher revenuesthe property disposition described above offset by an increase in our Hospitality Segmentrevenue of $2.9 million and our Multi-Family Residential Segment of $1.8approximately $0.4 million. See “Segment Results of Operations for the Three Months Ended September 30, 2014March 31, 2015 compared to September 30, 2013”March 31, 2014” for additional information on revenues by segment. Property operating expenses
Property operating expenses increased by approximately $1.0 million to $13.0 million for the three months ended September 30, 2014 compared to $12.0 million the same period in 2013. The increase primarily reflects higher property operating expenses in our Hospitality Segment as a result of the timing of our hotel acquisitions.
Real estate taxes
Real estate taxes increased by approximately $0.4 million to $1.6 million for the three months ended September 30, 2014 compared to $1.2 million the same period in 2013. The increase was primarily due to the timing of our hotel acquisitions noted above and Gantry Park.
General and administrative expenses General and administrative expenses decreased by approximately $1.7$0.3 million to $1.6$1.4 million for the three months ended September 30, 2014March 31, 2015 compared to $3.3$1.7 million the same period in 2013.2014. The decrease is primarily attributable to acquisition costs incurred in the 2013 period as a result of our hotel acquisitions notedproperty disposition described above. Depreciation and Amortization Depreciation and amortization expense increaseddecreased by approximately $0.9$0.3 million to $4.0$2.8 million for the three months ended September 30, 2014March 31, 2015 compared to $3.1 million the same period in 2013.2014. The increase wasdecrease is primarily dueattributable to the timing of our hotel acquisitions noted above and Gantry Park. Mark to market adjustment on derivative financial instruments
During the three months ended September 30, 2013, we recorded mark to market adjustments on derivative financial instruments of $4.7 million. The mark to market adjustments primarily represented the change in the fair values of a collar entered into to protect the value of a portion of our Marco OP Units within a certain specified range through December 2013.property disposition described above.
Interest and dividend income Interest and dividend income increased by approximately $6.3$1.1 million to $8.0$2.6 million for the three months ended September 30,March 31, 2014 compared to $1.7$1.5 million the same period in 2014. The increase was primarily attributable to the $1.2 million in dividend income from our Preferred Investment. Gain on sale of marketable securities
Gain on sale of marketable securities increased by approximately $5.7 million to a gain of $6.9 million for the three months ended March 31, 2015 compared to a gain of $1.2 million for the same period in 2013. The increase was primarily attributable to a special dividend from our Marco OP Units of $5.7 million and $0.6 million in dividend income from our preferred investment. Interest expense
Interest expense, including amortization of deferred financing costs, increased by approximately $0.6 million to $4.9 million for2014. During the three months ended September 30, 2014 compared to $4.3March 31, 2015 we recognized a gain on sale of marketable securities of approximately $6.6 million for the same period in 2013. The increase is primarily attributable to the timingsale of certain new borrowings throughout 2013.
Gain on disposition of unconsolidated affiliated real estate entities
During the third quarter of 2014, we received a final distribution of $4.4 million related to certain final true-ups and adjustments pursuant to the terms of the Outlet Centers Transactions, as well as additional consideration for the Livermore Land Parcel and recognized a gain on disposition of unconsolidated affiliated real estate entities in our consolidated statements of operations.60,000 Marco OP Units.
Income/(loss)Loss from investment in unconsolidated affiliated real estate entity
This account represents our portion of the earnings associated with our ownership interest in an investment in an unconsolidated affiliated real estate entity, which we accountaccounted for under the equity method of accounting. IncomeOur loss from investment in unconsolidated affiliated real estate entity was $0.4 million$35 during the three months ended September 30, 2014March 31, 2015 compared to incomea loss of $0.1 million$135 during the same period in 2013. See Note 3 of the Notes to Consolidated Financial Statements for additional information. Gain on disposition of real estate
During the third quarter of 2014 we recognized a gain on disposition of real estate of approximately $11.5 million related to the disposition of the Camden Multi-Family Properties. See Note 6 of the Notes to Consolidated Financial Statements for additional information.2014.
Noncontrolling interests The net earnings allocated to noncontrolling interests relates to (i) the interests in the Operating Partnership held by our Sponsor as well as common units held by our limited partners (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the 10.0% interest in the Rego Park Joint Venture previously held by Lightstone Value Plus Real Estate Investment Trust II, Inc., (iv) the ownership interests in 50-01 2nd St Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates and (v)(iv) the interests held by minority owners of certain of our hotels. Segment Results of Operations for the Three Months Ended September 30, 2014March 31, 2015 compared to September 30, 2013March 31, 2014 Retail Segment | | For the Three Months Ended September 30, | | | Variance Increase/(Decrease) | | | | 2014 | | | 2013 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 2,945 | | | $ | 2,930 | | | $ | 15 | | | | 0.5 | % | NOI | | | 1,734 | | | | 1,788 | | | | (54 | ) | | | -3.0 | % | Average Occupancy Rate for period | | | 82.4 | % | | | 83.3 | % | | | | | | | -0.9 | % |
| | For the Three Months Ended March 31, | | | Variance Increase/(Decrease) | | | | 2015 | | | 2014 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 2,788 | | | $ | 2,852 | | | $ | (64 | ) | | | -2.2 | % | NOI | | | 1,519 | | | | 1,726 | | | | (207 | ) | | | -12.0 | % | Average Occupancy Rate for period | | | 82.4 | % | | | 83.3 | % | | | | | | | -0.9 | % |
The following table represents lease expirations for the Retail Segment as of September 30, 2014:March 31, 2015: Lease Expiration Year | | Number of Expiring Leases | | | GLA of Expiring Leases (Sq. Ft.) | | | Annualized Base Rent of Expiring Leases ($) | | | Percent of Total GLA | | | Percent of Total Annualized Base Rent | | 2014 | | | 4 | | | | 10,346 | | | | 145,000 | | | | 2.0 | % | | | 2.0 | % | 2015 | | | 11 | | | | 72,326 | | | | 1,021,673 | | | | 13.8 | % | | | 13.8 | % | 2016 | | | 11 | | | | 54,214 | | | | 734,616 | | | | 10.3 | % | | | 9.9 | % | 2017 | | | 5 | | | | 10,854 | | | | 167,495 | | | | 2.1 | % | | | 2.3 | % | 2018 | | | 11 | | | | 84,433 | | | | 1,391,202 | | | | 16.1 | % | | | 18.8 | % | 2019 | | | 16 | | | | 69,989 | | | | 1,358,167 | | | | 13.3 | % | | | 18.4 | % | 2020 | | | 6 | | | | 148,581 | | | | 1,415,411 | | | | 28.3 | % | | | 19.1 | % | 2021 | | | 2 | | | | 18,764 | | | | 253,444 | | | | 3.6 | % | | | 3.4 | % | 2022 | | | - | | | | - | | | | - | | | | - | | | | - | | 2023 | | | 1 | | | | 28,000 | | | | 479,920 | | | | 5.3 | % | | | 6.5 | % | Thereafter | | | 2 | | | | 27,284 | | | | 430,213 | | | | 5.2 | % | | | 5.8 | % | | | | 69 | | | | 524,791 | | | | 7,397,141 | | | | 100.0 | % | | | 100.0 | % |
Lease Expiration Year | | Number of Expiring Leases | | | Gross Leaseable Area "GLA" of Expiring Leases (Sq. Ft.) | | | Annualized Base Rent of Expiring Leases ($) | | | Percent of Total GLA | | | Percent of Total Annualized Base Rent | | 2015 | | | 5 | | | | 19,839 | | | | 268,639 | | | | 3.70 | % | | | 3.50 | % | 2016 | | | 15 | | | | 63,083 | | | | 822,664 | | | | 11.90 | % | | | 10.90 | % | 2017 | | | 5 | | | | 10,854 | | | | 167,495 | | | | 2.00 | % | | | 2.20 | % | 2018 | | | 10 | | | | 78,021 | | | | 1,374,039 | | | | 14.70 | % | | | 18.10 | % | 2019 | | | 17 | | | | 74,989 | | | | 1,470,456 | | | | 14.10 | % | | | 19.40 | % | 2020 | | | 10 | | | | 191,333 | | | | 2,070,796 | | | | 36.20 | % | | | 27.40 | % | 2021 | | | 2 | | | | 18,764 | | | | 254,032 | | | | 3.50 | % | | | 3.40 | % | 2022 | | | 1 | | | | 4,800 | | | | 75,600 | | | | 0.90 | % | | | 1.00 | % | 2023 | | | 1 | | | | 28,000 | | | | 479,920 | | | | 5.30 | % | | | 6.30 | % | 2024 | | | 1 | | | | 1,163 | | | | 48,846 | | | | 0.20 | % | | | 0.60 | % | Thereafter | | | 3 | | | | 39,784 | | | | 546,181 | | | | 7.50 | % | | | 7.20 | % | | | | 70 | | | | 530,630 | | | | 7,578,668 | | | | 100.0 | % | | | 100.0 | % |
Revenues and NOI and average revenue per square foot remained relatively unchangeddecreased slightly for the three months ended September 30, 2014March 31, 2015 compared to the same period in 2013.2014 primarily as a result of the slight decrease in the average occupancy rate during the 2015 period. Multi-Family Residential Segment | | For the Three Months Ended September 30, | | | Variance Increase/(Decrease) | | | | 2014 | | | 2013 | | | $ | | | % | | | | (unaudited)
| | | | | | | | Revenues | | $ | 5,282 | | | $ | 3,505 | | | $ | 1,777 | | | | 50.7 | % | NOI | | | 2,982 | | | | 1,472 | | | | 1,510 | | | | 102.6 | % | Average Occupancy Rate for period | | | 95.1 | % | | | 94.9 | % | | | | | | | 0.2 | % |
| | For the Three Months Ended March 31, | | | Variance Increase/(Decrease) | | | | 2015 | | | 2014 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 4,288 | | | $ | 4,980 | | | $ | (692 | ) | | | -13.9 | % | NOI | | | 2,591 | | | | 2,589 | | | | 2 | | | | 0.1 | % | Average Occupancy Rate for period | | | 94.9 | % | | | 94.0 | % | | | | | | | 0.9 | % |
Revenues increased $1.8 million accompanied by an increase in NOI of $1.5 million while the average occupancy rate increased slightlydecreased for the three months ended September 30, 2014March 31, 2015 compared to the same period in 2013. The increases2014 primarily as a result of the disposal of 2 multi-family apartment buildings located in revenue andGreensboro/Charlotte, North Carolina (the “Camden Multi-Family Properties”) on September 30, 2014. NOI are primarily attributable toremained flat due the operationshigher average occupancy rate of Gantry Park. The construction of Gantry Park was substantially completed and its associated assets were placed into service during the third quarter of 2013.remaining apartments. Industrial Segment | | For the Three Months Ended September 30, | | | Variance Increase/(Decrease) | | | | 2014 | | | 2013 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 1,897 | | | $ | 1,782 | | | $ | 115 | | | | 6.5 | % | NOI | | | 1,092 | | | | 1,041 | | | | 51 | | | | 4.9 | % | Average Occupancy Rate for period | | | 83.5 | % | | | 74.6 | % | | | | | | | 8.9 | % |
| | For the Three Months Ended March 31, | | | Variance Increase/(Decrease) | | | | 2015 | | | 2014 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 1,598 | | | $ | 1,878 | | | $ | (280 | ) | | | -14.9 | % | NOI | | | 1,026 | | | | 1,213 | | | | (187 | ) | | | -15.4 | % | Average Occupancy Rate for period | | | 77.5 | % | | | 85.8 | % | | | | | | | -8.3 | % |
The following table represents lease expirations for our Industrial Segment as of September 30, 2014:March 31, 2015: Industrial Segment Lease Expiration Year | | Number of Expiring Leases | | GLA of Expiring Leases (Sq. Ft.) | | Annualized Base Rent of Expiring Leases ($) | | Percent of Total GLA | | Percent of Total Annualized Base Rent | | | | Number of Expiring Leases | | | | GLA of Expiring Leases (Sq. Ft.) | | | | Annualized Base Rent of Expiring Leases ($) | | | | Percent of Total GLA | | | | Percent of Total Annualized Base Rent | | 2014 | | | 17 | | | | 91,364.00 | | | | 166,006.00 | | | | 11.0 | % | | | 3.1 | % | | 2015 | | | 29 | | | | 348,477.00 | | | | 2,639,127.00 | | | | 41.9 | % | | | 48.5 | % | | | 29 | | | | 303,421 | | | | 824,881 | | | | 39.4 | % | | | 19.4 | % | 2016 | | | 31 | | | | 205,836.00 | | | | 1,221,182.00 | | | | 24.8 | % | | | 22.5 | % | | | 33 | | | | 212,147 | | | | 1,280,878 | | | | 27.6 | % | | | 30.1 | % | 2017 | | | 18 | | | | 93,464.00 | | | | 524,115.00 | | | | 11.2 | % | | | 9.7 | % | | | 20 | | | | 99,906 | | | | 621,802 | | | | 13.0 | % | | | 14.6 | % | 2018 | | | 11 | | | | 76,025.00 | | | | 765,790.00 | | | | 9.2 | % | | | 14.1 | % | | | 12 | | | | 80,906 | | | | 807,882 | | | | 10.5 | % | | | 19.0 | % | 2019 | | | 1 | | | | 2,718.00 | | | | 20,385.00 | | | | 0.3 | % | | | 0.4 | % | | | 3 | | | | 20,448 | | | | 105,435 | | | | 2.7 | % | | | 2.5 | % | 2020 | | | 2 | | | | 12,957.00 | | | | 94,240.00 | | | | 1.6 | % | | | 1.7 | % | | | 4 | | | | 52,516 | | | | 614,200 | | | | 6.8 | % | | | 14.4 | % | Thereafter | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | 109 | | | | 830,841 | | | | 5,430,845 | | | | 100.0 | % | | | 100.0 | % | | | 101 | | | | 769,344 | | | | 4,255,078 | | | | 100.0 | % | | | 100.0 | % |
Revenues and NOI increaseddecreased for the three months ended September 30, 2014March 31, 2015 compared to the same period in 20132014 primarily as a result of the increasedisposal of an industrial property located in occupancy.Sarasota, Florida (“Sarasota”) on July 31, 2014 and the lower average occupancy rate of the remaining properties.
Hospitality Segment | | For the Three Months Ended September 30, | | | Variance Increase/(Decrease) | | | | 2014 | | | 2013 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 14,550 | | | $ | 11,682 | | | $ | 2,868 | | | | 24.6 | % | NOI | | | 4,050 | | | | 2,297 | | | | 1,753 | | | | 76.3 | % | Average Occupancy Rate for period | | | 74.9 | % | | | 68.0 | % | | | | | | | 6.9 | % | Rev PAR | | $ | 83.61 | | | $ | 74.35 | | | $ | 9.26 | | | | 12.5 | % |
| | For the Three Months Ended March 31, | | | Variance Increase/(Decrease) | | | | 2015 | | | 2014 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 4,157 | | | $ | 4,176 | | | $ | (19 | ) | | | -0.5 | % | NOI | | | 188 | | | | 197 | | | | (9 | ) | | | -4.6 | % | Average Occupancy Rate for period | | | 38.2 | % | | | 36.3 | % | | | | | | | 1.9 | % | Rev PAR | | $ | 45.23 | | | $ | 43.75 | | | $ | 1.48 | | | | 3.4 | % |
The revenues in our Hospitality Segment increased by approximately $2.9 million forRevenue and NOI remained flat the three months ended September 30, 2014March 31, 2015 compared to the same period in 2013. The increase is primarily attributable to the timing of our hotel acquisitions noted above.
NOI in our Hospitality Segment increased by approximately $1.8 million for the three months ended September 30, 2014 compared to the same period in 2013. The increase is primarily attributable to the timing of our hotel acquisitions noted above.
For the Nine Months Ended September 30, 2014 vs. September 30, 2013
Consolidated
Revenues
Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues increased by approximately $18.9 million to $71.3 million for the nine months ended September 30, 2014 compared to $52.4 million for the same period in 2013. The increase primarily reflects higher revenues in our Hospitality Segment of $13.5 million and our Multi-Family Residential Segment of $5.5 million. See “Segment Results of Operations for the Nine Months Ended September 30, 2014 compared to September 30, 2013” for additional information on revenues by segment.
Property operating expenses
Property operating expenses increased by approximately $8.4 million to $38.8 million for the nine months ended September 30, 2014 compared to $30.4 million the same period in 2013. The increase consists of approximately $7.2 million and $1.0 million related to our Hospitality Segment and our Multi-Family Residential Segment, respectively. These segments were impacted by the timing of our hotel acquisitions and Gantry Park.
Real estate taxes
Real estate taxes increased by approximately $0.5 million to $4.0 million for the nine months ended September 30, 2014 compared to $3.5 million the same period in 2013. The increase was primarily due to the timing of our hotel acquisitions and Gantry Park.
General and administrative expenses
General and administrative expenses decreased by approximately $3.6 million to $4.9 million for the nine months ended September 30, 2014 compared to $8.5 million the same period in 2013. The decrease is primarily attributable to lower acquisition related costs during the 2014 period.
Depreciation and Amortization
Depreciation and amortization expense increased by approximately $4.3 million to $12.2 million for the nine months ended September 30, 2014 compared to $7.9 million the same period in 2013. The increase was primarily due to the timing of our hotel acquisitions and Gantry Park.
Mark to market adjustment on derivative financial instruments
During the nine months ended September 30, 2013, we recorded mark to market adjustments on derivative financial instruments of $3.2 million. The mark to market adjustments during the 2013 period primarily represented the change in the fair values of a collar entered into to protect the value of a portion of our Marco OP Units within a certain specified range through December 2013.
Interest and dividend income
Interest and dividend income increased by approximately $2.9 million to $11.5 million for the nine months ended September 30, 2014 compared to $8.6 million the same period in 2013. The increase was attributable to a special dividend received on our Marco OP Units aggregating approximately $5.7 million and $1.1 million in dividend income from our Preferred Investment partially offset by the loss of $1.7 million of interest income as a result of the repayment in full of a second mortgage loan receivable held by LVP Rego Park, LLC (the “Rego Park Joint Venture”) in June 2013 as well as the elimination of $1.7 million of interest income accruing on our Notes Receivable due from Noncontrolling Interests for periods subsequent to June 26, 2013.
Interest expense
Interest expense, including amortization of deferred financing costs, increased by approximately $2.9 million to $14.7 million for the nine months ended September 30, 2014 compared to $11.8 million for the same period in 2013. The increase is primarily attributable to the timing of certain new borrowings throughout 2013.
Loss/(gain) on sale of marketable securities
Loss/(gain) on sale of marketable securities decreased by approximately $12.4 million to $1.4 million for the nine months ended September 30, 2014 compared to $13.8 million the same period in 2013. During the nine months ended September 30, 2013 we recognized a gain on sale of marketable securities of approximately $13.8 million primarily attributable to the sale of 156,000 Marco OP Units.
Gain on disposition of unconsolidated affiliated real estate entities
During the first quarter of 2013, we received an additional $1.2 million related to the 2012 disposition of our ownership interest in GPH resulting from the satisfaction of certain conditions and recognized a gain on disposition of unconsolidated affiliated real estate entities in our consolidated statements of operations.
During the third quarter of 2014, we received a final distribution of $4.4 million related to certain final true-ups and adjustments pursuant to the terms of the Outlet Centers Transactions, as well as additional consideration for the Livermore Land Parcel and recognized a gain on disposition of unconsolidated affiliated real estate entities in our consolidated statements of operations.
Income/(loss) from investment in unconsolidated affiliated real estate entity
This account represents our portion of the earnings associated with our ownership interest in an investment in unconsolidated affiliated real estate entity, which we account for under the equity method of accounting. Our income from investment in unconsolidated affiliated real estate entity was $0.3 million during the nine months ended September 30, 2014 compared to a loss of $1.7 million during the same period in 2013. See Note 3 of the Notes to Consolidated Financial Statements for additional information.
Gain on disposition of real estate, net
During the nine months ended September 30, 2014 we recognized a net gain on disposition of real estate of approximately $9.1 million consisting of an approximately $11.5 million gain related to the disposition of the Camden Multi-Family Properties and an approximately $2.4 million loss related to the disposition of Sarasota. See Note 6 of the Notes to Consolidated Financial Statements for additional information.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) the interests in the Operating Partnership held by our Sponsor as well as common units held by our limited partners (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the 10.0% interest in the Rego Park Joint Venture previously held by Lightstone Value Plus Real Estate Investment Trust II, Inc., (iv) the ownership interests in 50-01 2nd St Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates and (v) the interests held by minority owners of certain of our hotels. .
Segment Results of Operations for the Nine Months Ended September 30, 2014 compared to September 30, 2013
Retail Segment
| | For the Nine Months Ended September 30, | | | Variance Increase/(Decrease) | | | | 2014 | | | 2013 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 8,498 | | | $ | 8,826 | | | $ | (328 | ) | | | -3.7 | % | NOI | | | 5,274 | | | | 5,453 | | | | (179 | ) | | | -3.3 | % | Average Occupancy Rate for period | | | 83.4 | % | | | 83.4 | % | | | | | | | 0.0 | % |
Revenues and NOI decreased slightly for the nine months ended September 30, 2014 compared to the same period in 2013.
Multi-Family Residential Segment
| | For the Nine Months Ended September 30, | | | Variance Increase/(Decrease) | | | | 2014 | | | 2013 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 15,496 | | | $ | 10,014 | | | $ | 5,482 | | | | 54.7 | % | NOI | | | 8,633 | | | | 4,499 | | | | 4,134 | | | | 91.9 | % | Average Occupancy Rate for period | | | 94.9 | % | | | 95.1 | % | | | | | | | -0.2 | % |
Revenues increased $5.5 million accompanied by an increase in NOI of $4.1 million while the average occupancy rate remained unchanged for the nine months ended September 30, 2014 compared to the same period in 2013. The increases in revenue and NOI are primarily attributable to the operations of Gantry Park. The construction of Gantry Park was substantially completed and its associated assets were placed into service during the third quarter of 2013.
Industrial Segment
| | For the Nine Months Ended September 30, | | | Variance Increase/(Decrease) | | | | 2014 | | | 2013 | | | $ | | | % | | | | (unaudited) | | | | | | | | Revenues | | $ | 5,673 | | | $ | 5,359 | | | $ | 314 | | | | 5.9 | % | NOI | | | 3,473 | | | | 3,304 | | | | 169 | | | | 5.1 | % | Average Occupancy Rate for period | | | 85.0 | % | | | 80.6 | % | | | | | | | 4.4 | % |
Revenues and NOI increased slightly for the nine months ended September 30, 2014 compared to the same period in 2013 primarily as a result of the higher average occupancy during the 2014 period.
Hospitality Segment
| | For the Nine Months Ended September 30, | | | Variance Increase/(Decrease) | | | | 2014 | | | 2013 | | | $ | | | % | | | | (unaudited) | | | | | | | | | | | Revenues | | $ | 41,634 | | | $ | 28,164 | | | $ | 13,470 | | | | 47.8 | % | NOI | | | 10,549 | | | | 4,879 | | | | 5,670 | | | | 116.2 | % | Average Occupancy Rate for period | | | 67.6 | % | | | 63.6 | % | | | | | | | 4.0 | % | Rev PAR | | $ | 77.33 | | | $ | 70.02 | | | $ | 7.31 | | | | 10.4 | % |
The revenues in our Hospitality Segment increased by approximately $13.5 million for the nine months ended September 30, 2014 compared to the same period in 2013. The increase is primarily attributable to the timing of our hotel acquisitions noted above.
NOI in our Hospitality Segment increased by $5.7 million for the nine months ended September 30, 2014 compared to the same period in 2013. This increase is primarily attributable to the timing of our hotel acquisitions noted above.2014.
Financial Condition, Liquidity and Capital Resources Overview: Rental revenue and borrowings are our principal source of funds to pay operating expenses, scheduled debt service, capital expenditures and distributions, excluding non-recurring capital expenditures. We expect to meet our short-term liquidity requirements generally through working capital and proceeds from our distribution reinvestment plan and borrowings. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months. We currently have $265.0$226.6 million of outstanding mortgage debt, $21.4 million of the Hotel Portfolio’s outstanding mortgage debt classified as liabilities held for sale, a $19.9 million line of credit and a $19.2$0.5 million margin loan. Additionally, we have $10.9 million available to us under our revolving credit facility (the “Revolving Credit Facility”). We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness, having a maturity of two years or less. Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As of September 30, 2014,March 31, 2015, our total borrowings of $304.1$268.4 million represented 81%71% of net assets. Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called “balloon” payment and are at a fixed interest rate.
Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we borrowed using a margin loan collateralized by the securities held with the financial institution that provided the margin loan. This loan is due on demand and will be paid upon the liquidation of securities. Any future properties that we may acquire may be funded through a combination of borrowings, proceeds generated from the sale of our marketable securities, available for sale, and proceeds received from the disposition of certain of our retail assets. These borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity. We may also obtain lines of credit to be used to acquire properties or real estate-related assets. These lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital or permanent financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so. In addition to meeting working capital needs and distributions to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager, included payments related to asset acquisition fees and asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor. The following table represents the fees incurred associated with the payments to our Advisor, our Dealer Manager, and our Property Manager for the periods indicated: | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | Acquisition fees | | $ | 23 | | | $ | 897 | | | $ | 82 | | | $ | 2,153 | | Asset management fees | | | 712 | | | | 642 | | | | 2,136 | | | | 1,901 | | Property management fees | | | 356 | | | | 235 | | | | 1,045 | | | | 1,090 | | Development fees and leasing commissions | | | 39 | | | | 754 | | | | 444 | | | | 1,543 | | Total | | $ | 1,130 | | | $ | 2,528 | | | $ | 3,707 | | | $ | 6,687 | |
| | Three Months Ended March 31, | | | | 2015 | | | 2014 | | Acquisition fees (general and administrative costs) | | $ | 8 | | | $ | 32 | | Asset management fees (general and administrative costs) | | | 711 | | | | 713 | | Property management fees (property operating expenses) | | | 290 | | | | 348 | | Development fees and leasing commissions* | | | 411 | | | | 164 | | Total | | $ | 1,420 | | | $ | 1,257 | |
* Generally, capitalized and amortized over the estimated useful life of the associated asset. As of September 30, 2014,March 31, 2015, we had approximately $59.0$85.5 million of cash and cash equivalents on hand and $145.2$146.3 million of marketable securities, available for sale. Summary of Cash Flows The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below: | | For the Nine Months Ended September 30, | | | | 2014 | | | 2013 | | | | (unaudited) | | | | | Cash flows provided by operating activities | | $ | 25,824 | | | $ | 15,153 | | | | | | | | | | | Cash flows provided by/(used in) investing activities | | | 34,501 | | | | (65,686 | ) | Cash flows used in financing activities | | | (54,175 | ) | | | (9,585 | ) | Net change in cash and cash equivalents | | | 6,150 | | | | (60,118 | ) | | | | | | | | | | Cash and cash equivalents, beginning of the period | | | 52,899 | | | | 98,805 | | Cash and cash equivalents, end of the period | | $ | 59,049 | | | $ | 38,687 | |
| | For the Three Months Ended March 31, | | | | | 2015 | | | | 2014 | | | | (unaudited) | | Cash flows provided by operating activities | | $ | 4,824 | | | $ | 5,486 | | Cash flows provided by investing activities | | | 85,216 | | | | 16,799 | | Cash flows used in financing activities | | | (59,032 | ) | | | (13,692 | ) | Net change in cash and cash equivalents | | | 31,008 | | | | 8,593 | | | | | | | | | | | Cash and cash equivalents, beginning of the period | | | 54,529 | | | | 52,899 | | Cash and cash equivalents, end of the period | | $ | 85,537 | | | $ | 61,492 | |
Our principal demands for liquidity are (i) our property operating expenses, (ii) real estate taxes, (iii) insurance costs, (iv) leasing costs and related tenant improvements, (v) capital expenditures, (vi) acquisition, investment and development activities, (vii) scheduled debt service and (viii) distributions to our stockholders and noncontrolling interests. The principal sources of funding for our operations are operating cash flows and proceeds from (i) the sale of marketable securities, (ii) the selective disposition of properties or interests in properties, (iii) the issuance of equity and debt securities and (iv) the placement of mortgage loans or other indebtedness. Operating activities Net cash flows provided by operating activities of $25.8$4.8 million for the ninethree months ended September 30, 2014March 31, 2015 consists of the following: | · | cash inflows of approximately $21.7$3.1 million from our net income from continuing operations after adjustment for non-cash items; |
| · | cash inflows of approximately $0.7 million associated with the net changes in operating assets and liabilities and |
| · | cash inflows of approximately $4.1$1.0 million associated with the net changes in operating assets and liabilities.from discontinued operations. |
Investing activities The net cash provided by investing activities from of $34.5$85.2 million for the ninethree months ended September 30, 2014March 31, 2015 consists primarily of the following: | · | purchases of investment property of approximately $9.0 million; |
| · | final settlement payment for Marco OP Units Collar of $3.5$1.8 million; |
| · | funds released from restricted escrows primarily for the collateral requirement on the collar for our Marco OP Units of approximately $7.1$0.4 million; |
| · | aggregate preferred equity contributions in our affiliate 365 Bond Street of $21.8$7.1 million; |
| · | proceeds from the sale of Sarasota ($5.3 million) and Camden ($31.8 million); |
| · | proceeds from the disposition of GPH of approximately $4.4 million |
| · | net proceeds from the sale and purchase of marketable securities of $10.6$17.1 million; |
| · | contributions of $1.6 million to our Joint Venture with Lightstone II and |
| · | cash inflows of approximately $9.0$78.0 million from discontinued operations, consisting primarily of net proceeds from the saledisposition of Crowe’s Crossing.the Hotel Portfolio. |
Financing activities The net cash used by financing activities of approximately $54.2$59.0 million for the ninethree months ended September 30, 2014March 31, 2015 is primarily related to the following: | · | distributions to our common shareholders of $9.2 million$3.1 million; |
| · | redemptions and cancellation of common stock and noncontrolling interests of $5.1$0.4 million; |
| · | distributions to our noncontrolling interests of $2.9$2.6 million; |
| · | net payments on our notes payable of $1.1$18.2 million and net proceeds from mortgage financing of $0.7 million; |
| · | debt principal payments of $31.1$0.5 million (primarily the satisfaction of the mortgages for the Camden Multi-Family Properties and Sarasota in connection with their respective dispositions); and |
| · | cash outflows of approximately $5.8$34.2 million from discontinued operations, consisting primarily of repayment of mortgage indebtedness in connection with the disposition of Crowe’s Crossing.the Hotel Portfolio. |
The following summarizes our mortgage indebtedness maturing in the next year and our current intentions: Our non-recourse mortgage of approximately $51.4$51.0 million, secured by the Gulf Coast Industrial Portfolio, which was originally due in February 2017, is in default and therefore, due on demand. We are in discussions with the lender to potentially modify or restructure the loan. No assurance can be made that we will be successful in such efforts. See “Contractual Obligations” below for additional information. We have no other mortgage indebtedness maturing in the next year. Disposition of limited service hotels The Company is awaiting approval from the holders of the Promissory Note and the Courtyard Baton Rouge Loan for the Joint Venture to assume the Promissory Note and the Courtyard Baton Rouge Loan to complete the disposal of the final 4 of the 11 limited service hotels (Holiday Inn Express – Auburn, the Arkansas Hotel Portfolio and the Courtyard - Baton Rouge) previously approved by the Board of Directors. Preferred Investment On March 7, 2014, the Company entered into an agreement with various related party entities pursuant to which it committed to make contributions of up to $35.0 million, with an additional investment of up to $10.0 million subject to the satisfaction of certain conditions, which were subsequently met during October 2014, in an affiliate of its Sponsor which owns a parcel of land located at 365 Bond Street in Brooklyn, New York on which it is constructing a residential apartment project. These contributions are made pursuant to an instrument, the “Preferred Investment,” that is entitled to monthly preferred distributions at a rate of 12% per annum, is redeemable by the Company upon the occurrence of certain events, is classified as a held-to-maturity security and is recorded at cost. The Company commenced making contributions during the second quarter of 2014 and as of September 30, 2014,March 31, 2015, the Preferred Investment had a balance of approximately $21.8$42.2 million and is classified as investment in affiliate on the consolidated balance sheet Distribution Reinvestment Plan and Share Repurchase Program Our DRIP provides our stockholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. On January 19, 2015, the Board of Directors suspended the Company’s DRIP effective April 15, 2015. For so long as the DRIP remains suspended, all future distributions will be in the form of cash. Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to restrictions. We redeemed redemption requests at an average price per share of common stock of $9.00. We fund share redemptions from the cumulative proceeds of the sale of shares of common shares pursuant to our DRIP. Our Board of Directors reserves the right to terminate either program for any reason without cause by providing written notice of termination of the DRIP to all participants or written notice of termination of the share repurchase program to all stockholders. Contractual Obligations The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of September 30, 2014.March 31, 2015. Contractual Obligations | | Remainder of 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | Thereafter | | | Total | | Mortgage Payable | | $ | 51,966 | | | $ | 2,414 | | | | 142,110 | | | $ | 43,465 | | | $ | 25,032 | | | $ | - | | | $ | 264,987 | | Interest Payments1,2 | | | 2,678 | | | | 10,663 | | | | 7,317 | | | | 1,745 | | | | 823 | | | | - | | | | 23,226 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Contractual Obligations | | $ | 54,644 | | | $ | 13,077 | | | $ | 149,427 | | | $ | 45,210 | | | $ | 25,855 | | | $ | - | | | $ | 288,213 | |
Contractual Obligations | | Remainder of 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | Thereafter | | | Total | | Mortgage Payable | | $ | 52,644 | | | $ | 63,454 | | | | 43,189 | | | $ | 15,395 | | | $ | 1,213 | | | $ | 72,129 | | | $ | 248,024 | | Interest Payments1,2 | | | 7,640 | | | | 8,127 | | | | 4,663 | | | | 3,831 | | | | 3,306 | | | | 15,564 | | | | 43,131 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Contractual Obligations | | $ | 60,284 | | | $ | 71,581 | | | $ | 47,852 | | | $ | 19,226 | | | $ | 4,519 | | | $ | 87,693 | | | $ | 291,155 | |
| 1) | These amounts represent mortgage payable obligations outstanding as of March 31, 2015, including the debt of approximately $21.4 million associated with the remaining 4 of the hotel hospitality properties of the Hotel Portfolio, which is classified within liabilities held for sale on our consolidated balance sheet. |
| 2) | These amounts represent future interest payments related to mortgage payable obligations based on the fixed and variable interest rates specified in the associated debt agreements.agreements including $3.2 million related to the debt associated with the remaining 4 of the hotel hospitality properties of the Hotel Portfolio, which is classified as held for sale and discontinued operations as of March 31, 2015. All variable rate debt agreements are based on the one-month rate. For purposes of calculating future interest amounts on variable interest rate debt the one-month rate as of September 30, 2014March 31, 2015 was used. |
| 2)3) | The debt associated with the Gulf Coast Industrial Portfolio is in default and due on demand and therefore no future interest payments on this debt are included in these amounts. |
We have a $45.0 million Revolving Credit Facility that allows us to designate properties as collateral that allow us to borrow up to a 60.0% loan-to-value ratio of the properties. The initial loan of $14.2 million under the Revolving Credit Facility was secured by the Courtyard - Willoughby, the Fairfield Inn - Des Moines and the SpringHill Suites - Des Moines. During the third quarter of 2013 we borrowed an additional $19.9 million under the Revolving Credit Facility and pledged the Florida Hotel Portfolio as additional collateral under the Revolving Credit Facility. The outstanding balance of the Revolving Credit Facility was $34.1 million as of September 30, 2014 and the remaining amount available under the Revolving Credit Facility was $10.9 million.
Certain of our debt agreements require the maintenance of certain ratios, including debt service coverage. We are currently in compliance with all of our debt covenants; however, the debt associated with our Gulf Coast Industrial Portfolio was placed in default during 2012 and is due on demand as discussed below. As a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio, the lender elected to retain the excess cash flow from these properties beginning in July 2011 until such time as the required coverage ratios are met for two successive quarters.2011. During the third quarter of 2012, the loan was transferred to a special servicer, who discontinued scheduled debt service payments and notified us that the loan was in default and due on demand. Although the lender is currently not charging or being paid interest at the stated default rate, an aggregate $4.5$5.6 million of default interest has been accrued through September 30, 2014March 31, 2015 pursuant to the terms of the loan agreement. Default interest of $0.5 million and $1.6 million was accrued for both the three and nine months ended September 30, 2014March 31, 2015 and default interest of $0.5 million and $1.7 million was accrued and for the three and nine months ended September 30, 2013.2014. As a result, accrued default interest of approximately $4.5$5.6 million and $2.9$5.0 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of September 30, 2014March 31, 2015 and December 31, 2013,2014, respectively. We are currently engagedAlthough we remain in discussions with the special servicer to restructure the terms of the loan, andthere can be no assurances that we will be successful. However, we do not expect to pay the default interest as this mortgage indebtedness is non-recourse to us. Additionally, we believe the continued loss of excess cash flow from these properties and the placement of the non-recourse mortgage indebtedness in default will not have a material impact on our results of operations or financial position. Notes Payable Margin Loan We have access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of our marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (1.00%(1.03% as of September 30,March 31, 2014) and is collateralized by the marketable securities in our account. The amounts available to us under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. The amount outstanding under this Margin Loan was $19.2$0.5 million as of September 30, 2014March 31, 2015 and is included in Notes Payable on the consolidated balance sheets. Line of Credit On September 14, 2012, we entered into a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $25.0 million. The Line of Credit expires on June 19, 2016 and bears interest at Libor plus 3.00% (3.15%(3.18% as of September 30, 2014)March 31, 2015). The Line of Credit is collateralized by 440,311 Marco OP Units and PRO guaranteed the Line of Credit. The amount outstanding under the Line of Credit was $19.9 million as of both September 30, 2014March 31, 2015 and is included in Notes Payable on the consolidated balance sheets. Noncontrolling Interests - Redemption of Series A Preferred Units and Repayment of Notes Receivable
On January 2, 2014, our Operating Partnership redeemed all of the then remaining outstanding 50,100 Series A preferred units in the Operating Partnership (the “Series A Preferred Units”), held by the Arbor Mill Run JRM, LLC, a Delaware limited liability company, Arbor National CJ, LLC, a New York limited liability company, Prime Holdings LLC, a Delaware limited liability company , TRAC Central Jersey LLC, a Delaware limited liability company, Central Jersey Holdings II, LLC, a New York limited liability company and JT Prime LLC, a Delaware limited liability company (collectively, the “Contributing Parties”), at their liquidation preference of approximately $50.1 million and the Contributing Parties simultaneously repaid the remaining notes receivable due from the Contributing Parties aggregating approximately $47.4 million in full.
Funds from Operations and Modified Funds from Operations Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc., or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, or FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under generally accepted accounting principles in the United States, or GAAP. We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above. The historical accounting convention used for real estate assets requires depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indicators exist and if the carrying, or book value, exceeds the total estimated undiscounted future 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) from such asset. 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 FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated undiscounted future cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization and impairments, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO. Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We will use the proceeds raised in our offering to acquire properties, and we intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of the company or another similar transaction) within seven to ten years after the proceeds from the primary offering are fully invested. Thus, we will not continuously purchase assets and will have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association, or IPA, an industry trade group, has standardized a measure known as modified funds from operations, or MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired. We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we do retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such gains and losses in calculating MFFO, as such gains and losses are not reflective of ongoing operations. Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued acquisition fees and expenses negatively impact our operating performance during the period in which properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. MFFO that excludes such costs and expenses would only be comparable to that of non-listed REITs that have completed their acquisition activities and have similar operating characteristics as us. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives as items which are unrealized and may not ultimately be realized. We view both gains and losses from dispositions of assets and fair value adjustments of derivatives as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. Acquisition fees and expenses will not be reimbursed by the advisor if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows. Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information. Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value and there is no net asset value determination during the offering stage and for a period thereafter. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO or MFFO. Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO. The below table illustrates the items deducted from or added to net income in the calculation of FFO and MFFO during the periods presented. The table discloses MFFO in the IPA recommended format and MFFO without the straight-line rent adjustment which management also uses as a performance measure. Items are presented net of noncontrolling interest portions where applicable. | | For the Three Months Ended | | | For the Nine Months Ended | | | | September 30, 2014 | | | September 30, 2013 | | | September 30, 2014 | | | September 30, 2013 | | Net income | | $ | 24,467 | | | $ | 3,021 | | | $ | 26,204 | | | $ | 17,493 | | FFO adjustments: | | | | | | | | | | | | | | | | | Depreciation and amortization: | | | | | | | | | | | | | | | | | Depreciation and amortization of real estate assets | | | 4,006 | | | | 3,088 | | | | 12,195 | | | | 7,903 | | Equity in depreciation and amortization for unconsolidated affiliated real estate entities | | | 886 | | | | 733 | | | | 2,557 | | | | 2,093 | | Adjustments to equity in earnings from unconsolidated entities, net | | | - | | | | - | | | | - | | | | 5,210 | | Gain on disposal of investment property, net | | | (11,483 | ) | | | - | | | | (9,129 | ) | | | (363 | ) | Gain on disposal of unconsolidated affiliated real estate entities | | | (4,418 | ) | | | - | | | | (4,418 | ) | | | (1,200 | ) | Discontinued operations: | | | | | | | | | | | | | | | | | Gain on disposal of investment property | | | - | | | | - | | | | (1,722 | ) | | | - | | Depreciation and amortization of real estate assets | | | - | | | | 361 | | | | - | | | | 1,012 | | | | | | | | | | | | | | | | | | | FFO | | | 13,458 | | | | 7,203 | | | | 25,687 | | | | 32,148 | | MFFO adjustments: | | | | | | | | | | | | | | | | | Other Adjustment | | | | | | | | | | | | | | | | | Acquisition and other transaction related costs expensed(1) | | | 29 | | | | 1,704 | | | | 136 | | | | 3,775 | | Amortization of above or below market leases and liabilities(2) | | | (75 | ) | | | (63 | ) | | | (182 | ) | | | (223 | ) | Loss/(gain) on debt extinguishment | | | - | | | | - | | | | 112 | | | | (3,672 | ) | Accretion of discounts and amortization of premiums on debt investments | | | - | | | | - | | | | - | | | | (1,057 | ) | Mark-to-market adjustments(3) | | | (159 | ) | | | (4,670 | ) | | | 391 | | | | (3,160 | ) | Non-recurring (losses)/gains from extinguishment/sale of debt, derivatives or securities holdings(4) | | | - | | | | - | | | | - | | | | - | | (Loss)/gain on sale of marketable securities | | | (207 | ) | | | 14 | | | | (1,367 | ) | | | (13,803 | ) | | | | | | | | | | | | | | | | | | MFFO | | | 13,046 | | | | 4,188 | | | | 24,777 | | | | 14,008 | | Straight-line rent(5) | | $ | (310 | ) | | $ | (251 | ) | | $ | (332 | ) | | $ | (299 | ) | MFFO - IPA recommended format(6) | | $ | 12,736 | | | $ | 3,937 | | | $ | 24,445 | | | $ | 13,709 | | | | | | | | | | | | | | | | | | | Net income | | $ | 24,467 | | | $ | 3,021 | | | $ | 26,204 | | | $ | 17,493 | | Less: (income)/loss attributable to noncontrolling interests | | | (1,342 | ) | | | 46 | | | | (1,718 | ) | | | (1,438 | ) | Net income applicable to company's common shares | | $ | 23,125 | | | $ | 3,067 | | | $ | 24,486 | | | $ | 16,055 | | Net income per common share, basic and diluted | | $ | 0.90 | | | $ | 0.11 | | | $ | 0.95 | | | $ | 0.55 | | | | | | | | | | | | | | | | | | | FFO | | $ | 13,458 | | | $ | 7,203 | | | $ | 25,687 | | | $ | 32,148 | | Less: FFO attributable to noncontrolling interests | | | (1,071 | ) | | | (114 | ) | | | (2,134 | ) | | | (1,692 | ) | FFO attributable to company's common shares | | $ | 12,387 | | | $ | 7,089 | | | $ | 23,553 | | | $ | 30,456 | | FFO per common share, basic and diluted | | $ | 0.48 | | | $ | 0.26 | | | $ | 0.91 | | | $ | 1.04 | | | | | | | | | | | | | | | | | | | MFFO - IPA recommended format | | $ | 12,736 | | | $ | 3,937 | | | $ | 24,445 | | | $ | 13,709 | | Less: MFFO attributable to noncontrolling interests | | | (1,117 | ) | | | (54 | ) | | | (2,272 | ) | | | (550 | ) | MFFO attributable to company's common shares | | $ | 11,619 | | | $ | 3,883 | | | $ | 22,173 | | | $ | 13,159 | | | | | | | | | | | | | | | | | | | Weighted average number of common shares outstanding, basic and diluted | | | 25,785 | | | | 27,395 | | | | 25,772 | | | | 29,213 | |
| | For the Three Months Ended | | | March 31, 2015 | | | March 31, 2014 | | Net income | | $ | 21,783 | | | $ | 2,062 | | FFO adjustments: | | | | | | | | | Depreciation and amortization: | | | | | | | | | Depreciation and amortization of real estate assets | | | 2,799 | | | | 3,068 | | Equity in depreciation and amortization for | | | | | | | | | unconsolidated affiliated real estate entity | | | 991 | | | | 816 | | Discontinued operations: | | | | | | | | | Depreciation and amortization of real estate assets | | | 620 | | | | 902 | | Gain on disposal of investment property | | | (14,629 | ) | | | (1,722 | ) | | | | | | | | | | FFO | | | 11,564 | | | | 5,126 | | MFFO adjustments: | | | | | | | | | Other Adjustment | | | | | | | | | Acquisition and other transaction related costs | | | | | | | | | expensed(1) | | | (45 | ) | | | 93 | | Amortization of above or below market leases and | | | | | | | | | liabilities(2) | | | (74 | ) | | | (35 | ) | Accretion of discounts and amortization of premiums | | | | | | | | | on debt investments | | | - | | | | - | | Mark-to-market adjustments(3) | | | 381 | | | | 97 | | Non-recurring losses/(gains) from extinguishment/sale | | | | | | | | | of debt, derivatives or securities holdings(4) | | | 224 | | | | 112 | | Gain on sale of marketable securities | | | (6,923 | ) | | | (1,167 | ) | | | | | | | | | | MFFO | | | 5,127 | | | | 4,226 | | Straight-line rent(5) | | $ | (233 | ) | | $ | 63 | | MFFO - IPA recommended format(6) | | $ | 4,894 | | | $ | 4,289 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | $ | 21,783 | | | $ | 2,062 | | Less: income attributable to noncontrolling | | | | | | | | | interests | | | (627 | ) | | | (152 | ) | Net income applicable to company's common shares | | $ | 21,156 | | | $ | 1,910 | | Net income per common share, basic and diluted | | $ | 0.82 | | | $ | 0.07 | | | | | | | | | | | FFO | | $ | 11,564 | | | $ | 5,126 | | Less: FFO attributable to noncontrolling | | | | | | | | | interests | | | (625 | ) | | | (451 | ) | FFO attributable to company's common shares | | $ | 10,939 | | | $ | 4,675 | | FFO per common share, basic and diluted | | $ | 0.42 | | | $ | 0.18 | | | | | | | | | | | MFFO - IPA recommended format | | $ | 4,894 | | | $ | 4,289 | | Less: MFFO attributable to noncontrolling | | | | | | | | | interests | | | (498 | ) | | | (464 | ) | MFFO attributable to company's common shares | | $ | 4,396 | | | $ | 3,825 | | | | | | | | | | | Weighted average number of common shares | | | | | | | | | outstanding, basic and diluted | | | 25,938 | | | | 25,723 | |
Notes: | (1) | The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. Such fees and expenses are paid in cash, and therefore such funds will not be available to distribute to investors. Such fees and expenses negatively impact our operating performance during the period in which properties are being acquired. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. Acquisition fees and expenses will not be paid or reimbursed, as applicable, to our advisor even if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses would need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows. |
| (2) | Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate. |
| (3) | Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP. |
| (4) | Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods. |
| (5) | Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance. |
| (6) | Our MFFO results include certain unusual items as set forth in the table below. We believe it is helpful to our investors in understanding our operating results to both highlight them and present adjusted MFFO excluding their impact (as shown below). |
| | For the Three Months Ended | | | For the Nine Months Ended | | | | September 30, 2014 | | | September 30, 2013 | | | September 30, 2014 | | | September 30, 2013 | | Gulf Coast Industrial Portfolio - Default interest expense(a) | | $ | (530 | ) | | $ | (528 | ) | | $ | (1,572 | ) | | $ | (1,711 | ) | 1407 Broadway - Default interest expense(b) | | | - | | | | - | | | | - | | | | (606 | ) | Special dividend on Marco OP Units(c) | | | 5,685 | | | | - | | | | 5,685 | | | | - | | Total before allocations to noncontrolling interests | | | 5,155 | | | | (528 | ) | | | 4,113 | | | | (2,317 | ) | Allocations to noncontrolling interests | | | (498 | ) | | | 10 | | | | (478 | ) | | | 39 | | Total after allocations to noncontrolling interests | | $ | 4,657 | | | $ | (518 | ) | | $ | 3,635 | | | $ | (2,278 | ) |
| | For the Three Months Ended | | | | March 31, 2015 | | | March 31, 2014 | | Gulf Coast Industrial Portfolio - Default interest expense(a) | | $ | (511 | ) | | $ | (518 | ) | Allocations to noncontrolling interests | | | 10 | | | | 10 | | Total after allocations to noncontrolling interests | | $ | (501 | ) | | $ | (508 | ) |
| (a) | Represents default interest expense on our non-recourse mortgage loan collateralized by our Gulf Coast Industrial Portfolio. Although the lender is currently not charging us or being paid interest at the stated default rate, we have accrued interest at the default rate pursuant to the terms of the loan agreement. Additionally, we are engagedremain in discussions with the lender to restructure the terms of the non-recourse mortgage loan and do not expect to pay the default interest. |
| (b) | Represents our proportionate share of default interest expense related to the non-recourse mortgage indebtedness of our unconsolidated investment in 1407 Broadway which was incurred and unpaid during the first quarter of 2013 but subsequently waived by the lender in connection with the completion of a loan extension in March 2013. The waiver of such default interest was reflected in the gain on extinguishment of debt. |
| (c) | Represent the aggregate special dividend received on our Marco OP Units during the third quarter of 2014. |
Excluding the impact of thesethis unusual itemsitem from our MFFO, after taking into consideration allocations to noncontrolling interests, our adjusted MFFO would have been $6,962$4,897 and $4,401$4,333 for the three months ended September 30,March 31, 2015 and 2014, and 2013, respectively, and $18,538 and $15,437 for the nine months ended September 30, 2014 and 2013, respectively. The table below presents our cumulative distributions paid and cumulative FFO attributable to the Company’s common shares: | | From inception through | | | | September 30, 2014 | | | | | | FFO attributable to Company’s common shares | | $ | 101,442 | | Distributions | | $ | 140,491 | |
| | From inception through | | | | March 31, 2015 | | | | | | FFO attributable to Company’s common shares | | $ | 117,799 | | Distributions | | $ | 149,609 | |
Sources of Distribution The amount of distributions paid to our stockholders in the future will be determined by our Board and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code. The following table provides a summary of the quarterly distribution declared and the source of distribution based upon cash flows provided by operations: | | Year to Date September 30, 2014 | | | Three Months Ended September 30, 2014 | | | Three Months Ended June 30, 2014 | | | Three Months Ended March 31, 2014 | | Distribution period: | | | | | Percentage of Distributions | | | Q3 2014 | | | Percentage of Distributions | | | Q2 2014 | | | Percentage of Distributions | | | Q1 2014 | | | Percentage of Distributions | | | | | | | | | | | | | | | | | | | | | | | | | | | Date distribution declared | | | | | | | | | | | August 8, 2014 | | | | | | | | May 14, 2014 | | | | | | | | March 28, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Date distribution paid | | | | | | | | | | | October 15, 2014 | | | | | | | | July 15, 2014 | | | | | | | | April 15, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions paid | | $ | 9,208 | | | | | | | $ | 3,100 | | | | | | | $ | 3,075 | | | | | | | | 3,033 | | | | | | Distributions reinvested | | $ | 4,290 | | | | | | | | 1,452 | | | | | | | | 1,428 | | | | | | | | 1,410 | | | | | | Total Distributions | | $ | 13,498 | | | | | | | $ | 4,552 | | | | | | | $ | 4,503 | | | | | | | $ | 4,443 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Source of distributions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows provided by operations | | $ | 9,208 | | | | 68 | % | | $ | 3,100 | | | | 68 | % | | $ | 3,075 | | | | 68 | % | | $ | 3,033 | | | | 68 | % | Excess cash | | $ | - | | | | 0 | % | | | - | | | | 0 | % | | | - | | | | 0 | % | | | - | | | | 0 | % | Proceeds from issuance of common stock through DRIP | | $ | 4,290 | | | | 32 | % | | | 1,452 | | | | 32 | % | | | 1,428 | | | | 32 | % | | | 1,410 | | | | 32 | % | Total Sources | | $ | 13,498 | | | | 100 | % | | $ | 4,552 | | | | 100 | % | | $ | 4,503 | | | | 100 | % | | $ | 4,443 | | | | 100 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows provided by/(used in) operations (GAAP basis) | | $ | 25,824 | | | | | | | $ | 12,795 | | | | | | | $ | 7,543 | | | | | | | $ | 5,486 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of shares (in thousands) of common stock issued pursuant to the Company's DRIP | | | 383 | | | | | | | | 130 | | | | | | | | 127 | | | | | | | | 126 | | | | | |
| | Year to Date September 30, 2013 | | | Three Months Ended September 30, 2013 | | | Three Months Ended June 30, 2013 | | | Three Months Ended March 31, 2013 | | Distribution period: | | | | | Percentage of Distributions | | | Q3 2013 | | | Percentage of Distributions | | | Q2 2013 | | | Percentage of Distributions | | | Q1 2013 | | | Percentage of Distributions | | | | | | | | | | | | | | | | | | | | | | | | | | | Date distribution declared | | | | | | | | | | | August 12, 2013 | | | | | | | | May 10, 2013 | | | | | | | | March 22, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Date distribution paid | | | | | | | | | | | October 15, 2013 | | | | | | | | July 15, 2013 | | | | | | | | April 15, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions paid | | $ | 10,445 | | | | | | | $ | 3,286 | | | | | | | $ | 3,595 | | | | | | | $ | 3,564 | | | | | | Distributions reinvested | | $ | 4,842 | | | | | | | | 1,532 | | | | | | | | 1,670 | | | | | | | | 1,640 | | | | | | Total Distributions | | $ | 15,287 | | | | | | | $ | 4,818 | | | | | | | $ | 5,265 | | | | | | | $ | 5,204 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Source of distributions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows provided by operations | | $ | 9,078 | | | | 59 | % | | $ | 3,286 | | | | 68 | % | | $ | 3,595 | | | | 68 | % | | $ | 2,197 | | | | 42 | % | Excess cash | | $ | 1,367 | | | | 9 | % | | | - | | | | 0 | % | | | - | | | | 0 | % | | | 1,367 | | | | 26 | % | Proceeds from issuance of common stock through DRIP | | $ | 4,842 | | | | 32 | % | | | 1,532 | | | | 32 | % | | | 1,670 | | | | 32 | % | | | 1,640 | | | | 32 | % | Total Sources | | $ | 15,287 | | | | 100 | % | | $ | 4,818 | | | | 100 | % | | $ | 5,265 | | | | 100 | % | | $ | 5,204 | | | | 100 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows provided by/(used in) operations (GAAP basis) | | $ | 15,153 | | | | | | | $ | 8,046 | | | | | | | $ | 4,910 | | | | | | | $ | 2,197 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of shares (in thousands) of common stock issued pursuant to the Company's DRIP | | | 432 | | | | | | | | 137 | | | | | | | | 149 | | | | | | | | 146 | | | | | |
Information Regarding Dilution
In connection with the ongoing offering of shares of our common stock under our DRIP, we are providing information about our net tangible book value per share. Our net tangible book value per share is a mechanical calculation using amounts from our consolidated balance sheet, and is calculated as (1) total book value of our assets less the net value of intangible assets, (2) minus total liabilities less the net value of intangible liabilities, (3) divided by the total number of shares of common stock outstanding. It assumes that the value of real estate, and real estate related assets and liabilities diminish predictably over time as shown through the depreciation and amortization of real estate investments. Real estate values have historically risen or fallen with market conditions. Net tangible book value is used generally as a conservative measure of net worth that we do not believe reflects our estimated fair value per share. It is not intended to reflect the value of our assets upon an orderly liquidation of the company in accordance with our investment objectives. Our net tangible book value reflects dilution in the value of our common stock from the issue price as a result of (i) operating losses, which reflect accumulated depreciation and amortization of real estate investments and (ii) the funding of distributions from sources other than our cash flow from operations. As of September 30, 2014, our net tangible book value per share was $12.59. The offering price of shares under our DRIP at September 30, 2014 was $11.21.
| | Three Months Ended March 31, 2015 | | | Three Months Ended March 31, 2014 | | Distribution period: | | Q1 2015 | | | Percentage of Distributions | | | Q1 2014 | | | Percentage of Distributions | | | | | | | | | | | | | | | Date distribution declared | | | March 27, 2015 | | | | | | | | March 28, 2014 | | | | | | | | | | | | | | | | | | | | | | | Date distribution paid | | | April 15, 2015 | | | | | | | | April 15, 2014 | | | | | | | | | | | | | | | | | | | | | | | Distributions paid | | $ | 4,479 | | | | | | | $ | 3,033 | | | | | | Distributions reinvested | | | - | | | | | | | | 1,410 | | | | | | Total Distributions | | $ | 4,479 | | | | | | | $ | 4,443 | | | | | | | | | | | | | | | | | | | | | | | Source of distributions: | | | | | | | | | | | | | | | | | Cash flows provided by operations | | $ | 4,479 | | | | 100 | % | | $ | 3,033 | | | | 68 | % | Cash other than cash flows provided by operations | | | - | | | | 0 | % | | | - | | | | 0 | % | Proceeds from issuance of common | | | | | | | | | | | | | | | | | stock through DRIP | | | - | | | | 0 | % | | | 1,410 | | | | 32 | % | Total Sources | | $ | 4,479 | | | | 100 | % | | $ | 4,443 | | | | 100 | % | | | | | | | | | | | | | | | | | | Cash flows provided by | | | | | | | | | | | | | | | | | operations (GAAP basis) | | $ | 4,824 | | | | | | | $ | 5,486 | | | | | | | | | | | | | | | | | | | | | | | Number of shares (in thousands) | | | | | | | | | | | | | | | | | of common stock issued pursuant | | | | | | | | | | | | | | | | | to the Company's DRIP | | | - | | | | | | | | 126 | | | | | |
Our offering price under our DRIP was not established on an independent basis and bears no relationship to the net value of our assets. Further, even without depreciation in the value of our assets, the other factors described above with respect to the dilution in the value of our common stock are likely to cause our offering price to be higher than the amount you would receive per share if we were to liquidate at this time.
New Accounting Pronouncements See Note 2 to the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been adopted during 20142015 and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations. Subsequent Events See Note 12 of the Notes to Consolidated Financial Statements for further information related to subsequent events during the period from OctoberApril 1, 20142015 through the date of this filing. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk. We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund the expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. As of September 30, 2014,March 31, 2015, we had one interest rate swap and two interest rate caps outstanding with an insignificant intrinsic values.value. As of September 30, 2014,March 31, 2015, we held various marketable securities with a fair value of approximately $145.2$146.3 million, which are available for sale for general investment return purposes. We regularly review the market prices of these investments for impairment purposes. As of September 30, 2014,March 31, 2015, a hypothetical adverse 10% movement in market values would result in a hypothetical loss in fair value of approximately $14.5$14.6 million. The following table shows the mortgage payable obligations maturingcontractually scheduled principal maturities during the next five years and thereafter as of September 30, 2014:March 31, 2015 including, the Hotel Portfolio ‘s debt of approximately $21.4 million classified within liabilities held for sale in the Consolidated Balance Sheets: | | Remainder of 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | Thereafter | | | Total | | | Estimated Fair Value | | Mortgages Payable | | $ | 51,966 | | | $ | 2,414 | | | $ | 142,110 | | | $ | 43,465 | | | $ | 25,032 | | | $ | - | | | $ | 264,987 | | | $ | 264,160 | |
Remainder of 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | Thereafter | | | Total | | $ | 52,644 | | | $ | 63,454 | | | $ | 43,189 | | | $ | 15,395 | | | $ | 1,213 | | | $ | 72,129 | | | $ | 248,024 | |
As of September 30, 2014,March 31, 2015, approximately $137.1$32.1 million, or 45%13%, of our debt has variable interest rates and our interest expense associated with these instruments is, therefore, subject to changes in market interest rates. Based on rates as of September 30, 2014,March 31, 2015, a 1% adverse movement (increase in Libor) would increase our annual interest expense by approximately $1.2$0.2 million. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ accounts receivable, accounts payable and accrued expenses and the notes payable approximated their fair values because of the short maturity of these instruments. The carrying amount reported in the consolidated balance sheets for the mortgage receivable approximated its fair value based upon current market information that would have been used by a market participant to estimate the fair value of such loan. The estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows: | | As of September 30, 2014 | | | As of December 31, 2013 | | | | Carrying Amount | | | Estimated Fair Value | | | Carrying Amount | | | Estimated Fair Value | | Mortgages payable | | $ | 265.0 | | | $ | 264.2 | | | $ | 295.3 | | | $ | 292.8 | |
| | As of March 31, 2015 | | | As of December 31, 2014 | | | | Carrying Amount | | | Estimated Fair Value | | | Carrying Amount | | | Estimated Fair Value | | Mortgages payable | | $ | 226,645 | | | $ | 229,209 | | | $ | 227,189 | | | $ | 228,261 | |
The fair value of the mortgage payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates. In addition to changes in interest rates, the value of our real estate and real estate related investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance our debt if necessary. We cannot predict the effect of adverse changes in interest rates on our debt and, therefore, our exposure to market risk, nor can we provide any assurance that long-term debt will be available at advantageous pricing. Consequently, future results may differ materially from the estimated adverse changes discussed above. ITEM 4. CONTROLS AND PROCEDURES. As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken. PART II. OTHER INFORMATION: ITEM 1. LEGAL PROCEEDINGS From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes. On January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect, wholly owned subsidiaryIn connection with the sale of 1407 Broadway Mezz II LLC ("1407 Broadway "), consummated the acquisition of aour indirectly-owned sub-leasehold interest (the "Sublease Interest") in anthe office building located at 1407 Broadway, New York, New York, (the "Office Property"). 1407 Broadway is a joint venture between LVP 1407 Broadway LLC ("LVP LLC"), a wholly owned subsidiary ofwe resolved our operating partnership, and Lightstone 1407 Manager LLC ("Manager"), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief Executive Officer, and Shifra Lichtenstein, his wife.
The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreementpreviously disclosed litigation with Gettinger Associates, L.P. ("Gettinger"). In July 2006, Abraham Kamber Company as Sublessorsublessor under the sublease, ("Sublessor"),who had served the two notices of default on Gettinger (the "Default Notices"). The first allegedour predecessor in interest that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettinger's purported failure to maintain the Office Property in compliance with its contractual obligations.
In responsegave rise to the Default Notices, Gettinger commenced legal action and obtained an injunction that extendslitigation. Effective March 30, 2015, the litigation was dismissed in its time to cure any default, prohibits interferenceentirety with its leasehold interest and prohibits Sublessor from terminating its sublease pending resolution of the litigation. A motion by Sublessor for partial summary judgment, alleging that certain work on the Office Property required its prior approval, was denied by the Supreme Court, New York County. Subsequently, by agreement of the parties, a stay was entered precluding the termination of the Sublease Interest pending a final decision on Sublessor's claim of defaults under the Sublease Interest. In addition, the parties stipulated to the intervention of Office Owner as a party to the proceedings.
On April 12, 2012, the Supreme Court, New York County decided in our favor of with respect to all matters before the Court. Sublessor filed a Notice of Appeal on June 7, 2012 and, afterprejudice. This matter has now been fully briefing the issues, the parties argued the appeal on January 30, 2013. On February 21, 2013, the Appellate Division, First Department rendered its decision largely affirming the lower court’s determination. The Appellate Division did determine that there were two 2007 defaults that had not been cured and that the assignment of the sublease had occurred at a time when defaults existed. The Appellate Division determined that the remedy for such defaults was not a forfeiture of the sublease. Instead, the Appellate Division remanded to the lower court with direction that the lower court fashion a remedy short of forfeiture. Recently, the Sublessor has sent a letter claiming that the Appellate Division order “lifted” the Yellowstone Injunction, a procedure in New York law whereby a tenant in a commercial premises has a right to stay the time to cure, and demanding a cure within thirty (30) days. We have rejected that claim because the Appellate Division decision expressly remanded the case with a direction that the Supreme Court fashion a remedy other than forfeiture of the alleged defaults, and requested a conference from the lower court. On December 10, 2013, the parties appeared before Justice James and engaged in oral argument. The court determined that Kamber failed to provide evidence of its losses relating to the prior defaults or prohibited assignment, and therefore, only nominal damages should be awarded. However, the court provided that Kamber receive one month’s ground rent plus interest accrued from 2007, an amount totaling over $1 million and a clear disconnect from the court’s intent to award “nominal” damages. We filed a motion requesting that the court reconsider its award based on the court’s own premise of nominal damages.disposed of.
On July 13, 2011, JF Capital Advisors, filed a lawsuit against The Lightstone Group, LLC, us and Lightstone Value Plus Real Estate Investment Trust II, Inc. in the Supreme Court of the State of New York seeking payment for services alleged to have been rendered, and to be rendered prospectively, under theories of unjust enrichment and breach of contract. The plaintiff had a limited business arrangement with The Lightstone Group, LLC; that arrangement has been terminated. We filed a motion to dismiss the action and, on January 31, 2012, the Supreme Court dismissed the complaint in its entirety, but granted the plaintiff leave to replead two limited causes of action. The plaintiff filed an amended complaint on May 18, 2012, bringing limited claims under theories of unjust enrichment and quantum meruit. On November 21, 2012, the court dismissed this second complaint in part, leaving only $164 (plus interest) in potential damages. The plaintiff appealed this decision and Lightstone cross-appealed arguing that the case should have been dismissed in full. The appeals court denied plaintiff’s motion and granted defendants’ motion, as a result of which all claims were dismissed on March 25, 2014. The plaintiff filed a motion requesting the right to re-appeal to the Court of Appeals, which was granted on August 1, 2014. Plaintiff has appealed to the Court of Appeals. The Court of Appeals is scheduled to hear the case on June 3, 2015. Lightstone continues to believe that these claims to be without merit and will defend the case vigorously. While any proceeding or litigation has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned legal proceedings is remote. No provision for loss has been recorded in connection therewith. As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, and we did not repurchase any shares.1933. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS Exhibit
Number Number | | Description | | | | 31.1* | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. | 31.2* | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15 d-14(a) of the Securities Exchange Act, as amended. | 32.1* | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.” | 32.2* | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.” | 101* | | XBRL (eXtensible Business Reporting Language). The following financial information from Lightstone Value Plus Real Estate Investment Trust, Inc. on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 14, 2015, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows and (6) the Notes to the Consolidated Financial Statement. |
*Filed herewith SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | LIGHTSTONE VALUE PLUS REAL ESTATE | | INVESTMENT TRUST, INC. | | | Date: NovemberMay 14, 20142015 | By: | /s/ David Lichtenstein | | David Lichtenstein | | Chairman and Chief Executive Officer | | (Principal(Principal Executive Officer) |
Date: NovemberMay 14, 20142015 | By: | /s/ Donna Brandin | | Donna Brandin | | Chief Financial Officer and Treasurer | | (Duly Authorized Officer and Principal Financial and | | Accounting Officer) |
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